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tv   Power Lunch  CNBC  July 18, 2018 1:00pm-3:00pm EDT

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large gain. >> right. >> but the reality is, when you look at everything else that's been left behind, should they really be down in the kind of environment they're in >> when you take a look at the technology as a whole, faang, great performers we have microsoft at an all-time high effectively so we do have broad participation in the market to michelle's point, this uncovers these value opportunities for other investors who may have overlooked other parts of the market for instance, we had one panelist today pitch huntsman. >> i'm not suggesting -- the valuation was the reason the market went down in '08-'09. >> but you guys have a great show, i know you will. i'll look forward to your panels later. we'll be there take it away. >> scott, thank you. and scott mentioned we have a huge lineup in the next two hours here on "power lunch."
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president trump's top economic advisor, larry kudlow, speaking earlier saying that the u.s. economy could top 4% growth. we'll debate that. and then we will get the fed's latest take on the american economy in just under an hour's time from now. in about 90 minutes we'll hear from carlisle group's david rubenstein he will join our becky quick to talk deals, the economy and much more. >> let's get a check on the markets. i'm getting ready for my big interview with steve bannon later on today trade tariffs and the threat of china. a lot to talk to him about later on this afternoon, we'll have that in your other show you do, melissa, "fast money." right now stocks are managing to carve out some modest gains ahead of the fed's beige book. the industrials higher by 76, the s&p higher by 5 and the nasdaq is a little lower financials and industrials is the day's best performing s&p sectors.
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consumer staples, real estate, utilities, they are the worst. all those interest rate effects that we're seeing in the markets today, melissa. >> meantime we want to get you caught up on some of the other headlines we're watching for you. european regulators slapping google with a $5 billion fine claiming its android operating system is abusing its dominance. the eu commissioner speaking on cnbc with some harsh words saying google must stop this behavior meantime construction of new homes falling sharply in june after making solid gains in the prior months single family homes and apartment buildings seeing drops there. morgan stanley shares are rallying right now the investment bank comfortably beating wall street estimates, raising its dividend by 20% here tyler mathisen is with us as well he's had a front row seat for all the day's news makers over at the conference. he's live now from inside the room where it is all happening hey, tyler, good afternoon
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>> michelle, thank you very much the crowd has left the room and headed into lunch where they will hear from david rubenstein. we kicked off the morning with our dear friend, larry kudlow, now chief economic advisor to the president. larry is nothing if not an optimist and he is highly optimistic about the trajectory of the american economy. he thinks growth is good and may get better and stay that way for a while. here's what he said. >> it looks like it's 4ish i know nothing more than you know at this point informationally. but it could be higher i'd be thrilled if it was 3 plus, because that was our baseline but he yelled at me during the campaign, after the campaign and when i came into this office oh, you'll never get 3, you'll never get 3, including dear friends of mine in the democratic party who i expect
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enormously we are getting 3 and it may be 4 for a quarter or two it may be plus, i don't know but that's all to the good literally, millions more people are working. if you go into these jobs, what's the key point the key point in my judgment, the best way i can help the country is get the economy strong and prosperous. >> and so larry believes that 4% for a couple of quarters may be possible, but he also thinks that a good longer term run is in store for the economy of course one of the undertones this morning, not just with mr. kudlow but with other guests today has been about trade larry entered the white house as an unapologetic free trader. his position now is more nuanced than it was. perhaps the familiarity has bred a little bit of a softening in his view he says he welcomes the dispute, if you will, with china. let's listen to why.
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>> i have been a long-term critic of china. it's all a matter of public record on the tape and i think the president is doing exactly the right thing here this should have been done years ago. a, the world trading system is broken the world trade organization is broken we just had this discussion at the g7 b, the biggest culprit is china. >> the president -- excuse me, larry sees the president not as a trade warrior but as a trade reformer on specific points, michelle and melissa, he says that there is very little progress with china. he believes that the chinese want a deal, but that president xi does not want to deal right now and that they are waiting on him. on mexico, a different take
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entirely larry says that there is good progress on doing a deal with mexico with respect to europe, he hinted that jean claude yunkers of the eu may come with proposals out of the eu. that is certainly news making if it comes to pass ken griffin, the leader of one of the biggest hedge funds in the world, spoke also about trade. his views are a little nuanced as well with respect to the president's posture. he agrees on the one hand and d dissents on another. >> the president unquestionably has the right mission. the united states post world war ii, embraced a series of trade deals, one, to help rebuild war-torn europe. but the big picture is, and the
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president is right, over the years we've generally left the table with a deal inferior to our trading parties and we need to address that. the current strategy i don't understand, but i'm not party to the strategy itself. we've got an open battle with many of our allies on many fronts to me it strikes me as an incredibly complicated set of negotiating tactics, to have so many open fronts simultaneously. >> so in a nutshell, griffin believes the mission is right in terms of trade questions or is not aware enough to have a judgment on the tactics. on the economy, griffin, like larry kudlow, is bullish he sees six to nine months ahead of very strong growth. he does, however, say that the year 2020 and 2021 are looking a little bit murkier back to you all. >> tyler, thank you. tyler mathisen from inside the conference there. president trump has been holding a cabinet meeting that
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finished up a short time ago we want to get to eamon javers who's live from the white house. >> reporter: the president got some questions about russia, a topic that's dominated the past several days since his meeting with vladimir putin, but he also took the opportunity to turn to some more comfortable ground on the u.s. economy, talking about what the impact has been on the economy from his tax cuts last year here's what he said. >> before we had the bill passed on tax cuts and reform, it was virtually impossible to get money brought back into our country. now you look at apple, i believe they're bringing in about $250 billion and they're putting that to work in the united states other companies are likewise bringing in billions and billions of dollars. we've never seen anything like this before. i think ultimately the number could be $4 trillion. >> reporter: now, the president also teed up some announcements that he's going to be making tomorrow in terms of the american workforce focusing much
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of his commentary today on the idea of apprenticeships, bringing in his daughter, ivanka trump, to talk about that issue. that's one that we can expect this white house to focus on tomorrow as well back over to you at delivering alpha. >> thank you very much let's break down everything we have heard so far with the economy today, trade, america's standing in the world. greg and douglas, gentlemen, good to have you here. let me start with you, doug. larry kudlow says 4ish we get 3 and we could get a couple of quarters of 4 maybe even higher. do you agree >> i think 4 is almost baked in the cake for the second quarter. there's a lot of stimulus in the pipeline so i think it's a very sensible outlook he's got for the next six to nine months. >> is it sustainable >> it's not sustainable over the long term. they're going to have to turn to some very hard challenges. number one, they're going to have to deliver on trade as a
