tv Closing Bell CNBC December 19, 2013 3:00pm-5:01pm EST
because the show is over. we don't own any -- we own our comcast 401(k). nbcuniversal 401(k) plan. that's it. we're not trading on any of this stuff. just for fun. >> tomorrow, indeed, we'll bring those predictions for next year to you. what will 2014 look like? find out tomorrow right here on "street signs." >> thank you for watching, everybody. and welcome to the "closing bell." i'm kelly evans at the new york stock exchange where stocks not really giveling back the huge gains we saw yesterday, bill. one of the strongest rallies of the year. >> it was huge. i'm bill griffith. we are the day after the fed announced tapering will begin in january. unlike expectations where everybody thought once they start announcing tapering, the market would sell off, a huge rally. almost 300 point gain on the dow yesterday putting us in record territory. any positive close for the dow or the s&p today will be another new all-time high.
and right now the dow is higher. but the s&p is trading a bit lower. >> we should mention a lot of people are looking a t the moves we've seen in the 10-year wondering if people woke up today, realized, oh, my god. maybe tapering is tightening and stocks could have a tougher go of it. we'll get into all of this coming up on the program. also coming up, we've got two huge exclusive interviews on tap. legendary investors jim chanos and bill miller. their best ideas on a market many think is to fidefying grav >> looking forward to that. today we get an exclusive read from zillow's ceo spencer rashoff. home sales dropped in the third quarter, we saw, for the third straight month. but zillow says that home prices are still on the rise. so what happens next year as the fed is tapering, presumably yields go up on the long end of the yield curve. that has an impact on mortgage rates.
if mortgage rates are going up, what does that do to sales and home prices? we'll talk with the ceo of zillow about that. >> take a look again at what's happening across markets. s&p down by about a point. nasdaq lagging by about 11. but the dow is slightly higher here. helped by strength, for example, in a name like chevron up better than 1%. >> let's talk about where we go from here. there's the s&p down one point. we'll see if it can finish positive in record territory. joining us in on "closing bell exchange" heather hughes from sunamerica funds. eric ritoban. sam stovall. scott cavanaugh. and our own rick santelli. heather hughes, it's a whole new day. tapering is upon us now. does this in any way change your outlook for the markets and the way you want to invest right now? >> hi, bill. yes. so global central banks over the past five years, we've pumped nearly $12 trillion into the financial system, right? we're way over this past is it
now or never, can we deliver these results? so money managers will eventually learn to live on less liquidity right now. wobbling is common when you think of this easy money crutch. we're getting off of the crutch. but are we really? because we're still expanding our balance sheets at a rate of $75 billion a month. so perhaps we're really not pulling back on stimulus. $10 billion out of $12 trillion, not that much. >> you got to start somewhere, though. >> true, true. good start, yes. >> that's how things certainly looked yesterday. a lot of people liked the fact the fed said they're going to be accommodative well after the unemployment rate fell to 6.5%. scott, i wonder to some extent if investors didn't wake up today, go wait a minute. how do we trust, for example, that this isn't -- that this doesn't amount to a tightening? hat tip to craig who's pointing out the expectation for the first fed funds hike has actually moved up. you know, what happens with forward guidance next year? it remains to be seen and the
10-year keeps drifting up towards 3%. >> yeah. i look at it and say, look, i think the fomc tried to make it extremely clear that they expect to keep rates at extremely low rates through 2015. they made quite a bit of changes in their statement. i think they made it about as clear as they can that they don't expect to have short-term rates change any time soon. it is interesting to note that intermediate rates or the 10-year, spreads are fairly wide. and i think it's been well behaved so far. >> eric and sam, both your organizations had rather bullish calls for the stock market for next year. does the tapering now change any of that? let me start with sam stovall. what about your forecast for next year? >> hey, bill. our forecast is for, actually, more like a middle single digit advance.
1895 is our target that our investment policy committee has placed oen the market for next year. i think one reason is because we're concerned about the timing of what we regard as an overdue correction. if we get it out of the way early on, then certainly that gives us time to post a positive full year. because it takes on average about four months to get back to break even from suffering through a correction. >> you're not changing anything right now because of the "t" word being used? >> that's correct. our chief economist has a better batting average than ted williams. 2 for 2 saying no tapering september, tapering in december. >> eric, what about you guys at russell? >> we haven't changed it. we actually see yesterday's news and the reaction as good news is good news. our expectations for next year, similar to sam's, is about a 7% total return on equities. about 5% price appreciation. 2% dividend yield. we're going to actually have to see the economic data be good next year. we're expecting about a 3% growth rate.
real growth rate here in the states. about a 2% inflation rate. if earnings just keep up with nominal gdp growth, earnings growing about 5% plus the 2% yield we think that's a really good estimate for what you're going to get out of equities next year. >> eric, you're not worried about this line from adrian miller going back to this point here that someone woke up the bond market vigilantes today and after the party yesterday now the hangover is starting to set in? >> i'm not sure eight basis points of yield rise on the 10-year represents a massive uprising of the bond vigilantes. i think the reality is that we're also pumping a lot less supply in from a federal government standpoint. we're actually issuing a lot less debt. if you look at it, we're still buying a very large percentage of the new debt issuance. i don't think we're going to see the 10-year misbehave. 3.2, 3.3 the end of next year is a pretty good expectation. >> we'll get rick to weigh in on
that. gold hit a three year low today. does that all fit the scenario here? >> yeah. well, the gold -- >> i'm asking rick. i'm sorry. i'm asking rick santelli. i'm sorry. >> oh, i'm sorry. listen, in terms of gold, there's a lot of year end, there's a lot of profit taking, there's a lot of tax issues. there's margin issues. and the fact that when something is falling like an anvil, who wants to be the first guy to put his hand out to catch it? when it comes to interest rates i would counter with our guest that 100 basis points in a 5-year since may is something to consider. i think the most important aspect of today is certainly not the eight basis points or the 10, 11 basis points in 5s. it's the fact we have some yield curve flattening. why is it important that 5-year note rates are moving up faster than the long end today after what happened with the fed yesterday? because the long end in my opinion pushed the fed into they need to taper or lose control of the market. if the microphone doesn't work, their control doesn't work. to see shorter maturities starting to buck the fed when
they promised, you know, boy scouts honor they're going to keep short rates low for a long time, to see a 5 year performing aggressively with higher yields is something the fed ought to pay very close attention to. >> i'm so glad you made that point. there are people who've been watching the 5-year and the way it's gyrated and said, look, if this thing starts to get up towards 1.8% maybe, this is some of the guys over at bamel, maybe that's indicate the fed is losing control here. do you think that's overstating it? >> i think it's overstating it because the steepener has been such a successful, profitable trade for 2013 that this could be year end activity and adjustment. but it's certainly something to monitor going into the first quarter of '14. >> heather. >> mutual fund bond outflow 73 billion through november year to date. when you think of, yeah, that's a big number. when we think of, okay, where are we since five years ago? 1.3 trillion was pumped into the -- into fixed income funds. so 73 billion year to date. we still have a long way to go.
that may also bode well for stocks in 2014. >> are you -- let me ask you. i'll just ask you point-blank. are you forecasting a much higher stock market for 2014? you have been a little skeptical of the market here. waiting for a correction of some kind. >> yeah. i think that the way that the market reacted, even though it's only at 10 billion and we don't want to use that "t" word anymore, i guess, the market seemed to digest this news okay so far. it may be a sweet spot for equities given the low but rising rate environment. you have low inflation and improving macroeconomic data. the federal reserve we know is committed to keeping the short end of the curve, the federal funds rate, low for the foreseeable future. zero. rate is at zero. >> eric, your favorite picks in this space? in equities? >> well, we actually like health care and our managers have been selling off consumer discretionaries. we were overweight for much of the year in that. we've reduced that overweight.
we're buying energy stocks. because we think the disproportionate penalty has been taken out on energy stock prices. hopefully the price movement we're seeing in some of those integrated oils today is a sign of things to come. >> look at what's happening with chevron. explain what is to come. what is happening today in the space that tells you what's happening in 2014? >> we just think too much cynicism has been priced into both oil and, frankly, the energy companies as a whole. we think their probability pictures and relative attractiveness -- in an improving economic environment will be rewarded in 2014. >> all right. thank you, folks. if we don't talk to you later, merry christmas. see you later. >> merry christmas. heading toward the close. about 50 minutes left in the trading session. what did art say? the bias is sort of to the buy side here. very small. >> about 100 million potentially on the sell side. >> very small. the dow is up eight points. s&p down about a point. we'll see whether both can finish higher at record highs.
