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tv   Fast Money Halftime Report  CNBC  February 23, 2016 12:00pm-1:01pm EST

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trying to fight silicon valley on multiple fronts. >> were you surprised by the results? >> no, i think jp morgan does a great job of giving more detail than necessary to establish confidence. >> key issue to watch for all the financials going forward. meantime let's get back to headquaters. scott and the half. >> carl, thanks so much. welcome to the halftime show. let's meet our starting line-up for today. joe is here along with stephanie and pete and with us for the hour is christine short commodities crush. two exclusive interviews this hour. sun cores ceo on how his company is coping and jeff curry on where we can go from here. why one firm says chipotle is a sell now. do our experts agree with that?
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stocks falling right along with the price of crude. dow is down 160 points. we begin with new questions about the strength of the banks and how much exposure they really have to the continued commodities crush but it's one firm in particular today, jp morgan that has investors growing more nervous. it's stock is sliding as jamie dimon holds court with wall street analysts in new york city. kayla joins us now with more. oil is hurting jp morgan and other banks faster than we thought. >> yeah. they are taking up their estimates for exactly how much it will hurt them. it's worth saying they did sound token optimism on the us. economy. ultimately the noise in manufacturing and corporate end
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earnings will get sorted out. jp morgan's energy exposure they layed it out pretty specifically. $25 billion for investment grade. only about a fifth of that has been drawn down. high yield $19 billion. it's the high yield portion that is what investors have been worried about. those are the lower quality borrowers that could default more heavily than the higher grade borrowers so jp morgan said it would take about $600 million in additional reserves in the first quarter. 500 million of that for energy and about 100 million of that is for the commodity space and that will take the total reserves for energy, for commodities to $1.6 billion but here's what they said. they would need to double that if oil stays at $25 barrel so that's a significant difference. they said if it stays around $20
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they would need about half of that total or 700 million so that's material for the company but it does go to greater banks to layout what that exposure is. the point was supposed to be to help with concerns. part of that is because of what the market is doing but another part of that is its going to be harder for them to get revenue elsewhere. asset management which is one of the bright spots at this company has seen two quarters of outflows. the ceo who is speaking right now and even though these executives are highly competent and confidence there's not much in this environment that they can say to really show that growth is going to come in the near term. >> that's for sure. kayla, thanks. 44 billion in total lending exposure. kayla makes a great point. it's a significant difference from what we learned less than a month ago. >> right. >> but whatever earnings were. a month ago.
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>> yeah. about a month ago should we be more worried about the banks because of what jamie dimon told people today. >> or should we look at the fact that he decided to put real significant money in his stock not long ago. there's real concerns out there. everybody is a little bit shaken by some of the numbers. she talked about a 50%. now about double and all the other numbers. 19 billion high yield. there's a lot of numbers we have to dissect through and some are concerning. but are they concerning enough to get rid of the stock? john was talking about on the show. maybe it was jamie or somebody else that decided to follow jamie in after he bought all of that stock. somebody was selling calls outside saying i'm going to take some of this big rift we just had. 53 to $58 a share and take advantage of that and take some of that off the table because maybe the banks will be flat for
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awhile financials were up 7% after the dimon bottom. now we know as i said to kayla this situation is hurting jp morgan at a faster rate than we thought. how big of a problem is that? >> it's not. they're much different than european banks and they're on top of it and addressing it and giving you the disclosure. that's what you want to see. let's look at the numbers. what percentage of the book is noninvestment grade and what perkrebt of the book is investment grade. so you look at a morgan stanley and jp morgan you're talking about 40% maybe exposure to non-investment grade. you could sight maybe wells fargo that their exposure to non-investment grade is up around 7% but they have 6.9 reserves. >> now do we need to worry? >> now we need to worry about all the other banks coming out and updating their numbers. >> they're doing what they're supposed to be doing.