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pro growth part of their platform we'll see if they can do that. they'll have to deal with the budget deficit at some point and they don't have much time. so there's some real challenges that are going to throw up big headwinds. >> greg, in terms of the pro growth part of the platform, kudlow was talking about not just tax cuts 2.0 but potentially 3.0, 4.0, various iterations about tax cuts down the line i don't know what you think about what the likelihood of these things being passed and what that could mean for the economy given the sort of -- the he headwind that the economy could face with tariffs but the tailwind with additional tax cuts. >> well, the low-hanging fruit in terms of pro growth tax policy has already been harvested and that was lowering the corporate rate tax form 2.0 is about making some of those original moves permanent because some of them are expected to expire in four or five years. that's going to be tough because it will require budget
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instructions that have to maneuver past a very small margin republicans have in the senate beyond that, i don't think there's a lot of pro growth juice left for this administration at some point they'll have to confronting the fact they've blown deficits sky high. larry said today, we'll have high def sits for a year o'two but that's the investment in the long term. where they disagree is that they don't buy the white house argument we're going to have this fabulous 3% decade that wipes aum tll the deficits away >> doug, president xi is president basically the rest of his life is he in position to play the long game and basically wait out the trump administration, who again has to run in the next year and a half or so? >> yeah, i think that's a great point. i've been worried about this for quite a while. i thought that the most important thing that larry kudlow said this morning was to point the finger directly at
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president xi for lack of progress with china. that had to be calculated. they sent him there to make that point. it's very consistent with this president's approach to things, which is to make things personal, and we'll see if it yields any kind of change in the chinese posture. i think at this point there's no evidence that it will, but they clearly believe that they can get china to bend without help from the europeans, without help from other allies. that so far is a pretty risky strategy. >> at the same time, greg, the president just this morning along with larry kudlow both hinting that perhaps a trade deal with mexico, smaller than china, of course, but much nearer in proximity and actually when it comes to economic impact maybe even more important. >> yeah, it's actually interesting. that's not the first time we've heard mexico suggested as the first country to cut some sort of a significant deal. i think it's also noteworthy that they did not mention canada in that reference. so it sounds like they're talking about writing a
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bilateral deal with mexico and leaving the canadians out and then using that mexico model as deals with every other country it's an interesting strategy, but it's a high-risk strategy. the whole theory of the administration's case is we're going to get really tough and hit these guys with tariffs and they'll come back and pbargain for something better it's not working yet and in some respects it's back firing. china said okay, we'll lower our tariff on cars how's that, mr. president? that wasn't good enough and we hit the chinese with these tariffs. as a result, they raised tariffs on our car exports and lowered them on europe right now the trade war is helping european exporters and hurting american exporters. >> yeah, and china is also inking a bunch of deals to set up shop in terms of factories in europe in the mean time we're witnessing that white now. what's interesting in the interview with kudlow, he was tracing kudlow's progression to more of the peter navarro side of things in terms of being a china hawk
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at the same time, we heard maybe that there's a limit to what we are all calling a severe trade dispute or trade war, whatever you want to call it. when cramer said would you go up to $500 billion in goods to be taxed and he was like, no, no, no, not -- i'm not convinced we go that far. have we seen the limits at least? isn't that a silver lining for the markets? >> i think there's a point to be made there look, what we keep hearing the white house saying is it's a good time to do this because the economy is very strong that's an acknowledgement that this strategy is harming the economy at some level. if they escalate that much, there's going to be significant damage because it's not just those tariffs. it's all of the feedback you get from around the globe with retaliation and deals being cut in other places. so i think there's a good reason to be concerned about that i think the larger point, and i think greg hinted at this, is this administration needs a win on trade it needs a moment where this strategy pays off with a significant reduction in trade
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barriers mexico might be considered a big win, but that's really nafta losing. >> do you think the president thinks he's winning politically already? i think he thinks he's winning on trade he thinks this is a winning strategy. >> if he -- if they don't get a win. say they don't get the europeans saying we're going to lower some tariffs and only get retaliation escalation, it will damage the economy and they will not win. >> got it. okay gentlemen, good to have you on, greg and doug. >> thanks. >> thank you beyond the big picture of the economy and trade, we've also heard from some of the best and brightest in the world of investing and these folks have been offering up some money-making ideas leslie is here with that side of delivering alpha. >> the day is only halfway over and we've already heard several stock ideas and those stocks are moving in the markets already. alex presented on huntsman, which is a diversified special chemicals company. he said they have transformed but are still trading at their old multiple he says the balance sheet has
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been cleaned up and the stock has a potential for a 60% upside from here. huntsman gained about 2.5% on the presentation jim chanos also spoke. he gave two names he's shorting. envision healthcare and mednax he believes they follow an old business model that's proven disastrous in the past, one in which they won't be able to service their debt so it's an accounting play there, what c n chanos is known for. he said they may face alonger term decline. >> they're not going bankrupt tomorrow on the other hand, they need to keep financing themselves just to keep the illusion going and that's the fiction of the business >> now, both of chanos' shorts plummeted when he presented, but now they're down around 1%, guys. >> coming back a little bit. >> coming back a little bit. >> thanks. all right, lots more coming up from delivering alpha carlisle group's david rubenstein will join us.
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he's about to take the stage we'll listen in and then hear more best investing ideas. coming up next, we'll ask the manager of a big pension fund where he is investing his money right now. your digestive system has billions of bacteria, but life can throw them off balance. re-align yourself, with align probiotic. and try new align gummies,
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welcome back to "power lunch. we are live from cnbc. institutional investors delivering alpha conference. one topic important to a lot of people here, retirement and pensions in an environment where it's harder to see bigger returns, how are pension managers delivering alpha mark, it's great to see you again. one way you're trying to deliver alpha is be out of hedge funds you zeroed out a year ago completely so when you get into a room filled with fellow pension fund managers, are you an outlier >> i used to be much more of an outlier. more and more seeing what took place over the last five or ten years is that hedge fund industry is destroying enormous value for institutional investors.