how are some of the nation's biggest money managers investing now that the fed is easing off the gas pedal? coming up we'll hear from jim chanos and bill miller. also, the average cost for a family of four to attend an nba game is more than $500. and to attend a knicks came here in new york an astounding $1,300. is it now flatout unaffordable for regular families to attend games? or is an improving economy helping that sticker shock? outgoing nba commissioner, about to retire nba commissioner, david stern weighs in next. you're watching cnbc, first in business worldwide. americans take care of business. they always have. they always will. that's why you take charge of your future. your retirement. ♪ ameriprise advisors can help you
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welcome back. market not moving nearly as much as yesterday. that doesn't mean certain stocks are not on the move. dominic chu has some of the names for us. >> thanks, bill. we're going to begin with target which is moving lower after the company said hackers might have stolen data from some 40 million credit card and debit card shoppers who visited the store
in the first three weeks of the holiday shopping season. watch those target shares. also darden restaurants lower after the company said quarterly profits fell 41%. it also said it would spin off or sell its red lobster restaurant chain. then there's facebook move to the downside here on news the company was offering 70 million shares of stock in a secondary stock offering. this include 41 million shares for sale from founder mark zuckerberg who's going to use the money in part to pay his big tax bill. carnival cruise lines gaining ground after posting a small but surprising fourth quarter profit after it tries to turn around its image after a series of mechanical problems and fires on three of its shipping earlier this year. a good day for conagra after the footd maker posted better than expected quarterly earnings and sales and reaffirmed its guidance for fiscal 2014. lots of big stocks on the move today, kelly and bill. over to you. >> thank you, dom. david stern took the reins of nba commissioner nearly 30 years ago. as its chief executive he's delivered pretty handsomely for owners. the collective value for teams
in his tenure has risen from $400 million in 1984 to $12 billion today. >> it's unbelievable the numbers and how they've expanded. the league itself is expanding globally. that's been a big focus for david stern. as he prepares to leave his post in february what is next for the nba? joining us once again is -- we'll say it one more time. nba commissioner, david stern. i remember when you took over for larry o'brien. those many years ago. are you sad that you're leaving or are you -- can you not wait to hand this off to adam silver at this point? >> neither. i'm looking forward to the continued growth of the nba. you'd get me fired if i weren't leaving for undervaluing our teams at $12 billion. it's well over $20 billion. >> really? >> and the nba is in the midst of an extraordinary growth spurt. but the best may yet to come. because we've got the digital world where the nba is at top. we've got globalization where our games are seen in 125
countries and 43 languages. and we've got a new network television negotiation coming up. so it's just going to keep getting better. >> by the way, that was forbe's that attached the $12 billion price tag on your teams out there. just so you know. >> do you believe everything you read in forbe's? >> i believe everything steve forbes tells me. everything. >> okay. that's different. >> you mentioned some of the expansion. you've had the wnba. you're now in a bunch of different countries. but the network agreements or what happens next with who carries the nba games is going to be closely watched. what are some of the new partners or new way we'll potentially be watching nba in the future? >> well, i think that we've done very well with espn, abc and turner, a division of time warner. so we'll let commissioner silver and the owners decide that. but since that time, the streaming of our games, league pass broadband, has been
terrific. so that we stream not only here but we stream a game a night in china. we stream all over the world to smartphones. so i think we're seeing a move to digital distribution. >> you know, during your tenure, 30 years, we've gone through a period not just for basketball, but for all sports, where it seems all the numbers on the front page of the sports section have dollar signs in front of them. they're not just sports scores anymore. it's so apparent that all of the major sporting leagues are businesses. ticket prices have gone sky high. you know, the league's salaries have gone sky high. is that a good thing or not here, david? >> i'm not going to say it's good or bad. i think i paid a lot more for my second house than i paid for my first. if i went back to buy my first, i couldn't afford it. i now pay more for a car than i paid for that first house. is that good or bad? that's life.
>> are you pricing out the average fan? not just you, but other sports as well. where we cite those ticket prices and what they are to help pay for the higher costs, right? >> yeah. i think -- i think you're teasing out bad numbers. the first one was from forbe's. i think this one was from another report out of chicago. if you want to come to a game, there are plenty of tickets. don't average out prices using the court side ones of $3,000 and the upstairs one of $30. i mean, there are -- >> we can quibble over $10 or $20 here or there. the point is that the prices have gone up as much as they have. i don't know what the inflation rate is. but i would be willing to guess it's higher than the average inflation rate in our economy today. whereas salaries have not gone up. so you do have the average fan who finds it more difficult to afford to go to a game these days. >> the average fan has been provided for in the less expensive seats. and the average fan now can get
every game on television and here's a secret. most fans don't go to games. they watch them on television. and we felt the imperative was to make sure our games were distributed to the widest possible audience. the ticket prices are set by the arenas based upon something which cnbc is very familiar with. it's called supply and demand. >> yeah. we know a little bit about that. david, i'm just curious. i mean, the influence of gambling on sports. there have been a lot offish shoo us with the nba over the years with referees. now the nfl. it's one of those kind of 800 pound gorillas in the room no one really likes to talk about. what do you think should be done? should it all be legalized and institutionalized? or is it still a problem that needs to be stamped out? >> i -- i don't think it's an enduring problem. i don't think that institutionalizing will have an influence one way or the other. i think the broader issue is that because the states and the federal government are so hungry for additional resources, that
there is this movement towards legalizing gambling on sports. how that ultimately comes about if it does is a subject of great interest to me. because you can't have 50 states rushing out to tell their citizens that they should bet the grocery money to make a bundle on sports. >> last question. salary cap. i know you're in favor of it. are we to the point now where we've gotten a little -- should it be moved higher or just e limb na-- eliminated altogether when you have a disproportionate number of players go to the higher value teams there. the teams who can't afford it aren't feeling a winning team these days. is a salary cap a good idea in today's supply and demand economy? >> bill, that question is from a decade ago. you should talk to your -- your
production assistant. the fact of the matter is that the salary cap is set by overall league revenues. you take the full amount of the league's revenues. you divide it in, let's say, half because the players get 50%. that moore or less for this program is the cap. as the money goes up, the revenues go up, it goes up. and there's revenue sharing so that because of the cap, the largest teams with the most money cannot spend unlimited sums. they're limited by the cap and they have to pay money to their fellow teams, those large revenue teams, to help them with revenue sharing. so, in fact, the cap is absolutely important to competitive balance. >> i'm not done yet. the lakers just re-signed kobe. he is now 37% of their salaries out there, of their payroll. >> exactly. >> they can't afford to field a team around him right now because of the salary cap. is that fair? >> right. but your question had to do with the lakers have too much money
because they're in a large market. you know, you can't -- you got to pick your poison. the answer is that's fair. that's a decision that intelligent business people have made. that's what the cap is for. at the same time, the teams that are in first place or have the best records, oklahoma city, san antonio, indiana, even miami is in the lower 16. the fact of the matter is the salary cap is making the system work. that's a choice that kobe and the lake hers have made. i wouldn't write the lakers off so quickly. i think they have a pretty decent roster and it's probably going to get better. >> once a lawyer, always a lawyer. we wish you well, david. thank you. >> thank you so much. >> you know, thank you. i'll come over and help. >> thank you. we've got about half an hour to go before the closing bell. the dow is still about 15 points up. s&p and nasdaq slightly weaker. facebook shares under pressure as that company now announcing it'll sell an additional $70 million new
shares in a secondary offering. funder mark zuckerberg will be selling millions of his own shares. if zuck is selling should you be really buying? coming up next. also ahead -- >> one or two had the kids -- to instill in them there is, in fact, no such thing as a free lunch. or maybe sweep the floor in the cafeteria. >> a prominent republican congressman saying more kids need to learn there's no such thing as a free lunch. what do you think? should kids in school have to work for their lunch? tweet us @cnbcclosingbell. your responses coming up. ♪ [ male announcer ] if we could see energy... what would we see? ♪
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welcome back. lots of news on facebook today. the shares, though, mostly lower as they digest it all. down better than 1%. what's going on? >> facebook shares down about a percent right now. as much as 2% earlier in the day. all thanks to insiders selling shares. the company announced it will be undertaking a secondary share offering, offering up 70 million shares worth nearly $4 billion. amongst the sellers, ceo mark zuckerberg. he will be selling about 40 million of his own shares worth more than $2 billion. the company was very quick to message it properly. they pointed out that zuckerberg will be using the proceeds for tax issues. also will be donating a chunk of it to charity. basically saying, look, he's not cashing in and pocketing the profits.