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they're giving you the disclosure. >> be concerned about the regional banks because they have more exposure. >> they seem to be behind it. >> now they're saying the numbers are worse than we thought. >> the expectations were high. people thought they were going to lower their cost expense management numbers. they didn't. although i do think there's some room there for sure and then i think you want to look at the numbers and the detail of what jamie dimon said a month ago. if oil is at $30 they have to increase reserves by a billion. today if oil is at $25. that doesn't sound like a big difference but that's a bigger hit to the books for sure. it's not good news by any means but if the stock is trading at 1.1 times tangible book. the stocks in general are down 20% on the year on concerns on energy, on credit. on a lot of different problems so i think, now this wouldn't be the first one i would run to
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because it's not the cheapest one but when you're talking about all the other banks have to disclose, bank of america is trading at .7 times tangible book. so is morgan stanley. a lot of the bad news is in there. i don't think this is horrendous news. i don't think it's a reason to sell the stock. >> mike mayo is going to join us in a little while. he's at the analyst meeting at the table and he's going to let us know how concerned we really should be. how fortunate are we given all the news about this and oil that we have jeff curry with us today. he is goldman sack's global head of commodities research and he is here for an exclusive interview. good to see you as always. welcome back. what do you think of this issue? >>-two ways to think about it. one is the size and the second is the transparency issue. we look at the size and estimate that the housing crisis was 14 times larger than what the
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potential could be from oil and gas. total pose sure is and during the peak of the housing mortgage crisis the number of loans represented around 3 trillion which represented one third of all loans. to 2.5 to one third we get that 14 times larger and then the point about how much of this is high yield credit. those numbers get far smaller. so our relative size is very different. and this is what you can see that you're looking at. >> oil at $25 for 18 months would mean an additional 1.5 billion in reserves. is that what it's going to be? are we going to be talking about oil at $25 or less. >> it's exactly what we're seeing going forward.
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it's going to be a trendless market with volatility between 20 and $40 barrel. where do we get such a wide range? 20 is shut in cost. prices need to remain below 40. now such volatility precedented? absolutely yes. go back to 98, 99, 10, 16, that's where we get that type of volatili volatility. >> so he makes a comment that we're not going to do a production cut. maybe we'll keep production where it is. is that good enough for you. >> you world order, the time the build has collapsed or the fast cycle nature of it. and regardless of what their decision might be. the reason you think about it is in the old days if they saw a capex production they knew they had to cut production and let prices rise because the time to build was 4 to 5 years.
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what has shale done, shrink it down to 80 days. it takes 60 days to get saudi oil to the u.s. they're almost perfect substitutes. therefore regardless of what they say it's incredibly difficult. >> we'll keep production where it is. we're not going to increase it but it's keeping output at record levels doesn't help. >> no and in terms of thinking about the numbers we have is the highest they will get all 2016 to begin with. in terms of thinking about the freeze it doesn't do anything to the fundamentals. >> so i think first of all the market got reminded the impact. what's the risk versus reward of being short oil at 27. that's not the trade you want to make. secondly there's not a shareholder base behind the price of oil. it's not like it's a company. it's highly speculative. the real question boils down to the energy equity companies. how they navigate the environment to 25, 30, $35 oil. the question would be we have
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now heard from these companies. they're talking dividend cuts and production cuts. are you happy with what you're hearing? and a lot of these companies that have deputy maturing in the near term, do you think they stabilize some of the contagion surrounding them. >> i'm so happy about what i'm hearing that i'm concerned about it. because our view of 575,000 barrels a day was relatively consensus and if we look at where the companies are at this point right now, you have 6 % of the universe reporting. the overall amount of production cuts is 355,000 barrels a day which is really concerning. you're a company. your risk of going out there with the kitchen sink and saying i'm going to reduce my capex by y and reduce by x and then i get the potential to beat to the upside. what i'm hearing i like it but i like it so much i'm concerned.
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the total error is right around 2.5% which is relatively low. >> >> i cover the corporate earnings season very closely. they saw growth decline by 72% as far as earnings go. what we saw is not only that energy companies are doing very po poorly but it was leaking into other companies and i think we're starting to see a decoupling between oil prices and equity prices? is there a threshold for that? we stay above $30 barrel, does that continue to happen or will we see a reversal? >> when you think about the broader correlation between the oil price and the s&p and the broader macro environment because it's the same thing with u.s. treasuries. you throw gold into that more recently. when we think about what the drivers are there's three i like to look at. first is the correlation with the dollar. because we think about one thing we saw last night and today is
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dollar strengthens. part of the reason we're down as much as we are today is because we saw a devaluations so that's one connection right there which i sympathy one of the strongest. is it a pure correlation between oil and and china is big trading partners so there's real fundamental justification to that correlation. the second one and that one is going to run it's course as oil prices find the stability going forward. the other one is the capex hit which is the spill over you're talking about. most of that is behind us.