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the stock pickers, which is about half of that crowd, kind of suckered investors into following a benchmark that makes no sense once you compare them to equity markets, they underperformed by 150 basis points and the other half, the derivative book guys, we should expect equity type returns. >> you were completely out a year ago but this is a market environment where being a stock picker wasn't a good thing where you could be in a basket of stocks in passive funds, which you are in right now, and it was a fine environment. right now we're entering perhaps a time for the value investors for the stock pickers of the world. are you open to changing your strategy at this point >> so we're not entirely indexed, right, we have two-thirds of our fund that is passive. we've terminated about 100 managers in total. one-third of the portfolio is
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alpha seeking. i truly believe comparing our portfolio today versus three years ago that we have better, much bigger sort of aggregate alpha opportunity in that one-third because we're so targeted we're expecting hundreds of basis points of alpha out of the managers in that one-third which is mostly private markets. >> what's in that one-third? is it alternative investments or how is the seeking alpha >> so there are a few public market managers that survive the culling, but most of it are private market assets. the asset class that i really love the most is opportunistic kind of noncore real estate and credit, where banks have really receded from lending we're actually targeting 12% to even low teen type returns with unleveraged kind of first lien beautiful risk, much less risk than the public stock market. >> you're lending certain projects or buying loans once it's done? >> a lot of the private credit
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world are lending to private equity guys. we do some of that, very little. really we're going into the nooks and crannies so we may be doing something like a distressed mortgage, a late stage aircraft, things like that maybe some energy assets that, sort of thing. again, sort of off the run that's whereby indexing two-thirds, the remaining third is $6 billion. we can actually do the lower assets under management, aum managers and find some terrific al fachlt that's where i think the alpha is. >> when you look at the landscape, is there anything that concerns you now? larry kudlow talking about the yield curve not being a big deal anything out that there gives you pause? >> well, you know, i'm sort of a natural optimist i like where we are. kudlow said it really brilliantly today with a growth recession. the way i describe it is we have little mini recessions built into the last eight, nine years. so the sort of business people in this country, you get really
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kind of beaten up after a recessi recession. that '08-'09 thing was vicious it's taken a long time for people to get some elbow room. i think we're there now. i think we're in early to midstage, that's my view. >> what's it like managing a pension fund in illinois and you could ask that in many states where there's all this pressure on you guys to outperform as much as possible because previous politicians made very big promises >> they made promises that could have never been kept. >> right >> so in illinois, we are under 40% funded there is nothing we can do responsibly with a portfolio that's ever going to make that up we just have to do the best job we possibly can, and that's kind of what we're doing. that's like pulling all the costs out. it would be really sort of inappropriate i think to be paying huge fees, mediocre performance, right, and where our beneficiaries, which is about 130,000, right, they're
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kind of -- they're our creditors, right they're on the hook. and so we just try to manage it with them in mind. >> mark, thank you >> thank you >> mark levine. let's show you what's going on with the dow. it's up 60 points and heading for its fifth straight up day. also more big earnings coming up m day after the bell iband american express will be reporting. looking forward to those when "power lunch" returns.
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all right. the dow is heading for a five-day winning streak here trade and tariffs taking a back seat to strong earnings and a growing economy. ahead, what did fed chair jay powell say about the economy let's check in with bob pisani at the new york stock exchange. >> it's been an excellent day overall for earnings because the companies that we want to beat are beating. not only that, they're raising guidance several companies came out and not only beat, raised guidance granger, beat, raised guidance united airlines, beat, raised guidance csx, they beat as well they raised guidance textron, they came out, they raised guidance. down a little bit right now on some margin pressure so we've got a rocky start to earnings let's call it that remember when jpmorgan came out several days later it was fairly difficult.
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things have turned around a lot. the reason things have turned around, we have seen 0.1 of the s&p reporting and numbers have gotten better every single day today earnings are expected to be up 25%. it was 21% just a few days ago this may be another big blowout quarter. revenues expected to be up 8%. so far they're up 10.1%. so right across the board. key trends we're seeing, very important. the emphasis among the companies on the expanding economy, it's not on the tax cuts. revenue growth, they keep talking about the fact that overall revenues are growing and it's no longer a cost-cutting environment for them as much to maintain the earnings. there's some talk on buybacks, dividends and repatriation not as much as i expected. the key to the momentum for the markets so far has been the companies have been maintaining their guidance and in some cases we saw today they have been raising their guidance now, we're going to get a couple
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of dow components right after the bell number one, we'll get american express. we'll hear about consumer spending there i expect they'll say very positive things. of course the first real big tech company that's out, ibm will be there. ebay will also be out as well as united rentals keep an eye on all of them guys, back to you. >> bob pisani at the new york stock exchange we've got much more on the markets live from the delivering alpha conference here in new york city. you always pay your insurance on time.
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fed chairman jay powell just wrapping up the second day of his testimony for congress the comments on the economy were the same but the questions from the house of representatives were different steve liesman joins us from cnbc headquarters with the latest >> fed chairman jerome powell very much sticking to the script of yesterday in his testimony and q & a before the house that the economy is strong and the fed is on track to gradually
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raise interest rates highlights of today's hearing were strong efforts by house republicans to have the fed chairman agree that tax cuts were behind the recent economic strength, insisting he did not want to wade into politics, powell said fiscal policy was one factor give a listen. >> it's fair to say that the unemployment rates are very low and that a lot of things go into that. >> so you wouldn't say today that it has anything to do with regulation or tax? >> you know, it's -- i'm reluctant to get into the credit assignment game. it's really not up to us i can report on the economy. >> weaving, bobbing and dancing there. later democratic congressman asked him to attribute growth to president obama. powell was more definitive when it came to his concern about trade and tariffs, saying the fed is hearing a chorus of concerns from businesses the fed chairman did have stronger words, though, about cryptocurrencies.
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>> cryptocurrencies are great if you're trying to hide money or launder money, so we have to be very conscience of that. i think they're also significant investor risks investors relatively unsophisticated investors see the asset going up in price and they think this is great, i'll buy this in fact there is no promise behind that. there's no it's not really a currency, it's -- it doesn't really have any intrinsic value. so i think there are investor consumer protection issues as well. >> one takeaway is neither party seems particularly concerned about the fed's plans to hike rates here at the moment we've got a rare bit of bipartisanship on fed policy. >> interesting, very rare. thank you, steve now we want to listen in to one of our delivering alpha panels c carlyle group co-founder speaking with becky quick. >> it's been a big growth business and people have done pretty well.