a lot of people saying facebook's timing is spot on for the secondary. look at the shares. they have doubled over the past year near an all time high. the big news, the company is joining the s&p next week. there's going to be a lot of natural demand for the shares. bill and kelly? >> all right, sheila, thank you very much. the question is, if zuck is selling should you be buying facebook right now? >> with us no u, dennis berman from the "wall street journal." and rob morgan from folcram securities. dennis, is this a catastrophe for facebook here? >> i love it when you're a little facetious here. obviously down 1% says the market feems pretty comfortable with the secondary. as sheila mentioned, great time to sell shares. market really powering through. s&p 500 index fund demand going to come to these shares. but i think we need to think about where is this company heading? how is the momentum for the company? i'd say right now, kelly, it's pretty darn good. they've got the momentum. mobile as. they've got the momentum on market share amongst marketers. their targeting is getting
better. if you were to use it, you would be shocked at the way they could target individuals. and beyond that they've got instagram which they're developing into a business, too. right now i'd say the momentum is pretty good and the market's reflecting that pretty closely. >> all good points. rob, you think the stock is too expensive at this point, right? >> yeah, i do. i do, bill. not only too expensive, but i think -- dennis hit on some good points there. but some of those revenue growth strategies are -- are a little bit murky in my book. but let's start with valuation. selling at 53 times forward earnings. that's a huge multiple. dennis talked about the fact that the mobile strategy has momentum. it's not really necessarily a growth strategy, though. it's more a client retention strategy. from a -- and he also mentioned that from a targeting standpoint, they are getting better. but it's a really tough spot for them. they're closer in revenues per user to yahoo! than they are to google. they're just not leveraging.
for those that might say that people are just going to continue to pile on facebook, well, they're are probably clos to 1 in 7 people on the planet already use facebook. they're reaching saturation level. >> dennis, what about the fact this is more than just selling. this is mark zuckerberg working down his stake in the company. mark an dreeson reducing its by better than a third as david menlo points out. is there something to be said here for a strategic move for these guys out of this investment? >> well, i think they're taking stock and they're stiting down with their lawyers, kelly. they're saying we want to take some money off the table. is now a good time. categorically, yes. is that a lack of confidence in the company? it's hard to draw inferences from these moves. if there were more true institutional selling from the core of venture backers i think i'd feel that way more. but, hey, to address the previous points, i'd say this. which is that, yes, maybe the --
per user is equivalent to yahoo!. there are close to or over 2 billion people on the platform. it's a force that can't be ignored. it's a board advertisers have to relate to. >> everybody loves to talk about it. good to see you both. dennis, long time no see. see you later. i haven't been on facebook today. supposedly the videos were supposed to start. video ads. >> i haven't been on either. what does that tell you about user engagement. >> i can't wait to see those video commercials. right now down a point on the dow. very flat. this feels like the day before a fed meeting, not the day after a fed meeting. >> exactly. by the way, existing home sales also falling to the lowest level in a year. so is the real estate rebound running out of steam? coming up next, ceo of zillow joins us exclusively. crispy creme delivering sweet returns for investors more than doubling in the past year. ceo james morgan lays out his strategy for keeping this sugar high going later on the "closing
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interest rates hitting the housing markets? >> i don't know if you want to say finally, bill. they have been for several months now. combine that with higher home prices. home prices rising so far, so fast they managed in november to push existing home sales down 4.3% month to month. but the bigger deal was the fact that home sales were actually down year over year for the first time in 29 months. down 1.2% according to the national association of realtors. the realtors are blaming this on -- some of it, at least, on the government shutdown in october. but most of it is that tight supply and higher prices. the median price up 9.4% annual. but that's actually down a bit. it's the first single digit annual jump that we've seen all year. inventories were down 1% month to month but up 5% year over year. that helps a little. you don't have to look far to see that price effect. the hardest hit region that is the west where sales are down monthly and annually. prices are up over 16% from a
year ago. sales down 12% in california alone. now, one thing is that this market is still dominated by cash. over one-third of the market which is extremely high according to historical standards, and in some cases we're actually seeing over 50% or 60% of certain markets in all cash. that's keeping things very dicy right now, guys. >> yeah. certainly is. diana, thanks very much. diana olick with a look at the housing market. let's get more on what's happening here. a different take, in fact, from our next guest. >> he's spencer rasco, ceo of zillow, online real estate marketplace. spencer, welcome back. first of all, do you think we have seen -- a naive sounding question. have we seen the bottom in mortgage rates at this point? >> yes. i do think we've seen the baottm in mortgage rates. >> a good thing or bad thing? >> depends on your perspective. if we tack the longer term view they're at about 4.4%. probably increase to 5% in 2014. still historically very low. but mortgage rates are going up. the silver lining is credit
availability will probably improve. because as banks need to replace the lack of refi businesses, mortgage rates go up, that will allow them to give more credit. that's the silver lining as mortgage rates tick up. >> true. i guess a lot depends as well on how the economy more broadly is doing. but, you know, the positive sign, i guess, spencer, is home prices keep moving in the right direction. people feel like if they don't buy now rates and prices are only going to move higher. is it your expectation 2014 is a year we continue to see national home price appreciation? >> diana's analysis is correct as usual. what's happening right now is the housing market that was on fire is now shifting to just hot. let me give you some numbers. from peak to trough after the crash, home values declined by $6 trillion. this past year home vams increased $1.9 trillion. in total we've come back halfway toward the peak.
gained 3 out of the 6 trillion we lost. what's happening is the rates of appreciation are slowing. that's actually, as counterintuitive as it might sound, that's actually a good thing. the housing market is shifting from kind of this too far, too fast situation to something that has a better foundation for a longer term recovery. at zillow, anyway, we're actually kind of encouraged to see some of the data sort of slowing down a little bit. it means a more sustainable recovery. >> one variable we keep hearing about anecdotally over the last few years is the reluctance on the part of lenders to lend. you know, either because of all the paperwork involved, the regulatory, the capital requirements being imposed by the federal government or whatever it is, do you sense that there's a thaw going on? is that still going to be an issue for potential home buyers next year? >> it's an issue compared with where we were in the bubble. so just to keep things in perspective, if you have good credit and you can put 20% down, you can get a loan in this country. and, you know, it was like that before the bubble as well.
what went away was what happened during the bubble period where people that didn't meet those criteria could also get a loan. credit availability, yeah, it's tighter as compared with 2005 to 20 2007. on a historical basis it's pretty much a reversion to where we were prebubble. >> can i toss you a quick one? i'm curious about zillow itself. when you look into the consolidation that's happening across the space, you guys have an incredible business model, but a lot of people are also trying to do this kind of mobile, online home valuation thing. does that mean that you have to acquire or be acquired in the years to come? >> well, we like our stand alone path very much. we have grown significantly through the course of 2013. so we're by far the largest real estate site. we're doing a lot of things right by focusing on the consumer. the 60 plus million people that use zillow every month. i like our -- i like our prospects right now. >> all right. spencer, good to see you. thank you for joining us today. >> thank you for having me.
>> spencer rascoff, ceo of zillow. we've got about 20 minutes left before the close. dow adding about 13 points. we should say, bill, while it's not a big move, at least for the dow, it will be a new record high after that 300 point move yesterday. >> assuming it finishes higher. even after yesterday's monster rally, no big pullback today. how is this for an unwelcome christmas surprise? hackers may have stolen credit and debit card data from 40 million target shoppers. they're not the first retailer to have this happen. it isn't even the biggest breach we've ever heard of. but do these incidents ever have a long-term effect on the stock? we'll look at that coming up. also, google not the only major company getting into the robot business. yes, we're the first tv network allowed into intel's robot lab. we'll give you an inside look at what the chip maker is up to later on the "closing bell." keep it here. ♪ i wanna spread a little love this year ♪ [ male announcer ] this december,
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[ male announcer ] this december, experience the gift of unsurpassed craftsmanship and some of the best offers of the year at the lexus december to remember sales event. this is the pursuit of perfection. target shares have been under pressure all day after revealing data from 40 million credit and debit cards may have been stolen. >> down better than 2%. mary thompson taking a look at exactly what happened and whether it spells trouble for target's stock after today.
mary? >> hey there, kelly. there's been plenty of trouble at target today. a flood of inquiries crashing its credit card site. the phone line that fields calls from clients is overwhelmed. it's not picking up right now. target is working to resolve these issues having resolved the breach last sunday. target didn't say how the breach happened, only that it occurred over a 19 day period when hackers accessed data gleaned from the debit and credit cards used by shoppers at target's 1,800 stores. online customers not affected. target says up to 40 million people's names, card numbers and card expiration dates and security codes could be in the hands of hackers. security experts call this track data and because it can be used to make fake cards, it fetches three to five times more on the black market than data pulled from an online purchase. target's troubles echoing those of tjx companies. back in 2007 data for over 90 million of its tj maxx and home goods customers was compromised. initially it caused the stock to slide. it's had little impact since then on long term performance.