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it's not a net positive to global growth. it was a transfer from big savers to big spenders. now it's big spenders to modest savers. why? they are spending 150% of cash flow so that would be a net negative is to transfer that wealth. that one is probably behind us. while we see the correlations very strong today we don't see it happening further out because the linkages start to fade but more importantly going back to our view, the equity market is going to have oil over the type of moves today. >> it's negative interest rates and oil and china. going back to oil and the broader markets. you look at break even inflation now and it's bracing in a decline in oil prices for the next seven years. i don't think anybody would view that as being realistic. all of the points is the
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financial stress in the system are overdone. >> he calls it the lebron james of banking. mike mayo weighs in live from the jp morgan investor days with his takeaway from the event. plus a debate on battleground stocks. the experts on the desk make the call. we're live at the biggest industry meeting of the year and the ceo of sun core joins us in an exclusive interview, next. (patrick 1) what's it like to be the boss of you? (patrick 2) pretty great. (patrick 1) how about a 10% raise? (patrick 2) how about 20? (patrick 1) how about done? (patrick 2) that's the kind of control i like... ...and that's what they give me at national car rental. i can choose any car in the aisle i want- without having to ask anyone. who better to be the boss of you... (patrick 1)than me. i mean, you...us. (vo) go national. go like a pro.
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>> no sense in wasting our time seeking production cuts. they will not happen. brian sullivan right in the middle of the action where that news is being made and he is joined exclusively by the ceo of sun core energy. >> surprising everybody in that room. heard that mumoring and did he say that. steve williams as you noted head of sun core with us now. thank you for joining us. a lot to do and not a lot of
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time. moving the markets saying no production cut coming. do you believe it? >> i think the fundamentals are working so supply, demand and more volatility. we have to get to the fundamentals. >> he just said we're not cutting because nobody trusts each other. >> i heard lot of speak from opec this week. i was at the world economic forum. lots of speak there. everybody is worried about what happens next. so concentrate on the fundamentals. that's what we should be doing. >> this time last year at this conference, steve, almost everybody said don't worry in 12 months oil will be higher. guess what, not only are they wrong, but oil is lower. where do you see the price of oil going? >> we banked on the anomaly being the fact that the price went up so high so we ran the company at a lower price. we put cash on to our balance sheet and we see this part of the cycle as much as an
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opportunity as a threat so you have seen us increasing our share in organic growth and taking the tount to acquire some of our competition. >> you said something interesting before the interview and you sort of repeated it and i think it's important. especially because the halftime show, scott's show they dive into individual names. they dive into individual companies balance sheets. here's the thing. two types of oil companies out there. those that need $75 oil and those that don't but would prefer it. you're in the latter. do you believe that $100 oil is the anomaly and that maybe oil wants to live around $40? >> you know, i could offer you views on either side of it. the way we chose to run the company was we believed it was anomaly. >> you didn't believe we didn't believe it. what that meant is our dividend is in a good position.
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we have a healthy balance to continue to fund our growth. our two biggest growth projects we're still currently funding. not only did we believe it but we made decisions based on it. >> you defended your dividend to these prices. are you free cash flow positive at $35 on brent crude? >> depends on how you define free cash flow. >> is there money to pay the dividend at $35 barrel? >> it's last year if you look at what we actually generated just under $7 billion of cash. our dividend was 1.6 billion. our sustaining capital was about 3.5. at $5 billion, everything above that was effectively free cash. and we dedicated that to growth. so yes at last year's prices. >> is your dividend stays? >> the reason shareholders have been coming in is because we see us as running our business well and having a lot of capital
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discipline. that's almost an impossible question for me to answer. i will say we have to manage cash. i can manage the outgoings and the ingoings. out goings operating expenditures, capital expenditure and dividend. >> the dividend is right now. >> two of the three we have impacted and we kept our dividend where it is. so right now it is safe. >> what will the u.s. oil industry look like the oil stays between 30 and $45 barrel for the next five years. given the debt load of many of the u.s. shale producers. >> i go back to the observation you made. there's two sorts of companies in this circumstance. one that's able to take advantage of the opportunity. that's what -- >> you're a buyer in this market. >> we're a buyer in this market. the other one that's really struggling to survive. i think what you will see is a fall out of companies whose balance sheets are not in great order. so both in canada and the u.s.