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the people that have done the best are not just the sponsors and general partners but the people that invest in the pension funds have done extremely well the highest rate of returns of pension funds over the last 20 years have come from private equity funds. >> let's talk a little more broadly about the markets at this point too i think back to 2007 when chuck friends infamously said as long as the music is playing, up got to get up and dance. you were much more circumspect you said right now we're operating as if the music is not going to stop playing and it is going to stop. so what made you think at that point -- what did you see that maybe he didn't see? >> if you're jewish, you always think something bad is going to happen so it was kind of that you know, you just know something bad is going to happen eventually so i thought eventually something bad will happen because it can't keep going on forever. i have concern now
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we have been in what is the second longest growth period since world war ii at some point it will slow down. if something can't keep going on forever, it won't. at some point there will be a slowdown i don't know what will cause it. i can speculate. i don't see it imminent now. at that point i did think people were paying high prices and there was basically a view nothing could go wrong and that was probably a bad attitude. >> but you are opportunistic at times when you need to be. you said it's the easiest time to raise money. >> that's right. >> how do you take your concerns about when things are going too good and how do you match that up right now and are we in a situation of musical chairs right now? >> there's no doubt when you see what the projected returns are and there is no projection for a recession or slowdown over the next five or six years, those returns are probably too optimistic when we look at deals, we do assume there will be some slowdown it doesn't have to be a great
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recession, but there will be a slowdown you have to be very cautious and assume there's some slowdown in the next five or six years and be prepared for it one of the things that makes it a little easier is that the debt terms are much more favorable to general partners than they used to be and sponsors before the great recession, about 70% of the debt was -- had covenants, 30% did not today it's probably the reverse. maybe only 30% has covenants, maybe 70% does not so there's a lot of covenant-light debt so if something goes down, the economy slows down, i think you'll have a chance to work through the debt problems. >> why is that >> i think lenders have felt private equity people are pretty responsible and likely to make these deals work and i think there's competition. generally, very little money has been lost relatively speaking when buyouts buy banks and them fairly comfortable with the sponsors in the old day they were investment bankers who knew a little bit but not that much about operating companies.
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over the last 20 years, private equity firms have added operational experience so it's not people like me, former lawyers, overrunning these, they're people with real operational experience so the banks have much more comfort. >> is part of it just what the federal reserve has done with interest rates being so low and so much money around >> i wouldn't say i'm an expert on the federal reserve i hired someone to join carlyle and his name was jay powell. i thought he was a very good private equity person. i said the highest calling of mankind is private equity, why would you want to do something else he wanted to do something in public policy. he testified the other day that right now he doesn't see any reason not to continue the program that they have, which is basically probably have interest rates go up two more times this year, 25 basis points apiece, and probably get interest rates up to 2.4% by next year so that if a slowdown does come, they are lower interest rates right now i think he feels the
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economy is doing reasonably well, and i do too we don't see any evidence of a slowdown we have 275 companies that carlyle owns around the world. we get every quarter their numbers and correlate with what we see gdp tends to be and we don't see any slowdown right now. it will happen at some point but this year and next year, we don't see any signs of a slowdown. >> neither does the market if you look at stocks there's always been a premium for buying control of a company. i've heard from a lot of investors recently that they think buying control of a company, that premium that you pay is higher than you've ever seen if you look over the last seven years, it was seven times ebitda and now it's 17 so almost doubling. >> many of the firms do higher stake deals. you see much more growth capital and/or minority stake deals in mature companies so you can't buy control all the time the premium you have to pay is
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not worth it in some cases. >> so you would agree with that, that buying control of a company is pretty -- >> it's harder to do than before it's not something you don't want to do it's better to have control and then you can make the changes you want very often if you're taking a minority stake, you do negotiate to have certain rights to change management or make certain you have impact on management changes and the ability to sell when you want to sell. so a minority stake is not completely a passive position. >> let's just talk about wall street's views on private equity companies, the ones that are publicly traded. david faber interviewed john gray from blackstone and asked him why has the stock not appreciated more what gives if there are so many wonderful things, why doesn't wall street appreciate it? >> there are three great mysteries in the world one is what existed before the big bang nobody knows second, is there an afterlife and what is it like if there is, nobody knows and third, why do equity firms
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not trade at a higher price. to me, those are the three great mysteries of the world the answer to the first two, i don't know i'll tell you why they don't trade as well as we'd like them to it's been a business when you say to your investors when the business first started, pay us a small management fee to cover our costs but give us 20% of the profits. that was an enormous change in the world of money manage. for 200 years, you got a fee when the money was managed and didn't get a piece of the profits. private equity people said give us 20% of the profits so that's how our business has been grown and why people give us money, because they want us to be incented to get this high. when you're publicly traded, the analysts that follow stocks don't want to know when you're going sell stocks because you don't know when you're going to sell, they want to measure your management fees, how much money you're making on fees that are very predictable so they can say
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to their clients in next quarter carlyle or blackstone will earn x or y therefore, a big premium on management fees, which our investors don't really want us to earn too much of, there's a little premium on carried interest so there's a bit of a dichotomy there. we're all sorting our way through it clearly a lot of people have commented, as i have, it's not really fair in some ways because we have built these gigantic cash cows, money machines, but they're not valued as highly as they should be. >> all right, we're going to pull out of that very interesting dave rubenstein investing acumen but also his incredible wit always on display when he does interviews and explaining the dilemma or dichotomy of what's going on with publicly traded equity firms. the dow on pace for a five-day winning streak. so is the market ready to turn the page on the trade war fears and embrace larry kudlow's 4%
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economy? good to have you here. >> thanks. >> how are you investing are you investing based on the assumption we're going to get 4% like larry kudlow talked about. >> we're investing based on this year will be a peak year in the economy. 2.8% gdp growth for the year 20% s&p earnings growth. so keep in mind the last five years average earnings growth was 5% this is quite a strong year. we can totally see jay powell's point in continuing these rate hikes at this point. he's facing a very strong fiscal stimulus, he's facing an economy that's quite robust, a quite robust labor market. so two more rate hikes is certainly in the cards after that, he's calling for or his team is calling for three more in 2019, another one in 2020 the markets certainly haven't priet priced that in. >> does your portfolio look different investing for peak growth if kudlow says 4%, does your portfolio have to change >> certainly you have to be a
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little bit more cyclically oriented what's really worked this year is technology, discretionary and small cap. the small cap story i think is unique because it's isolated from the trade war fears, it's more domestically oriented, tax reform beneficiaries, that we think has legs going into the second half of the year. the other part of the story which is technology and discretionary, we think there may be room to round that out with other sectors that maybe have lagged a little we're looking at energy, we're looking at israndustrials and financials here. that's been a roughfirst half but numbers have been very strong even despite the yield curve flattening, they have optimistic outlooks. >> today there are people calling for the fed to slow down the reduction of the balance sheet in the next four to six months emerging markets getting whacked, china is down big if the fed were to slow down, would that be bullish or bearish for the u.s. equity market >> i think if the fed slows down, overall we get a bullish bump right away. i think generally speaking, what they're doing now is removing
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liquidity from the system, tightening financial conditions. over time that slows an economy. for them to slow that process would be bullish from an economic perspective i do think looking at the differential between what you mentioned, u.s. and china, it's amazing to see the outcome of this trade rhetoric. people are piling into u.s. equities, the dollar was gone up about 7% and the chinese market is down 17%, the yuan continues to devalue so it feels like if they are looking at purely the u.s. flows and the u.s. trajectory the fed will remain on track from a global perspective, they may have a little more concern but our view on this is they're probably looking at it from a u.s. perspective here. >> thank you so much for joining us here at delivering alpha. all right, coming up, elon musk apologizing for using a crude insult on twitter. but is his behavior a real drag actually on tesla's stock? earlier we heard alex roper likes the chemical company huntsman, calling it his best
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idea it's down 5% so far this year even though it's higher by 2.8% right now as a result of delivering alpha what does he like about it he'll make the case next, here on "power lunch.