shares up more than 330% since '07. still, given this is happening at a critical time for retailers, the impact on target could be a little more long lasting if consumers decide to shop elsewhere during the last minute christmas rush. back to you, bill. >> mary thompson, thank you very much. heading toward the close. 15 minutes left. art cashin just telling us if anything the bias is to the downside. $500 million worth of stock for sale at this point. the dow is higher. that would give us a new all-time high. the s&p, though, down a point right now. >> the nasdaq off by 11. coming up, a pair of exclusive interviews you can't afford to miss. famous short seller jim chanos telling us whether he's betting against this market now that the fed has started tapering. legendary portfolio manager bill miller with a glimpse of where he's putting money to work in this market. all ahead in the next hour of the "closing bell." announcer: where can an investor
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about 12 minutes left here. it's going to be a squeaker whether we finish higher or lower. the significant would be any higher close for both the dow and the s&p would be new all-time highs again. but we have not seen a big pullback from yesterday's big rally, which is interesting. we're down just a fraction on the dow. down about two points on the s&p. joining us, nicole erkin from
thestreet.com and j.j. burns. no big selloff today. that rally, i guess, was for real? >> yeah. certainly we didn't get the big rally that we had yesterday. we had a little bit of a consolidation. but, yes, it seems to be for real. >> were you surprised it even rallied when they started talking tapering? >> i expected that. we obviously had a lot of talk of expectations on the taper. we had the interest rate longer term discussion. so i think that helped. i think that a lot of that was priced into the market. also the news is behind us. now we can move on. we can move on to santa. we can move on to 2014. i think that's very important. >> what do we do now, j.j.? do you change your investment ideas now that we know that the fed is going to be raising long term rates next year? >> i think we continue to build these castles in the sky in certain sectors of the market. more importantly, i think what people are realizing right now is it's going to be a little bit harder to figure out what the macro picture for a lot of these companies is going to look like
going forward. and where are the great investments going to be? we go back to the days, bill, i date myself, it's going to go back to the days where we were when e.f. hutten was in the business. it's going to be the motto of we're going to earn our money in order to make investment decisions right. i think that's where we're going to be going in 2014. >> easy money is over at this point. >> easy money is over. we're not going to see 25%, 30%. by the same token, we've never had a period in history in six decades where a market has not returned positive numbers in the foregoing year, preceding year going to 2014 as it did with such a huge year in 2013. >> a good year usually follows a great year as they say. >> right. >> you're buying so-called late cycle stocks right now. >> yes. >> why? >> all day everyone's been talking about the financials. of course, they're key beneficiaries of taper. but the industrials. key cyclic cal global growth names are key. late cycle names like honeywell and eaton are well diversified
across early, mid and late cycle are really important. we've seen with the residential recovery names that you needed to buy before we got the good numbers. that rally has been over. that's important to keep in mind for the late cycle names. >> financials had been rallying even with the quantitative easing and the record low rates and so forth. why would we -- i know that they benefit when the yield curve goes up and you've got the better loan ratios. >> yes. >> why would they expect them to go up even in that environment? >> like you mentioned, the yield curve steepening is important. an improving economy is key for financials. they'll all benefit. also we're going to see the financials returning more capital to shareholders. more buybacks, more dividends. that's very important for the group. that's not really priced in yet. >> it's also going to take off globally. the companies you're mentioning right no u, they're really globalized companies. we're going to see the tail wind from europe which is improving economic conditions foster more growth. and typically we might see the european sector, the emerging market sector get into maybe a double and triple to catch up to where the american stocks are
right now. there's a lot of opportunity in the emerging market debt. and, remember, don't ever forget that the most boring investment like bonds and municipals is going to probably work really well in 2014 with higher tax rates. >> i was just going to bring up the high dividend payers which was such a darling of investors for the last couple of years. is that still going to be the case? >> yeah. i think that's not as well positioned. obviously we have rates low. i think -- sorry. rates rising. that will be more competitive. i think if you're looking defensive look to some of the larger cap biotechs that have growth but are more defensively positioned like celgene, gilead. jim cramer has talked about those on "mad money." if you're going defensive, go biotech. i wouldn't be a buyer of dividends. >> quick point. cancer is becoming a chronic condition. it's starting to avoid the terminal condition. right into the play of biotech sector, i totally agree. >> very good. see you both. thank you for joining us today. we'll take a break in a moment. first word of insider trading scandal involving microsoft.
dominic chu has been working on this story. what did you find out? what's going on? >> sure, bill. what we have is the s.e.c. charging, alleging that a microsoft senior manager, brian jorgenson, allegedly was involved in insider trading. the s.e.c. alleges that brian jorgenson who worked in microsoft's corporate finance and investments division tipped off a friend, shawn stowky, in advance of material nonpublic information. the s.e.c. cites three separate instances of this alleged insider trading that netted approximately $400,000 in these profits. so as you go through with microsoft, they have gotten back to us with a comment. they did say, microsoft spokesperson saying to cnbc, our company has zero tolerance for insider trading. we help the government with its investigation and terminated the employee. again, that was microsoft's statement to cnbc. again, the s.e.c. alleging insider trading involving two people in microsoft shares.
one of which was a microsoft senior manager in corporate finance and investment division. bill, more details as they become available. for right now keeping an eye on the headlines. >> stock down a percent coming off its lows. we'll take a break. come back with the closing countdown for this thursday. then after the bell -- >> why don't you have the kids pay a dime. instill in them there is, in fact, no such thing as a free lunch. maybe sweep the floor of the cafeteria. >> the question is, should poor kids really be forced to work in order to receive the free lunches at school to learn the value of work? we want to know what you think about congressman kingston's comments on that. tweet us @cnbcclosingbell. stick around to see the best responses coming up. you're watching cnbc, first in business worldwide. it raises the price of fishmeal, cattle feed and beef.