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you'll see the number increase. >> bankruptcies increasing. it was a pleasure. let's not make it another year. >> there you go scott. wave of bankruptcies coming for u.s. shale producers. suncor has been a buyer because they have the refining business which gives them cash flow. >> thank you. >> quality company. put it in the kid's portfolio. non-core asset sales. the offer spread being wide. they want to be a player and they want to be active. >> let's be honest about one thing. the dividend being safe, how many times did we hear that going in and suddenly this dividend is safe, they have a lot of debt. >> fair point. >> just saying. >> 11 billion in debt. >> strong investment. >> 3 to 1 debt to cash. that's exactly where they're sitting. >> more conversation later. coming up, mike mayo joins us live from the jp morgan investor
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day on how concerned investors should be about the banks and oil. jpm shares down 4% now and a report that influences what cars people actually buy. stick around for the consumer reports. top auto picks. we're going to unveil it on this show in less than 30 minutes. you're watching cnbc, first in business worldwide. thanks. ♪ [ male announcer ] fedex® has solutions to enable global commerce that can help your company grow steadily and quickly. great job. (mandarin) ♪ cut it out. >>see you tomorrow. ♪
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>> the markets remain under pressure this hour and at least a part of it has to do with weakness in the financials. especially jp morgan and perhaps on headlines coming out of that company's investor day today. mike mayo live at the event in new york city joins us now on the phone. thanks for calling in. i appreciate it. we started our program talking about what jp morgan told it's analysts about it's exposure to the oil and gas business. are you surprised by what you heard today? we have jp morgan indicated it will take a $500 million hit in the first quarter results for their oil exposure and also it
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will take a further $1.5 billion hit if oil prices decline and stay at $25 barrel. so yeah. this is incremental negative use but is it surprising? it's surprising that they came out with this only one month after earnings. >> what does that tell you then? what does that tell you if just a month after earnings they came out with this today. you have called them bank the stock, the lebron james of banking. is there -- we sort of teased it in a playful way wondering whether now there's like an underlying knee problem we need to be worried about. >> well, on your show, scott, you know, i indicated that there could be an additional $500 million hit and they looked at the forecast and said that's likely to be the case. so we had it in the fourth quarter and our estimate anyway is earlier fine.
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that's nonlinear. that's new disclosure. the first large bank to disclose the sensitivity for much lower oil prices but we sit by what we say the lebron james of banking. offense is hurt but they still have a good defense. that $500 million hit to earnings the first quarter, that's 1 to 2% of last year's earnings. if it gets so bad that you have $25 barrel for over a year that would be a 5% hit to earnings. so even under that terrible scenario and the other thing is they have enough capital to charge off every dollar of every energy loan exposure 8 times. 8 times. >> sure. >> so don't miss the forest for the trees here. the balance sheet is resilient. they have the defense. they have the capital and by the way, the other credit quality is still extremely strong. the other credit quality in
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consumer and better in each category. especially areas like credit card and they lighted the beneficial impact of lower oil prices on the u.s. consumer. so there's a lot of attention on the negative of lower oil prices but there's also a lot of positives and jp morgan benefits from the positives too. >> quickly before we go and to use your metaphor maybe it's the other trees in the forest we need to be worried about here and not necessarily the tallest ones that as kayla points out jp morgan is conservative. they're transparent but maybe the regional banks and some of the smaller banks are going to feel even more pain than we anticipated by virtue of what jp morgan is learning today and that's the real point of concern we should be focused on today. >> that's a good point. the reserve for energy loans are now 10%. they're leading the industry and
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the irony here is this is one of the times that you show the benefits of a large scale geographically diverse bank. it's just fine but if your regional bank just in texas with an exposure to energy you're more at risk so contrary to public sentiment, you know, seeing a large geographically diverse bank like jp morgan means you're more resilient in an environment like this. >> thanks for popping out and getting on the phone. we appreciate your insight today. >> mike mayo. coming up, chipotle, fit bit, twitter, buy sell or hold those names. a street fight triple play is just ahead and we call it the ant man trade. >> when you're small you have super human strength. you're like a bullet. >> why betting on smaller companies may be your best bet right now. halftime back right after this.