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tesla ceo elon musk apologizing for insulting one of the rescuers who helped to get the thai soccer team out of the cave safely in thailand. musk felt the diver insulted him first. musk tweets his actions against me do not justify my actions against him and for that i apologize to mr. unsworth and to the companies i represent as leader the fault is mine and mine alone. one saying this crossed the line and he decided to write an open letter to musk. >> an issue for tesla plooebeli,
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the investors, was this was illustrating a leader who was thin-skinned and short tempered and that really isn't the reality of who elon musk was and so the purpose of this open letter was to encourage him, first, to apologize and, second, is to and second t take a more measured approach to twitter, ignore the short sellers, and really focus on what is most important, which in the near term is improving model 3 production >> we talked about this last night. it is not a bull story it's not a bear story. it was offensive to almost everybody, wherever they lie in terms of where they stand on tesla. >> i think mr. munster understands that we talked about it last night. with musk, you take the good with the bad. >> right. >> is this enough? i don't know shouldn't have done it in the first place. that would be my pushback. you shouldn't have to walk back something like that in the first place. was it enough to assuage the fears of investors, i don't
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know i would say tesla hasn't performed well in the last months a series of lower highs gives me pause. i think we retest the 280 level. >> the we said elon musk was out as ceo, would the stock trade up or down? >> we talked about that last night. i think and you i know if he were to resign the stock would trade significantly lower. estes la. >> our next guest has a take on tesla as well. alex rupers, the founder and ceo of atlantic investments. you are short tesla. since when >> correct thank you for having me. i am a value investor. primarily ong the long side with you we have been shorting for the 30 years i have been in business the tesla story, the narrative spun around the election trification of cars has been around long investors.
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office director of a car company at one point the biggest issue of tesla, if you could step away from that it is a cult stock or technology or whatever, there is one factory in georgia that made production for gm the max performance is 400,000 next factory they are talking about will take five years to build and to get up to speed at least. you are running into a brick wall in terms of producing cars at 400,000 at the most how can you justify $64 billion market cap which is the cult stock factor time is ticking on that one. >> you make one of the key cases against tesla we often hear. but you are long because car stocks have great opportunities
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because of election trification. there is no double hedging there. >> the internal combustion engine and hybrid engines all need spark plugs, components to make these cars work 93 million cars were sold, less than 1 million electric vehicles the rest are internal combustion or hybrid. all them need spark plugs and service. there is a lot of companies in the disrupted areas that are going to be a long, long tale for decades making money you can buy those at a diskupt. >> why do both it concentrates your position? >> you go long something usually on the value that's misunderstood. right now that's for real that makes a lot of money on the other hand you are short something that is a cult stock that a lot of people love to see succeed. i must give them and the company a lot of credit for what they have done. built good cars, disrupted the
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industry reality is weighing it it has a negative working capital, $10 billion in debt can't seem to make money it has retail outlets, its own charging station it is a model that hasn't produced even with scale any profitability. that's the issue i wish everybody well but we need to take positions and this is a short. >> it hasn't gone to scale yet so the verdict on profitability is still out your premise is it will never get to sufficient scale to see profitability. >> it will get to scale if they do the right thing they should issue a ton of equity right now while the stock is a high valuation and then people should be realistic it takes three years as mr. musk said to build a new factory say in shanghai. then it takes a long time to get quality cars out the other end as we have seen with the freemont california factory. eight years. >> does that ford at their valuation and gm at their valuation a screaming buy whether or not you are in it or not. >> we are not in those they are not of interest to us
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that much. of interest are the component suppliers. scheffler in germany is trading at a 5% dividend yield and they 2.5 beabout it d.a it's one of the most innovative companies in germany that won the e formula 1 circuit in germany. exciting we are seeing some of the most compelling risk/rewards at this moment. >> i want to get to hundredthsman. you are long huntsman. you see a lot of cash generation. >> we take issue with the cyclical nature. it is trading as if it's cyclical it's become less cyclical with the transformation it has gone through and spinning out the most cyclical elements an undervalued attractive situation. >> divesting -- >> divesting the titanium dioxide business with that they are now basically
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into differentiated chemicals at a low valuation. >> you are giving it 3% today based on your -- >> on your speech out front. rising input costs are they any concern, do they fact or into the equation >> always a concern. we look through it with every business segment with the management but it is all manageable. >> thank you. coming up the latest read on the economy from the fed we are just moments away twr the beige book don't go anywhere. easy to analyze and take action? how about some of the lowest options fees? are you raising your hand? good then it's time for power e*trade the platform, price and service that gives you the edge you need. alright one quick game of rock, paper, scissors. 1, 2, 3, go. e*trade. the original place to invest online.