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long-term rates and maybe the 10-year, maybe 3.5%. that's a number you're hearing a lot lately. look who i found on the floor here of the new york stock exchange. >> just bumped into each other wandering around here. >> we didn't get a big pullback from yesterday's monster rally. >> the fed's done a great job convincing everybody there is very little risk in the market in the short term. we've got a minor taper. very dovish language. i've been pointing out all day long the volatility index which measures fear in the market has not only been not going up, it's been going down. and it's been flat today. it's rather remarkable. traders believe that for at least the next month or two there's very little risk. the budget deal, the deal yesterday, the story yesterday with the fed, has taken a lot of perceived risk out of the market. >> now, tomorrow we have an options futures expiration day. a big one, as a matter of fact. we could get some volatility here. >> three events. there's an options expiration. there's the s&p 500 which is rebalancing. that happens on a quarterly basis. >> wow. >> facebook is going in there as well. and we've got the nasdaq
rebalancing. this only happens once a year. principally it's about the nasdaq 100. all those people that are indexed to the nasdaq 100, you can own an etf of that, they have to rebalance that index. >> like a perfect storm tomorrow with all those things happening. >> we could have easily the biggest volume day of the year. in fact, we might have the biggest volume day in several years. it's very rare when you get this confluence of three of these events all coming together. all this will happen towards the close. you'll see very heavy volume throughout the middle of the day as indexers try to rebalance it. basically play the game ahead of the very close. the indexes have to buy essentially at the close right now. >> the guys, are they talking about this was a real rally yesterday? was it a one day wonder? i mean, the fact that we aren't pulling back today? >> i think the debate is whether or not they have taken something away from the santa claus rally which traditionally occurs during the last few days of the year and the first two days of january. that's an interesting debate. i'm more interested in earnings right now. i see earnings season so far not bad. minor revisions. the one exception is the
retailers. they're having a tough time. >> fundamentfundamentals. what a concept. thank you. see you later. we are getting a little buying here. the dow looks like it will finish positive. we'll get an all-time high there. watch the s&p. we're only a fraction from unchanged. we'll keep an eye on that as we head into the second hour of the "closing bell" with kelly evans and company. i'll see you tomorrow. and welcome to the "closing bell." i'm kelly evans on this day where the dow has closed a t another record high, believe it or not. adding a up canle of points it looks like in the home stretch. here's a look at how we're finishing the day on wall street. dow up 9.5 points. 161777. nasdaq giving up ground. s&p 500 probably the best general tell is slightly weaker on the day after a historic rally yesterday. we need to talk about that rally and what it means today. where we stand with the federal
reserve. let's bring in today's panel. our own eamon javers in town from washington. welcome, eamon. >> a rare treat. >> a treat for all of us. kayla tausche with us, cnbc contributor zachary carabel and d dani hughes from divine capital. did you get the sense people were waking up and saying maybe everything isn't as great as it seemed 24 hours ago. >> what the heck happened? it was in the last two hours after bernanke came out with his everything's going to be okay. we are going to taper. however it gave people a sense of certainty, i think. i think that's what everyone was waiting for for a long time. we did interestingly see a spike right before he came out with that interesting note. big spike in the price. then came off. then continued to go up about 300 points. but we had some follow through today. not the volume we'd like to see. we did have follow through. >> what told you it was follow through? in other words, people weren't totally spooked. they sort of said, well, all right, the outlook is evolving
but we're not going to freak out. >> we didn't have the gap. we didn't have the gap the next morning coming in where we'd be down 100 points like you'd normally see on an up gap day or down gap day. we didn't have that at all. i think people liked to see that. >> mr. carabel? >> more interesting, what happened with interest rates. the stock market is always just a derivative of whatever is going to happen with interest rates aened the fed program. you had that huge panic in may and june. interest rates spiked. up to 3.5% whatever. everyone thought, of course, when taper ends you're going to see this wide rise in yields. at least -- this is two days. let's not overdo our -- and we're on television. nonetheless, you've not had a bond market reaction that has said this is the reason for low rates. and i think, you know, we're going to see what's going to happen over the next 12 months. there are a lot of reasons you can say there are low global interest rates other than what the fed has been doing. >> so you're suggesting -- dare you suggest this isn't all about the fed? >> i am dare suggesting it's not all about the fed. i am trying to get really
aggressive comments on twitter. >> supportive tweets. >> the reality, look, the bond market was being moved by traders in may and june who simply assumed that easy money was leading to low yields. but there's a lot of wealth being created out there in the world. >> yep. >> we live in a global financial market where rates are not just set by the fed. and i think you could well see yields very much like this a year from now. >> the same goes for the stock market, too. because everyone said, oh, the taper is already priced in. then yesterday people said, oh, no, it's not priced in because the stock market rose 292 points. actually, we have the big rebalancing on the index and s&p on friday. >> that's true, too. >> big expirations. a lot of people who are taking off on friday, not us, but they were getting that out of the way. once they saw what the fed was going to do, then they knew it was safe to move. they started rebalancing their portfolio. that's why we saw the heavy volume and the big move there. >> eamon? >> i'm fascinated by ben bernanke's massive jedi mind trick. fascinating moment in market psychology. we saw the big surprise in
september. we come to december. it is a surprise. bernanke got the favorable reaction he really wanted. you wonder how much ground work did he lay in terms of expectations management to make sure that went off without a hitch the way it did? i think people are going to be going back and unpacking this for years as sort of a master class in how the fed can set expectations for what it's going to do and then just nail that sweet spot so he gets the kind of reaction that washington really needed to have happen, too. >> sure. what's interesting is to go back and if you look almost at like the time frame of market psychology, the initial reaction in the market yesterday was a selloff. you know, then -- rates had spiked. then for the next through the close, people said, well, never mind. they're talking about forward guidance and the unemployment rate and inflation still really low. he brought that up time and time again. so maybe, in fact, this is a form of accommodation. then it feels like we wake up today and we're back where that initial knee jerk reaction to some extent was with the 10 year over 2.9%, zach, to your point. the financials -- the whole world, the reits, the rate
sensitive parts of this market trying to figure out, well, maybe tapering is tightening after all. >> they read initially that the fed was going to pull back on i wants bond buying program. once they saw it's only going to be 10 billion and they're actually going to keep short term rates lower for a longer period of time than originally thought -- >> is that a tepid taper? >> a tepid taper. >> let's be more -- >> taper tantrum was on the "usa today" cover. >> there are more unemployment claims and housing sort of underscoring the -- indeed while this may be the time to become a little less easy in your policy, it is hardly the time to become tight. >> sure. kenny polcari joining us off the floor. there was selling pressure it seemed late in the session today. what jumped out to you today about the action. >> i'm trying to jump in here. really what you heard yesterday, what you really saw yesterday was on the initial release of just the headline, you saw the market start to sell way off.
it went right down to the 50 day moving average. where then everybody started, the fed, banks all started jumping in. then they started to leak out what it really meant. what was the sugar that was going to go along with that headline. what did they really say? we're not going anywhere. okay. we took 10 billion off the table. guess what? we're keeping rates so low as far as you can see they're never going up and boom. they took the market right back up to resistance. 1811 and bang it stopped. nearly highs. that's exactly what you saw today, right? really what you got is you got us right back to where we were. there was nothing really new. fed hasn't gone anywhere. accommodation remains. they're not running out the door. they made that very clear yesterday. >> right. >> today what you had was this churn, right? what's really changed? nothing. we're right at the highs. there's no reason necessarily to sell it off at the moment. budget battle is quote, unquote, done. >> everything's coming up roses, dani. >> what it's going to really do is take us right back to where we are. exactly what we did today with no volume and no activity. >> good point. dani? >> kenny, that's exactly what we
want, too, don't we? we want to be sitting on this market and close at the very high end of where we've been all year. >> right. >> i think everyone in terms of individual investors, institutional investors, are going to be very happy with that scenario. >> i think what they're going to do, what they're going to try to do over the next eight days is keep the market right here. from a perception point of view, closing at 1800 or above is better than closing at 1795. all about the perception. >> yeah. that's an interesting point. i want to get everyone's reaction here to a remark -- if we can play it here from blackstone ceo steve schwartzman. this morning he was sitting down with andrew ross sorkin talking about the disconnect perhaps between this market and the sundaymental econo fundamental economy. take a listen. >> it seems low probability markets continue going up at 27%. when you actually, andrew, have an economy that grows at 2.5%, 2.75% and a stock market that
grows up 27% seems to somewhat disconnect it. >> what do you make of that? >> all due respect, a thing people say when they want to aggressively disagree politely, the reason stocks are up is in part companies are not tethered to national economies. i have been pounding the table on this. i'll keep saying it. it's clearly not sunken in. if you are a global company, even if you are a large u.s. multinational you bear very few of the costs that a nation which has to calculate its gdp does. you don't pay for roads. hardly pay for health care. you're no longer paying for benefits. you don't pay for education. there's a lot of things you don't have to be tethered and weighed down by. if you want to explain some of this gap, and it's not just the u.s., it's global, i think you got to look there. companies are doing well because -- >> what you're saying in other words is there isn't a gap? this is reasonable and it can continue? >> yeah. i think it will continue until it doesn't. but i think it can continue for quite a long time. >> i actually disagree. i will start my statement by saying -- >> in all due respect. >> i also have the utmost respect for you, zach. also for steve schwartzman who runs an unbelievable company.
this is sort of a duh moment. this year the stock market has been fueled by the fed. no one can deny that. i think if you look at consensusest ma ts for next year you see most analysts think there will be anywhere between a 2% to 5% rise in the s&p. when you look at growth estimates most people see it in that range as well. next year might be the year this connection finally ge lly gets again. i think we know there are other forces at work this year. >> dani, do you think we're just pulling it all forward. pulls things forward that might price in better growth for the next couple years? >> we've got two things in play. the fact there's very easy money out there from a lot of global companies. that means they can borrow money, buy back their stock, continue to up their dividends. we're going to continue to see that. in addition to that first quarter is going to be a huge, huge quarter. i think when we see what comes out of wall street and these big companies in erm thterms of earnings -- >> you mean good numbers? >> growth numbers.