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>> secretary of state john kerry says the us. will know within days if a proposed ceasefire in syria due on saturday will
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actually take hold. he made the comment before the senate armed services committee this morning. north korea warning the u.s. of harsh retaliation over planned joint military exercises next month. it calls them preparations for war and vows to retaliate. >> microsoft founder bill gates is taking a more moderate stand than some in silicon valley in the standoff between apple and the government. apple could cooperate with the authorities in the particular case of the san bernardino terrorist shootings and the locked and encrypted phones that they used but overall congress and courts should try to strike a balance between privacy and security. and amazon raised the bar on free shipping for non-prime members. shoppers must now spend $49 to get the same service. it might be an attempt to get people to sign up for amazon prime. which offers free shipping regardless of how much one
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spends. scott back to you. >> breaking news on viacom. julia has it from los angeles. >> that's right. but several strategic investors. they say they believe pursuing a transaction with a investor would be of great interest and they're going forward with substantial discussions with a select group of potential investors. they retained advisors and expect to reach an agreement around the end of the third quarter. of course this comes soon after he was appointed chairman of viacom with lots of questions about what's going on with sumner red stone as he is in a lawsuit with his exgirlfriend. >> exactly the thing that big shareholders in viacom have suggested viacom try to do to
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get more competitive and to get the stock price performing in a better fashion than it has relative to its peers. >> that's right. they have underperformed it's peers and there have been a lot of questions about howell they handled the digital transition and cable assets that are such a big part of the business. he was saying before making this announcement he thinks it's undervalued. particularly overseas and there's huge potential in pa paramount. the stock was halted and now it's trading again. the stock has spiked. it up 5%. >> thank you very much. now to a street fight on three battleground stocks in the headlines for all the wrong reasons. chipotle, twitter and fitbit. >> chipotle got downgraded to sell. karen joins us now on the phone. welcome. >> thanks for having me. >> why today? why is now the time to say get rid of this thing?
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>> well, i think, you know, obviously they had their media blitz and the media blitz started around february 8th and the stock has acted incredibly well since the media blitz began and it seems to us that there's a euphoria reflected in the stock's price today which is unrealistic in term of what the recovery can look like and obviously i have a $400 price target on it and i still do and it's on the down side as of yesterday's close. it clearly warrants the rating. >> you don't think that the bad news is all in at this point? despite where the stock is currently trading north of $500? >> well, i think, yeah, so evaluation at least based on me estimates for fiscal 17 because no one cares what fiscal 16 is going to look like. the stock is trading on 15 times which is an extremely lofty multiple by any metric is more
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in line with the historical average but the own the stock at the current price you have to really believe that the recovery at 17 is extremely robust and it's extreme hockey stick and given the issues that we highlight in the report meaning we think there were chinks in the armor before this happened it's unrealistic to think we'll get the recovery that a true bull case has to assume because i think there were issues prior to these incidents happening and we're not saying that we have a sell on it because we expect another to happen. the recovery scenario is unrealistic. >> thanks for calling that in. her downgrade to sell. you're the bull? >> yeah, i can be a bull. i lean toward being bullish but i understand and appreciate that it's going to take time to fix this problem. this reminds me of panera three and four years ago and they had