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welcome to the second hour of "power lunch. the fed is set to release the beige book in a few minutes. in the meantime a check on the markets. not much movement here the dow higher by 64 points. s&p up by four points. the nasdaq is down by just about five points. a lot of headlines out of delivering alpha here in new york city. guy, what are people saying about the dollar. >> mary irdos significantly. what weighs heavily are the currency curves and the speed with which they are moving we tau about that all the time currencies in my opinion shouldn't move as quickly as they moved today clearly the equity markets don't care about them. they haven't but at a certain point they
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will china currency has been going lower for the last couple of months go back to august 2015 when we saw the china deval. it was destructive to the markets over the course of a few months that's what concerns me. obviously it concerns her as well. >> that came up on the panel and i followed up with a question with her saying are you talking about argentina, mexico? she say yeah but i'm talking about the dollar, too. >> the beige book is out kayla tausche in washington. >> the federal reserve's cross country survey painting the picture of an economy across the board growing modestly with prices and wages increase thing labor margins tightening, labor markets expanding, tourism is healthy but uncertain about tariffs weighing on every district businesses in all 12 regions reported difficulty finding workers to fill open jobs. they say there is a lot of turnover and that candidates they are offering jobs to are fielding multiple offers one cleveland builder said it
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was investing in drones to fill a shortage of workers. an oregon bank said it was lending to a manufacturer to fund automation projects the white house's trade disputes figured prominently in conversations with business this is quarter or in the most recent beige book that the fed out out to today manufacturers in all districts said prices are rising and supply chains are disrupted. auto dealers are worried about potential new tariffs. but the tariffs already in place on metals are something of a double edged sword for many of the regions specifically this the midwest and in the south a chicago manufacturer for instance said nand for domestic teal is at a 20-year high and a st. louis steel producer said it was hiring a bunch of new employees. but at the same time you have agricultural contacts telling the fed they are worried about prays declines and the absence of export markets if these trade disputes continue. finally on real estate, residential real estate appears healthy. it's growing in most districts except for minneapolis, where
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home sales fell 11% in may and in in new york city, where the market for condos and coops softened because of a lack of foreign buyers in the market that's certainly an interesting development. this is going to inform the fed when it meets in two week's time trade policy and a tight labor market are the biggest headlines from this beige book. >> difficulty filling jobs amazing. thank you, kayla. let's bring in steve leishman steve, what's your reaction? >> you knowing i'm wondering what this economy has to do to not be described as growing modestly or moderately by the federal reserve beige book we are in a quarter now where we are going to do according to the latest krrks nbc rapped update 4.4% growth, or we were in the second quarter of 2018 this is the same language that the federal reserve used to describe a 2% economy. i'm perplexed at what has to
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happen to economic growth to get a little bit of an upgrade in the beige book i think one of the thins that's very important for the federal reserve in this is that all of the pricing pressure is also described as very modest or not a lot of pass-through so not a lot of inflation from the growth that's going on right now. i think one other thing out there is that now you know where -- one places jerome powell, the fed chairman gets it from when he talks about business contacts telling the federal reserve there is all this trade concern out there it's deep and all over this beige book when it comes to the concerns about trade that's what we are -- a part of the place where powell gets it from had he he says that business concerns are tell fed officials that trade is a major concern that's out there finally one more thing, we got weak housing numbers this morning. housing has been a bit of an outlier in terms of not participating strongly in the economic recovery and growth that we have had of late this beige book confirms that
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weakness in housing. >> steve thanks so much. not much movements in the markets right now. let's check in on the bond market rick santelli is tracking the act at the cme. >> it's fascinating. the markets had some firming up in terms of rates leading into the release of the beige book. we are onlytwo basis points away from 3% actually, the curve steepening just a little bit. we move from 262 in the two-year down a basis point while with other maturities moved up a bit. in the end what is most interesting about the beige book is the word input. input. it has a transmission into the questions regarding tariffs and input costs for thing like manufacturing. but the biggest input cost of all is human capital labor, labor short ans, tight labor markets. shortage ofs things like truck drivers and high skilled workers that seems to be what traders are paying most attention to because all those transmissions, phillips curve aside, may of
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course lead to more inflation and pricing pressures, which makes the conundrum of a tightening fed in the face of still flat yield curves and questions about growth outside the country that much more intense for the strategy of investors. michelle back to you. >> thanks rick santelli. let's get more reaction on the beige book the president's comments, trade, today's rally in the markets we are joined by sunni hartford. what do you think when the beige book says employers are struggling to fill jobs. are you worried about inflation or are you thinking wow it is a great economy. >> as expected i think the market will focus on the wage pressure and the inability to fill jobs. that's where we will focus i don't think it is a surprise they talked about tariffs. the treat has been counting the number of times tariff has been written into the beige book reports. may was 22 this reference will be more than that i want to see a follow-up to these numbers since they were as
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expected on consumer spending as well as demand for loans those are two things that are going to come out of this pressure in actual effect in markets and earnings that i wait to see. >> we heard from jamie dimon in his conference call that trade is impacting the psyche of clients but not their actions. can we put it behind us that trade is not going to curtail the business activity? or is that still to be seen. >> i think it's still to be seen because you have got a markets that sanguine. i could argue maybe it's complacent volatility and it's low in equity and bonds. this is what everybody has been focus on there is going to be a continued push but i don't think it is a big deal. >> with increased volatility in emerging market does that become huge opportunity for you >> absolutely. you have to be select. we like asia better than lat am.
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big on china but you have to look for the risks. this is where in the active management play versus the index which is going to catch all the heat for all the noise around trade will have an effect. >> how do you invest in china in for years it was almost physically and financially impossible for a u.s. individual investor to buy a stock in china. they bought hong kong toer a proxy. what are you doing >> we were the first to get a license in china we have fixed equities now in china. you have seen the opening of the indexes in the global thing, which is why i would argue separate china out as a sleeve in the portfolio because it is different and the index isn't going to capture the growth in some of these individual names. >> are you invested in china >> china for sure. elsewhere it is idiosyncratic. long term we like india.
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not short-term but long term we like india and there are other countries waiting to see how china falls out in the trade work which to me is a knee jerk reaction as opposed to a fundamental look. >> do you think interest rates are not going to go up or do you think the relationship is no longer as true as it used to be. >> i think interest rates are going up, gradually. emerging markets is different than it was ten years ago. the current account balances are different. central banks are more active. it's more em to em trade there. >> in china what's your theme in investment domestic companies, ones that kater to domestic markets. >> part of the kmapg in the shift of the paradigm. value manufacturing. for the first time steel ago are not the number one exports of the country. it is circuit boards, the high
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value end manufacturing. it is a very different market in china than we are used to. >> thank you for joining us here. >> we are a little past the halfway point here at the cnbc institutional investor delivering alpha conference. leslie picker is out on the floor with some of the highlights >> more news to come ahead of your crypto panel. later this afternoon there was a bit of concept sim about digital currencies, one said not a single portfolio manager of his has come forward and said that the firm should be investing in crypto. >> there is no need for cryptocurrency their a solution in search of a problem from my perspective. what is unfortunate is the amount of hype and the number of early investors who have been caught up in this hype i wish the 27-year-old wasn't
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buying bitcoin i wish they were investing in the companies that define the future of our country and pushing capital that will create jobs, create innovation and will grow our economy >> griffin also reiterated his belief that the financial services industry was a bit too concentrated he said in the past that he believe has the banks should be broken up, that more banks, a greater number of banks would be better for consumers and provide a better value for consumers earlier in the day j.p. morgan asset management's mary irdos spoke about cyber security she said she looks to protect the assets that she invests on behalves of the clients of her firm as well as in the companies she invests in the different vulnerabilities as they relate to cyber security. >> got it. thanks for the rundown, very much leslie picker who is over there in the crowds for us
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melissa lee, guy adami, you are heading into the conference. you are going to be heading up to the best ideas panel in just a hib. >> we will see what we can uncover. >> i think it's going to be great. >> round two, coming up. >> and also "fast money. 5:00. absolutely >> here's what else is coming up on "power lunch. president trump's top economic adviser larry kudlow weighed in on the trade battle with china are there a big new round of tariffs on deck. plus, david ruben stein is going to join us on set to talk markets, the economy and trade. and they are the most valuable sports teams in the world. we will have the list. all that a mnduch more coming up on "power lunch. don't move are you ready to take your wifi to the next level?