we're on the tail end of this giant earnings curve. we're going to see that start to taper off. i think if we don't see that, if we actually see earnings increase and we start to see some of that ground up global increase in earnings, then -- then we've got the tiger by the tail. >> kenny? >> yes. what we're going to need to see is we're going to have to start to see top line revenues going to have to start to grow. earnings are going to have to grow because top line revenue is growing. not because they keep cutting jobs and cutting expejnsions an cutting the paper clips. they got to grow the business. that's what you're going to want to see first quarter when they start announcing earnings. >> not just the denominator effect. kenny polcari. the panel stays with me. billionaire investor jim chanos coming up. last month he was hot on mastercard, visa and yelp. what's on his buy and sell list and where he sees markets heading next year. plus, veteran money manager
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he famously shorted enron before its collapse. he most recently -- cgi group. what are some of his big ideas now. why is he still so concerned about the banking system in china? joining us exclusively from the jail conference in midtown manhattan, jim chanos. great to have you with us. >> hi, kelly, how are you? >> we're hanging in there. i'm a it wilittle bit concernedt china. while everyone is focusing on the fed's taper there's a story coming out of china that they should really be concerned about. >> exactly. while everyone was focused on ben bernanke and his exit and tapering and dovish language, we've had a bit of a banking crisis brew up all over again in china this week. there were reports of a major coal company defaulting on huge amount of loans. and then more importantly, a major bank admitted that back in june it had missed overnight
interbank payments. that got the market skittish again this week. rates have skyrocketed. overnight the people's bank of china injected some money into the system to calm these fears down. but it just seems like we're going through this now every three to six months in china. >> jim, people are talking about those as growing pains to some extent for this country of almost a couple billion people. it's hard to bet against -- it's hard to bet on china's failure. i guess the question becoming tactically speaking, if you're worried about the outlook there -- >> it's actually not -- >> go ahead. >> it's actually not that hard, kelly. in that, look, there's a lot of things that are dependent upon china's continued investment boom. that's what we're really questioning. we're questioning the credit driven nature of this investment-led economic growth model. we debated that here last night at the waldorf, land of the 1% at the yale ceo summit. we had a round table on china.
and there was a lot of give and take on the value of that economic model going forward under reforms. >> jim, what are the specific positions that you have expressing this view that china's really going to be in trouble? >> well, i think for the average viewer, it's just better to just stay away from some things that are focused on china. you know, we've talked about caterpillar tractor at the seeking alpha conference back in the summer. you know, i think they're continuing to struggle. they put out numbers today that were, again, very, very weak in terms of their shipments. commodities. hard commodities, i think, are still going to be under a cloud for the next couple of years, whether it's iron ore or coal or other hard industrial commodities. i think that increasingly, as more and more supply comes on, the fact that china will be the source of unending demand could be questioned. >> at the same time, though, some of these companies like caterpillar, like deere are finding other levers that they can pull here.
they can look at construction which is starting to make a comeback in the u.s. a stronger north america. they're diverging from some of that commodity play. even some of the steel names today are doing okay. >> well, look, day-to-day, who knows. but i think that if you look at over the course of months or even years, i think the trend is somewhat unmistakable that it's going to be tougher and tougher going forward. if you look at the global cap x mining boon it went up ten-fold from 2001 to 2012 in terms of capital spending in the mining sector. i think that's going to be very, very hard to replicate if not revert to the mean. as for caterpillar, all of their divisions now are experiencing weakness. it's not just mining. >> sure. the stock, though, has continued to move higher. the same is the case to some extent with a mastercard and a visa p p mastercard coming out with a ten for one split. now a large buyback program. they're returning capital to investors. does that change your position on those companies?
>> no. we like those companies. but you have to remember, i always caution people when they look at our long portfolio. they don't see the other side of it. which is a short portfolio as well. and unlike a lot of hedge funds who basically go long and then look to short things to hedge, we do exactly the opposite. so although we like those companies, we think they've got great business models, they've also run quite a bit. but they're against other payment processors who we think are on the wrong side of the technology curve. >> are you, jim, betting against a whole foods here? a starbucks? and is that because there are problems with the u.s. consumer or with these companies specifically that you see? >> again, i mean, we're long things because, you know, we were long starbucks because we were short another coffee play, you might imagine who that might be. again, it's with our portfolio, it's a little bit -- it's a little bit tough to say, oh, well, he loves it. go out and buy it. because basically it's a better
hedge than a market long against a specific short. >> tell us about cgi corp. which has fumbled to some extent the obamacare rollout. what is the story with that company? why are they, do you think, going to see their share prices fall significantly when they've actually held up okay here, at least of late? >> well, all i'll say about cgi is that we have been short that stock well before the obamacare problems and rollout. and there have been press reports about why we're short it. let's just say that i think it has more to do with the nature of the company's growth and the way they account for that growth than it does specific rollout issues with obamacare. >> jim, what about as people look at 2014, one of the main arguments is between whether to pick up some of the cheaper value names and rotate out of the high fliers, you know, like a tesla, for example, which is under pressure today separately for other reasons. what do you do with a lot of those social media names? are you shorting some of those
companies here at these high valuations? >> well, we don't short things just on valuation. i mean, we like to see basically the business -- something going wrong with the business for it to be a good fundamental short candidate. i mean, we are short things that traded very, very cheap valuations. so-called value traps. but we also have a couple of the momentum names in the portfolio as well where we think the business model is still untested. and yet the companies have been given, you know, multibillion or tens of billions of dollars in valuation. they've already been given the benefit of the doubt. and i think that where you make those -- where you make those differences makes all the difference in the world. >> so what names, jim, in particular, if i could ask for 2014, do you think have some of the most opportunity? whether it's in that space or other sectors? >> well, one area i would caution people that we're getting more excited about is the whole -- the rollup acquisition game. there's a number of high flying
stocks that have gone up as much as ten-fold in this bull market that are basically growing by doing one acquisition after another. and doing bigger and bigger acquisitions. >> such as? >> i think that -- that -- well, as i say, one of the great things about the short side is you don't always have to disclose your positions. but i would caution your viewers that if they hold stocks that are growing strictly by acquisition, and do not have any organic growth, have gotten big, big multiples -- >> like biotech. >> using aggressive, goodwill accounting. there's some areas in the medical technology area that i think are really guilty of this. i think you can comb over your portfolio. these kinds of stocks do very, very well in bull markets. and they do very, very poorly in flat or down markets. >> is that what you see for 2014? flat or down? >> i have no idea. but all i know is the risks are rising. and i'm kind of bemused by all the people that come on your show and others who try to compare where we are with other
sort of substantive market tops. and say, well, you know, in 2007 it went to this level. >> right. >> or 2000 it went to this level. that's sort of like saying, well, yeah, we know a car probably goes out of control and hits the wall at 200 miles an hour. but i feel pretty safe at, you know, going 160 or 170 here. look, it's riskier than going 60. and i think the risks have increased in the u.s. market rather dramatically in the last year. are we at some sort of top? i have no idea. but i do know that people that were echewing risk in 2009 when they should have taking it are embracing it in 2011. the same arguments can always be made at other times that the fed has your back or my stocks are cheap relative to the market. all i know is the risks have increased dramatically in the u.s. market where that wasn't the case in 2009-2010.
>> you're finding -- jim, last question. you're finding more value -- or more opportunity, i should say, on the short side as a result? >> we're finding a meaningfully larger amount of opportunities on the short side at the end of 2013 than at any time since '06-'07. >> we'll leave it there. jim chanos, thank you so much for joining us from the yale conference in midtown this afternoon. appreciate it. >> merry christmas and thank you. >> to you as well. dow component nike just out the earnings. dominic chu. >> it's mostly positive. i'll just say this because what we have is a headline earnings beat. nike coming out with earnings per share of 59 cents. that matches up against an average analyst estimate of 58 cents. a penny beat there. on the revenue sides, we're going to call it in line. the average analyst estimate was for $6.4 billion in sales. they came out with $6.4 billion in sales. revenues in line. slight earnings beat. i will point out, though, that futures orders, which is an
indicator of future business for nike, is up 13% overall. that's on an excurrency basis. factoring out the effects of currency gains and losses. that compares to an average analyst estimate of 9.7%. so better futures orders. slightly better earnings. in line sales. shares of nike are down just marginally, about a half a percent in the after market, kelly. >> we'll keep an eye on it. dominic chu, thank you very much, sir. sweet gains. crispy creme doubling this year after hitting a rough patch earlier. i'll talk about that exclusively with the doughnut chain's chairman and ceo. his views on the minimum wage debate that is raging across this country. you're watching "closing bell." keep it right here. the american dream is of a better future,
and you...rent from national. because only national lets you choose any car in the aisle... and go. you can even take a full-size or above, and still pay the mid-size price. (natalie) ooooh, i like your style. (vo) so do we, business pro. so do we. go national. go like a pro. welcome back. the holiday season is infamous for sweet treats. the next guest is hoping to cash in with winter themed offerings among his famous doughnuts. krispy kreme doughnuts has major momentum. stock price doubled in the last year. by expanding internationally it's hoping to keep that going for 2014. krispy kreme ceo james morgan. great to have you with us, sir. welcome. >> thank you, kelly. great to be with you. >> first of all, how much of your sales are during the holiday period every year? >> it's actually not disproportionate. it's kind of stays pretty
constant. our biggest holiday of the year is actually valentine's time. it's a little unusual. >> aha. i can see that. i want to bring in our panel for this discussion as well. some of them might be sampling these doughnuts you've so kindly sent, sir. when we talk about your expansion plans for next year, there's a backdrop right now, people are wondering about the weak consumer. the federal reserve changing its policy. i mean, are those factors, can you rank them for us? or are you just laser focused on what krispy kreme has to do to keep getting it right? >> kelly, we truly are focused on what we're doing. so far at this point in time we feel like the consumer is out there and active. if you provide them what they're looking for they'll come and enjoy it with you. >> all right. break it down for us. what kind of demand do you see from consumers? like the average ticket price -- or we should say transaction price. up or down this year from last year at this time? >> up slightly. traffic is up measurably. >> why do you think that is?