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a lot of issues and had to spend a lot of money and it took much longer than expected to see the turn but a quality growth company with a good management team and balance sheet is very possible. i think it's going to take time but the first step is to get traffic in the door and we actually heard that the recent promotions and marketing spend increases are starting to work. particularly in texas. particularly in new york city. two of their biggest markets. it's expensive and going to take a lot of time but if you're willing to be patient this is a long-term of sorts. >> i can be a bull. i'm not going to lie to you. it doesn't sound like a high level of conviction on this time. >> this is not a day trade or month trade or until the end of the year. but i do think looking back at panera and owning panera was very rewarding. >> do you want to own yum instead. >> i compared this to yum in terms of the potential turn around story and what has to
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happen here. we're not necessarily sure what the marketing spend costs are going to be. what the promotion costs are going to be. not even really sure what the food safety costs is going to be. it's going to take a long time with an expensive stock and also very volatile pricey stock. i compare it to what happened to yum years ago where they had to take the brand and take the tarnish off the brand and bring it back to something that the people remember. so that takes a lot of time. it's not some place that i want to be especially because it's a high beta type. >> let's switch to fitbit. shares are just falling out of bed today. guidance was week. christine, short. >> i'm be the bear here. i don't think fitness trackers in general are a must have product. i also don't think that fitbit is solving problems. you have to spend more to solve the problem. so i think that's the inherent problem that i see within fitbit. there's lite of competition and they are targeting a different
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demographic. a lot of college students own them because the price point is right. so not everyone that can afford a fit bit is going to get an apple watch but apple watch prices do come down i think people will probably opt for something that does more than the fitness tracking element. they sold over 12 million of the hr. only about half of the people owners actually use those actively. i think that's going to be a big problem for them going forward. >> steph you're a buyer. >> i am. >> this company just delivered 94% year over year growth. 74% sequential growth in revenues so their units actually surpassed expectations so people are buying it. asps were in line. the problem is the guidance. very back end loaded. people don't understand the seasonality just yet. when is it? we think the fourth quarter but
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we don't know and they have to spend a lot. i don't think down here at these levels it's at 16 times forward estimates so it's not expensive and you're still getting good growth. they have to spend a ton of money and they are and i do think there's opportunities but if not why wouldn't somebody come in and buy them. >> cuts into the margins too. the margins are going to suffer for that reason. i don't know if it's necessarily a sell but i don't see right now that you could say right now you'd want to own it. just like chipotle. that's further out. we're talking 2017 for chipotle. >> twitter got upgraded to out perform at raymond james. taking a chance they say. $25 price target. expecting more monetization gains. are they right? >> well, i tend to lean on that. i have been in this for a little while now. i was in the name itself. i got out of it and i'm still in it in the playoffs or whatever.
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this name continues to grind itself higher. they have to reestablish themselves with the users that have left and that's something that i think the one part of what jack has put out there, which is how we want to engage with them. 500,000 plus or more depending on the number you want to look at that they can reengage with. we're stuck at 300 million. this moves the needle for them. one of the most anticipated car reports on the year. that's next on the half.
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>> coming up on power lunch at the top of the hour, exclusive interview with the ceo of mexican oil giant pemex. plus investment advice coming your way and the one chart that could be a big buy signal for your money. it all kicks off at the top of the hour in power lunch.
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in the meantime, halftime is back after this quick break. ♪jake reese, "day to feel alive"♪ ♪jake reese, "day to feel alive"♪ frank abagnale. convicted felon and con man. that was a long time ago. you know, they made a movie about it. you were shown to be quite skilled at fraud. times change. now i help catch the bad guys. me too. i help banks detect fraud by applying cognitive analytics to public financial records and social media. so if somebody said, "catch me if you can...?" we can. let's do a sequel. it could be a buddy movie. i would like to have a buddy.