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and lets you control your network with the xfi app. it's the ultimate wifi experience. xfinity xfi, simple, easy, awesome. welcome back to cnbc "power lunch. we are live at the delivering alpha in new york city lets show you the markets. dow down by a quarter of a percent. s&p higher by .1%. nasdaq barely lower. not worth mentioning the beige book report came out earlier. there were reports of employers struggling to hire welcome back to "power lunch." we are live here at delivering alpha in new york city david faber joining us on the set. becky quick now also with one of the big keynote speakers welcome lady and gentleman. >> we were just speaking with
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david ruben stein the cofounder and chairman ofcal carlyle group. to give a little bit of an example of how this firm has grown over time, this is a firm that david cofounded back in 1987 at that point they had $5 million in assets under management today they have $201 billion in assets under management. if you want to talk about delivering alpha, there you have it david we talked about a lot of different issues, what's been happening with the markets but we heard this morning from larry kudlow and he said he doesn't see any signs of a recession on the their what do you see? what would you be watching for to show you that we could be facing a downturn. >> it's always tempting to say i see something that somebody else didn't see because people will think you are smarter than they are. i have been saying that we are going to have a recession but i don't see it coming. the companies around the world seem to be doing well. we don't see anything this year or next year
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the economy doing well it won't go on forever but nothing in the near term do i see leading to a recession. >> you would be watching for signs in the 275 companies that you hold >> yes macro economic numbers we don't see signs that are slowdowns in orders or things like that. right now we are happy with where the global economy is going. >> as a money manager you worry about things if there was something to worry about what would it be. >> what i worry about the most are probably three things. one i worry about whether the deficit, the budget deficit and the indebtedness that the united states government has, people will start saying this is a problem for us secondly i would worry whether or not tariffs would lead to a trade war. i don't see it now it is still a very small part of the economy but that could be the case and i do worry about income inequality and whether the economy will ultimately not be able to service the people at
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the bottom of the economy and whether that could cause social disruption in our country. i don't see those being problems we have to deal with immediately. >> you didn't mention the yield curve. kayla tausche just reported on the beige book they are getting reports that companies are struggling to fill jobs one company in oregon said they were going to get a loan so they could automate the business because they can't get people. yet the ten-year yield, meh. >> i don't see the interest rate problem being a problem. when they are too high it can slow the economy down. i don't see the economy being slowed down because of that right now. we think the economy is in reasonably good shape and can take two for 25 point basis point increase this is year. >> we heard from larry kudlow who had strong language when it came to china but certainly it left those who listen to them in the belief that things are not going to get better, at least not before they get worse. you say you don't see signs it
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yet. what would be a significant sign post for you to say wait a second it is getting worse. >> we have a $80 trillion global economy. $80 trillion and the tariffs are roughly $150 billion. it is very, very modest and doesn't really affect anything the china and u.s. economy is roughly $30 trillion and the impact is de minimus, less than 1% in terms of china and less than 1% in terms of the united states. if you begin to have for and more tariffs and you began to see people changing their business habits, right now we don't see in any major company big chains occurring now you did see one company. >> harley davidson. >> do something. >> production. >> generally what we are now saying is that the tariff impacts are being absorbed by the companies they are not passing them along as a result, while it might have a modest impact on profits it won't slow down the economy. if there are more and more trves, $500 billion against the
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chinese, everything we import. we roughly import $500 billion worth of goods from them it would have an impact on the economy. right now we don't see the numbers. >> if it affects the supply chain or psychology in terms of businesses allocating capital -- >> president roosevelt said the only thing we have to fear is fear itself. if there is fear of a trade war that is a problem. right now we don't see an impact on the economy president trump always says this in sessions i'm negotiating, give me flexibility to negotiate, i will get a better deal people don't see it as being long term. they see it as a negotiating posture. >> how is it is it to find companies to invest in right now. >> it's hard that's why we get 20% of the profits. it's hard. >> it is harder than it has been
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in a long time >> it is been hard for the last couple of years because prices are high, people have a lot of money and we haven't had a recession for a while, ten years, as a result peopleare not afraid there is no fear factor in the market when there is a fear factor a lot of people drop out and they are not buying thing right now there is a lot of money and people are not afraid. so people are paying higher prices >> the good news on that, though is if the you have a business that you are ready to sell you can get a higher price for it. >> no doubt. but people say well geez the markets keep going up, maybe i should hold on for a while we own 275 companies, if you see a good opportunity to spell or liquify we will do that. >> there is a $1.4 trillion -- on the other hand the economy is bigger than it used.
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$80 trillion global economy, $1.4 trillion is not a big a deal it's also money that is on the sidelines and it doesn't have to be invested. if it's not invested it doesn't hurt the economy but i do think the money will get invested. roughly 95% of all the dry powder eventually does get invested >> we carried your comments live earlier when becky was interviewing you during the conference you talked about some of the deals going down at 12 dimes ebitda the last time that happened was union vision union vision is still struggling the last private equity. >> they had a leverage ratio. >> there are difference. of the 25 biggest deals done at that period of time about 23 of them worked out okay a few have not worked out okay and ultimately because the debt was flexible in union vision and other cases the deals did not go under. union vision won't be a spectacular deal pour the sponsors but it's not probably going to be a loss.