>> in our case it has a lot to do with the fact we are doing a much better job of marketing. particularly using social media. i also think we're doing a better job of executing in the shops and providing the -- quite frankly the joy they love not only this time of year but all throughout the year. >> mr. morgan, by the way, there's 12 doughnuts in front of us. you're the only thing standing between us and them. it's a little bit distracting. i know you've done a lot better internationally over the past years and that franchise has really grown. separate from how you're going to do that, are you going to focus more on the u.s. market next year? >> we are. it's a great question. even though last week alone we opened in northern india, our first store in taipei and our second store in moscow, we also announced two weeks ago that we have signed recent franchise agreements with alaska, houston, dallas. we're just restarting the u.s. expansion. we're pretty excited about that. >> james, this is kayla tausche. i'm interested in what sort of focus groups or research you do in these new markets before you
decide to expand there. because in krispy kreme's history, expansion was nearly a death nail. i'm just wondering how they guarantee those are markets where this -- you know, this idea and this store will work. >> it's great question. what we did with all the focus groups was very simple. we found out that the reason things didn't go well had nothing to do with the demand for our doughnuts. it had a lot to do with the model we went in with. where we have reopened in markets that went dark, phoenix, albuquerque, the revitalization we've had throughout california, southern california and northern california, people have come and loved it. right now we're finding out that the demand is there. we just need to execute appropriately. >> it's eamon javers here. inside these markets where are you finding the new krispy kreme consumer actually is? shopping malls? airports? city courts? where are the new buyers you're going to find inside each one of these new markets. >> eamon, also a great question. because of our -- in the united states, the morning/day part is
critical to us. so the shopping malls are not for us. in this we're talking about smaller shops. maybe even fresh shops. we're finding them primarily in the suburban areas. just now moving into the urban and pedestrian oriented areas. >> how about right next to gyms. people come out of gyms. feel healthy. >> no one wants a doughnut a f the gym. you need a green shake or something. >> i am interested that people are getting doughnuts for valentine's day, apparently. doughnuts don't necessarily make me feel romantic. james, you could be on to something. >> jeff, i hope you're listening. dani? >> i had a quick question regarding your free cash flow. you've been using some of it to buy back your stock which obviously brings shareholder value. i'm wondering if that's something you're thinking about continuing. and to what degree? if you can comment. >> it is, dani. we had our first program last year, completed it. we have a $50 million program open now. i've been purchasing into that. i feel like with the excess cash
flow we have that's a great way to enhance shareholder return. i think you'll see us continue to do that when appropriate. >> free doughnuts is also good. >> exactly. exactly. james morgan, thank you so much for that insight, sir. and for the doughnuts. appreciate it. >> thank you very much for having me on. >> james morgan of krispy kreme. s&p 500 up a whopping 26% this year. that's pretty good. i'll speak exclusively with a man behind legg mason. bill miller up next. wait till you hear his strategy and what he sees the market doing in 2014. tdd# 1-800-345-2550 searching for trade ideas that spark your curiosity
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welcome back. stocks managed to pretty much hang on to yesterday's huge gains. what moved markets today? >> let's start out with nike. out with earnings after the bell. the company's second quarter profits beat wall street consensus by a penny. revenues about in line. future orders up better than expected 13%. that's an indicator of future business for nike. red hat is also surging in the after hours after posting better than expected third quarter earnings and sales. then there's overstock.com. also in the green. the company is preparing to accept bitcoin. yes, bitcoin. the digital currency as a payment in the latter half of
2014. as bitcoin becomes more popular, more and more businesses are finding ways to accept it as some kind of payment. to the downside, winnebego, strong demand for new line of lower priced recreational vehicles, rvs, prompted dealers to increase orders. the company's shares which had more than doubled in the past year sold off pressured by softer than expected sales. now, again, that's the movers for today, kelly. back over to you. >> dominic, thanks very much. he was named the greatest money manager of the 1990s by money magazine. fund manager of the year for 2013 by "the wall street journal." the fund he managed exceeded the s&p 500 benchmark for 15 consecutive years. the list goes on for bill miller. now along with his son he'll be launching a new fund with legg mason carrying the family name. he joins me in a cnbc exclusive to talk about that and where there's opportunity for investors. welcome. >> nice to be here. >> i want to started by asking you about a line we just heard
from jim chanos. where he said he sees more opportunity to short stocks here than at any time since 2006. is this an overvalued market? >> not at all. it's a market that i think is roughly fairly valued in the sense that it's around 15 times earnings. which is about the average in the post war period. the market rarely spends time at kind of the average. the average multiple is part of a journey. it usually starts at a low multiple, '09, and goes to a high multiple like we saw in 1999 or 2000. the odds are that the multiple actually rises over the next several years. the market will be more dangerous at that level than it is right now. l bull markets rest on three things. economic growth. we have that. two is adequate liquidity. the fed told us yesterday they're going to keep rates pinned close to zero for the next couple of years. and then three is valuation. valuation is certainly not demanding on an absolute basis. and it's extremely attractive compared to bonds. >> in what sectors, what companies do you think are extremely good places to be for this psycycle as it plays out?
>> it's interesting. one of the groups that's done the worst this year are the home builders. they did terrifically well in 2012. gone to sleep this year. most of them are down this year because the 30-year mortgage is 100 basis points higher than a year ago. there's no question we're at the beginning of a long home building cycle. lennar put up stellar numbers yesterday. valuations are reasonable. if you realize the market is at an all time high, many stocks at an all time high, pulte homes a t a peak last time was $50. it's now $18. i think both those stocks will get there. pulte homes, if it takes it two years to get to where it was in the spring you'll make 50%. >> it's incredible to think about these names getting back to where they were during the not just boom but bubble. you're not worried that's asking too much to assume that they get back to those levels? >> those levels were a function -- the housing market was clearly in a bubble then. but what -- what put those companies up, those home builders up were new homes. housing starts.