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welcome back to the halftime report. i'll phil lebeau with the consumer reports annual auto guide. this is one of the most heavily anticipated reports of the year in terms of ranking auto brands, predicted reliability, road tests done by consumer reports. let's look at the top five brands. audi number one, subaru number works followed by lexus,
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porsche, and bmw. the bottom three, this is interesting, fiat, jeep, and mitsubishi. by the way, none of the models that have been tested by consumer reports for any of these brands is recommended by consumer reports. and jeep in particular is interesting. consumer reports continues to question the reliability of jeep models n. fact, they haven't recommended a jeep model since 2013. and yet jeep sales continue to soar here in the united states. last year they were up 24%. here's jake fisher from consumer reports talking about jeep and its reliability questions. >> the reliability continues to not be very good. so lots of problems with these vehicles. trips to the dealership. trips to the mecke nichlk that's not good when you spend $30,000 for a new vehicle on average. >> and yet it doesn't really bother people. it may bother investors when you look at what has happened with fiat chrysler in the last year. the stock is down 60%. not just because of questions about reliability why the stock
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is lower. but this is the most interesting story that i have covered over the last couple of years here in the u.s. this. bran gets blasted to chb a regular basis for its lack of reliability and yet sales continue to go up. >> might start bothering people, who knows. phil, thanks, interesting. phil lebeau with the latest results from skuler reports snoou i. >> our next guest is looking for signs of a bottom in stocks. dan is the ceo at palisade capital management has nearly 3:4 billion under management. we see the market selling off crudes down 5%. that's the story from here to eternity? or what? >> you are going to start to see the relationship between crude and stocks break down. when that happens stocks become completely uninvestible. i think you are starting to see that trend move in. you are also starting to see corporate and high yield bond spreads begin to narrow from the wide levels that they were a few weeks ago. that's also a positive. and i really think the dollar has peaked this year. i think that's the key story.
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the fed gave guidance they are not going to move so quickly on interest rates. you are seeing rotation in the more economically sensitive issues. the industrials and the terse. those are where you want to focus. >> why small caps. >> they are most closely kerlted to high yielding bond spreads. the russel dropped. must we're midway through the cycle for margins whereas the s&p 500 is closer to peak for margins. >> do you think a bottom is in? i think we are bottoming. we always think about bottoms as one particular day. this is going to be a process. i think the process is well underway. i think we're probably very close but we might not be there yet. we might see lower lows possibly but it's going to be a different universe of stocks showing relative strength. you are. >> are we higher or lower at the
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ends of the year? >> most definitely higher. i think at a minimum we could be up as much as 10% on the s&p. >> okay. >> i think once we get there -- again peaking dollar, i think corporate earnings in the united states are much better. and you are going the reverse a lot of the trends that plagued the market in 2015. >> dan have a rue, palisade capital managements. we have unfortunate sad news, done drop kin has passed. he was a wall street deal make e philanthropist and an investor at the hedge fund. he was just 67 years old. our thoughts and our prayers today with his family.
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approached by investors for a stake in pair mound. you may recall that mario go belly on this program has suggested that viacom make such a move with paramount and others perhaps to become more competitive. he is one of the largest shareholders, mr. go belly telling us just moments ago the following, he pish wishes that the ceo and chairman of viacom should take paramount, do a joint venture with alley baba, use the asset for acquisitions to buy a content producer such as amc, then create a digital distribution platform such as netflix. telling us that just moments ago as we continue to follow that developing story. viacom shares are up 3.5%. let's go under the radar before we go. the trades you may be missing. christine short tops us off today with a look at tech. >> we like the enterprise tech space. when you look at the end of this week we have got splunk reporting on thursday.
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we are bullish on this, we are expect being a penny beat. look, they were massively oversold until the last couple of weeks but this is a company that has had strong fundamentals. if you look forward the picture is great. and companies are investing in their growth. they make software that allows to you analyze big data. these are things that are critical for business efficiency. i'll be watching them towards the end of the week. >> activity? >> red hat. it hasn't done well. today somebody is out there bying the april calls. huge trade, huge dollars put out in front of there. and this is a march 23rd earnings. keep an eye on that. i'm in those option as well. i think they're going to test the numbers. >> john? >>lets' not forget the u.s. dollar has declined 2%. that's a necessary component for asset price appreciation. incredibly important. only problem is last night you have to be concerned about what
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the chinese did devaluing their currency in the stocks selling off and crude oil is a large part of the story. s&p down less than 1%. "power lunch" picks up the market story, and more, now. good afternoon, everybody. welcome to "power lunch." along with michele caruso cabrera, i'm tyler math son. brian has an exclusive? just a moment. first, though, let's talk about this selloff. oil tanking following comments from saudi's oil minister. crude right now, there you see west texas down $1.62 that's about 5% at $31.75, ice brent is sat $33.21

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