if you look at how far down the housing cycle went, we went down the lowest level of starts in 50 years. so right now we're going to have about 900,000 housing starts this year if we're lucky. and the normal would be about 1.4 million. that's from the cycle from 2010 to 2020. 500,000 home deficit relative to what you need. >> do you agree also a company like caterpillar, deere will benefit or like jim chanos was also saying earlier, are there too many risks, too many divisions that show weakness that you'd want to have exposure to those names? >> those are fine companies. we don't own either one of them. that would be helpful for cat. cat is a huge global business with a lot of emerging markets exposure. i think it's more expensive than deere. if i had to pick one of the two, we don't own either one, i would probably go with deere. they run the company for return on capital. both companies are well imagined. >> as for areas of the market
you don't like, sounds like gold which cracked below $1,200 an ounce today is not a place you necessarily see value or think people should go out on a limb here? >> you know, i mean, gold is hard. gold has a 5,000 year history. it's had this huge move, 10-year move straight up. gold's correcting right now. it's still way above the cost of production. gold can't disappoint on the quarterly earnings. it's not going to cut its dividend. it's ultimately about psychology. when people talk about, you know, gold production falling or getting larger, the fact is that gold production is really irrelevant to the gold price because there's so much gold out there relative to incremental production. if you can -- if you can assess the psychology of people, you might be able to get a sense of gold. it's getting more expensive to own gold on an opportunity cost basis as rates rise. >> one of the things people do as look at beat down names and look if they should take a chance for the next year. you did exactly that with best
buy at the end of last year. one of the best performers in the market this year. i wonder if you look at a jc penney and think it could go the same way? >> yeah. last year you had an extraordinary opportunity to buy companies. and we did. netflix at 60. best buy at 13. pandora at 7 or 8. this year it's much harder. you don't have those kinds of things really on offer. jc penney is really interesting. we've thought about it in the past. we're looking at it right now. there's no reason why they can't get their gross margins to 37%, 38%. the thing holding us back on jc penney right now is you still have the secular problem of department stores that amazon is causing. seconda secondarily, most importantly, unlike best buy last year jc penny has negative cash flow and is losing money. >> after a year like you just had and a career where you've seen the highs and seen the lows do you worry about mean reversion this year? do you worry it's going to be difficult to replicate that performance at a time when guys
like bill gross and jack boeingle are saying why not stick with a more index -- strategy here in this market? >> i doubt we're going to replicate this year's results. we're up in the 60s this year. up 40 last year. but we try and assess across the portfolio. what our companies are worth. what we're trying to do is good evaluation work as we can. we've ranged many. in march of '09 we had close to 300% upside to our assessment of normalized value. we try -- a normal market would be 30% to 50% upside. we're about 40% upside to normalized value right now. there are a lot of companies in the market that are trading very cheaply. i'm a big fan of passive investing. actually, i think it should be part of most people's portfolios. passive investing means if the knock on active investing is that it's really hard to outperform the average person, the average passive fund is going to always underperform because of expenses. every single year it's underperform. that wedge caused by expenses will get larger over time. >> sounds like you're going to
be working more with your own family here in 2014. what can you tell us about that? >> my son joined legg mason not working for me after business school. he started working for me over the summer. working on the fund that we're currently doing. then an account which we had which is -- which is now we've filed a fund with the s.e.c. >> and i guess i shouldn't ask, then, how you feel about kids having to work for school lunches. you know? earning their keep. is that a theme of the miller family? >> i would hope he would earn his keep. if he doesn't, there would probably be a move to move him on to somewhere elsewhere he'd do better. >> no favorites. >> not at all. this business is way too competitive to do something like that. >> so true. bill miller, thank you so much for joining us. a couple interesting ideas there for people thinking about what to do in 2014. >> pleasure to be here. >> have a good one. what's getting the most hits on our website right now? cnbc.c cnbc.com. the hot list is coming up next. also ahead, it's a favorite topic of mine. cnbc getting a rare look inside
intel's silicon valley robotics lab. on the leading edge of so-called perceptual computing. we'll get you up to speed. don't miss that one. there's also controversy as we were just saying over free lunch. tweet us your thoughts on this. >> why don't you, you know, have the kids pay a dime. pay a nickel to instill in them that there is, in fact, no such thing as a free lunch. our maybe sweep the floor in the cafeteria. >> is georgia congressman jack kingston way off base here or is he on the mark? @cnbcclosingbell. tweet us. we'll get your responses on the air when we come back. open to ambition. open to bold ideas. that's why new york has a new plan -- dozens of tax free zones all across the state. move here, expand here, or start a new business here and pay no taxes for ten years... we're new york. if there's something that creates more jobs, and grows more businesses... we're open to it. start a tax-free business at startup-ny.com.
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welcome back. we're dying to know what's on the hot list right now on cnbc.com. allen wassler joins us with a look inside. >> i'm getting the gold bug crowd this afternoon, okay? gold has been a big subject today. ended at a three-year low. markets editor patty dom took a look. asked a few people what the next technical level is people need to watch out for. below 1200. i'm not going to tell you exactly what it is because everybody's do i having into the website to find out what it is. it's our number one story right now. already racked up about 12,000 readers so far. more piling in at the rate of about 60 a minute. now, gold is one thing. food is another thing that our readers are very interested in. right now we got up this remarkable little feature by our very own katie little looking at red lobster. they've got a real shrimp problem right now. apparently there's this disease hitting shrimp in asia making the price up there going up.
you know, red lobster is in a very competitive market. they can't raise prices all that much. they're getting squeezed by the shrimp there. getting a lot of traffic right now. finally, we had an interview earlier today on cnbc with ron paul. >> yes. >> former presidential candidate. he has a very big following. we wrote up the interview, put it up on the site along with a video of the interview. his following seems to be going right into it right now. at a rate of 30 a minute. >> gold, shrimp and ron paul. thank you very much, sir. have a good night. we've got breaking news on the debt ceiling out of washington now with the man sitting to my left. eamon, what's going on. >> kelly, treasury secretary jack lew sent a letter to speaker of the house john boehner saying the nation is going to hit the debt ceiling on february 7th. what's interesting here, he's saying in this letter to the speaker of the house that they don't have the extraordinary measures flexibility that they've had in the past. they say even with the extraordinary measures, they're only going to be able to go as far as late february or early march. and that's because the nation is paying out so much money at this
time of year in tax refunds. they don't have the flexibility they've had in the past to really string this thing out. there's going to be a political fight over this in washington. something we have to watch. >> something john harwood indicated the other day may not be as bad -- as much of a battle as past rounds? >> we're having an era of good feelings here in washington right now. that's part of what's going on. i do think there's going to be horse trading over exactly what they'll have to ask for to get these votes from the republicans. democrats are going to have to give them something. there's going to be a little horse trading. >> i think it's a little more like an era of not so bad feelings. >> right. don't hate each other quite as much as we used to. >> we were joking about these extraordinary measures. they're actually now very regular. run of the mill measures. >> i can't remember a time we haven't used extraordinary measures. >> it's hair on fire all the time. >> thank you. coming up, intel leading the way in robotics and perceptual computing. what does that mean? we'll take you inside intel's
pretty cool robotics lab coming up. no other tv network has been allowed in. you don't want to miss it. we'll be right back. five tech stocks with more than a 10%... change in after-market trading. ♪ all the tech stocks with a market cap... of at least 50 billion... are up on the day. 12 low-volume stocks... breaking into 52-week highs. six upcoming earnings plays... that recently gapped up. [ male announcer ] now the world is your trading floor. get real-time market scanning wherever you are with the mobile trader app. from td ameritrade.
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perceptional opportunity. what did you see? >> what you really have is a. >> and basically. >> and then you can take all of that data and you feed it to a robot and one he has that data he can actually measure the quality of the user experience. is your tablet giving you a smooth scrolling experience? he can tell and then he can report to the engineers so they can make the tweaks to make the
tablet better. and it was a couple of different robots we met he actually measures the clarity of the sound that comes out of your phone. we did ask intel who your customers are for this. they were not too forthcoming. the customers are the companies that sell phones and notebooks and see the value of oculus and andy. >> fascinating. thank you so much for bringing it to us. as we all contemplate our robot future. should kids be forced to work frk free lunches at school? >> have the kids pay a dime and a nickel to instill in them that there is no such thing as a free lunch? or maybe sweep the cafeteria.
>> the controversial comments are at closing bell. we will get your responses right after this. (vo) you are a business pro. seeker of the sublime. you can separate runway ridiculousness... from fashion that flies off the shelves. and you...rent from national. because only national lets you choose any car in the aisle... and go. you can even take a full-size or above, and still pay the mid-size price. (natalie) ooooh, i like your style. (vo) so do we, business pro. so do we. go national. go like a pro.
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kids should pay a small amount or work for lunches. japanese children clean the floors and serve meals. it encourages them -- and finally captain saying it depends on what's for lunch at school. hot dogs, pb & j, no way. anyone here work for their school lunch? >> no. but we did have a lot of mystery meat. >> i did work for my college education. >> i would have gone on strike. >> it's an uncomfortable subject. one of the reasons he might be doing this is he's a conservative. is this going to fly? >> it will fly in that district. it's a conservative area. this is a theme, this point about making people pay for free stuff and having no hand outs is one that is long run through very conservative political
circles. i have heard this, one of those ones where you capture it on camera and you send it to a general audience it plays differently. >> it's one thing to say look, you should teach children some degree of self-responsibility and taking care of their environment. to teter that to the right to eat is an uncomfortable statement. >> we know a lot of kids are skipping breakfast if they can't afford it when they're on the breakfast lunch and dinner programs and waiting for lunch. if you're not bringing something from home it's your only other choice. >> we live in an entitlement society where people think they are entitles so i think there is some resistance to that in the older generation. >> it's the older generations. we're talking about kids at school. >> they obviously have not had the experience. >> thank you so much to the panel. it was a lot of fun.
we have a very special report from the palisades mall. >> the crowds are getting thicker as we speak. people are getting home and starting to shop. the crunch is on and we are doing lots of trading from the mall. and also, great gift, great stock. just because you buy it and put it under the tree doesn't mean it makes a great investment. >> i have got a lot of things you still need picked up. maybe during commercial breaks? >> i'll do you solid. i'll pick some up for you. fast money starts right now. we are live from the pal sides center mall. this is the last weekend to go shopping before christmas and tonight fast money will be focusing on investing in the consumer. crunch time with just days before the holiday. we have got the last minute investment plays to help you profit off of the