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>> toys "r" us or hairas, three other deals from that time, or hairas. >> there were many deals done during that period of time and they worked ow that's why people are giving us money. good in bad times, people in equity know how to make money. >> they do blackstone has had a great success in terms of outperforming many of its peers on the alternative asset base but its stock hasn't done particularly well. carlyle, the same could be said there. do you need to become c corp.s like kkr did. >> they are taking a step in that direct. as of july 1 they did that the stock is up a fair bit since then i suspect all other stocks are going up in sympathy blockstone is up, ours is up apollo stock is up i think there is a sense all of us will convert. we haven't decided to do that. apollo and blackstone haven't decided to do that
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>> what is the gating issue in terms of the decision making that guess on at carlyle in terms of whether you become a c corp. >> the issue is one it will cost more to our share holders because it poe-2ly means that our investors won't get the same tax benefits in other words if we have a c corp. we have to pay more taxes to the federal government. we have a pass-through right now and the shareholders pay pay taxes directly c corp., we will pay at the corp. level. we don't know what it is going to do. i think people are waiting to see what happens on kkr. right now the results are favorable for kkr. >> last time we had you on what is we when the proun prince of saudi arabia was in town now that months have passed any better sense for what he means in saudi arabia. do you own the domino's pizza franchise there.
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>> it is the best pizza in saudi arabia i will give you the number if you want to order it the crown prince is doing something in saudi arabia that nobody thought could be done chaining the social more rays, changing the business practices. i think it's working out i think the economy is doing well, oil prices being firmer has helped the economy as well. >> let's talk politics you are an expert not only in private equity in the markets but also in politics you spent a lot of time in washington what do you think we are facing in the mid terms what's conventional wisdom. >> conventional wisdom today is that the house will probably go democratic but not by as much as was thought to be the case before generally the president in power in his first term in midterm will lose 23 seats in the house or so. the democrats need to pick up 25 seats if they are going to get control of the house of it's going toe very close one way or the other in the house the senate likely to say republican in conventional
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wisdom. >> something else you raised in your interview with becky was your concern about deficits. pete peterson made it a cause of his during his time. >> yes. >> i don't know if you are planning on taking that mantle from him but you are worried we are talking about trillion dollars of dollars added to a big number at some point the bond market pays attention. >> when bill clinton was president of the united states we were paying down the debt and there was a worry we wouldn't have treasury bills any longer to measure against corporate debt that isn't a problem anymore under president obama and president bush we increased federal indebtedness by $10 trillion during those years of their presidency we now have about $21 trillion of indebtedness and we have to pay it down at some point or inflate our way out. there are three ways ow. inflate your way out, grow your way out of it or cut expenditures you have to do one of those
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three things. >> always a pleasure having you on david ruben stein. coming up here in just a few short hours we will sit down with former white house chief strategist steve bannon. you will see it live here from delivering alpha on cnbc "power lunch" is back in two minutes. making cars lighter, it's a good place to start, advanced oils for those hard-working parts. fuels that go further so drivers pump less. improving efficiency is what we do best. energy lives here. improving efficiency is what we do best. whoooo. you rely on tripadvisor so you don't miss out on the perfect hotel... but did you know you can also use tripadvisor so you don't miss out on the best price? tripadvisor searches over 200 booking sites
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contessa brewer. barack obama held a town hall meeting in south africa. it was sponsored by his private foundation he talked about the need for women to get involved in politics >> women in particular, by the way, i want you to get more involved because, because -- men have been getting on my nerves lately i mean, i just -- every day i read the newspaper and i just think, brothers, what's wrong with you guys? >> i me-- what's wrong with us. >> rescuers have found six bodies after the collapse of a building east of new delhi four or five more people may be
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trapped. rescuers have yet to pull out any survivors. a blockbuster trade in the nba. the spurs trading 2014 finals mvp kawhi leonard to toronto for four-time alltardy mar defrozen. two other players were part of the deal plus the spurs got toronto's protected 2019 first-round pick. that's the cnbc news at this hour >> david faber is very interested in that last story contessa. >> i missed that >> thank you let's get a check on the markets. stocks on the rise as morgan stanley leads the paniking seggor higher. the dow jones industrial average is higher by 75% a third of a%. the s&p 500 higher by 2% the nasdaq is flat financials and industrials are the leading s&p sectors right now. utilities and consumer staples are the biggest laggards let's talk about the oil market right now. it's closing for the day jackie deangelis is at the cnbc commodity desk with the latest.
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>> crude prices higher on the session due to a reuter's report that rebels from yemen say they have an attack an aramco refinery in riyadh a build of 5 8 million barrels in the u.s add to that a stronger dollar, dollar index over 95 a bear case scenario but geopolitics continue to trump the fundamentals we will have to watch the headlines from the middle east. look at this chart the dow industrials up 2% over the last two months as the trade spat with china of course has grown into what many are calling at least a potential trade war meanwhile, china's shanghai composite is down more than 12%. so is china losing this battle that's next on poun"power lunch"
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i have been a long term critic of china.
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that's on public record, on the tape i think the president is doing exactly the right thing here this should have been done years ago. a, the world trading system is broken the world trade organization is broken we just had this discussion at the g7 b, the biggest culprit is china. >> that was president trump's top economic adviser larry kudlow he was speaking earlier today here at the cnbc ins stoot institutional investor delivering alpha conference. given tensions with the two countries is it still safe to invest in china. joining us the head of china equities for the fundamental equity group at black rock glad to have you here. >> thank you, good to be here. >> before the break we showed the significant outperformance of the u.s. market versus the chinese market the chinese market is down 12% at the same time, the u.s. market is up more than 2,
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perhaps 4%, depending on which average you look at. is that because of trade tensions or is that something else? >> i think it's really a combination of two things. in reality, the on the ground fundamentals for the economy are still fairly rebust we saw 6.7 gdp growth posted in the second quarter looking forward people are worried not only the uncertainties related to the trade situation but also very importantly there is this concern that the policy makers might overtighten into an uncertain export environment because of the financial and corporate deleveraging agenda that the policy makers have put forth. i think it's those two concerns compounded together that hit the asia market particularly hard in the last months. >> to be clear you are talking about the policy makers in china tightening too much, correct. >> yes, correct. >> we always talk in an american context. >> correct a lot of leverage has built up in china over the past years
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and the policy makers since last year have been talking about the agenda basically removing some of the shadow banking sectors within china, and also potentially lowering leverage overall over time. i think the domestic investors have been very worried about the particular liquidity impacts on the asiar market given it is a closed capital account and closely insulated. i think that negatively compounded the airbnb ashare market offshore market is down less than the on shore market >> would you say that that market in china has overreacted? >> you know i would actually think that in three, six, 12 months time we will look back and think that the market has probably overreacted the domestic market is very retail driven. so whenever there is sentiment shift it can generally
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overreact. i think the trade war situation will continue. as you showed on clip earlier indeed it is a situation that's unlikely to be diminished immediately although i think both sides have incentives to come to reasonable compromise because american markets and consumers are taking a hit to some as welt i think people are being too pessimistic if they feel the policy makers are going to make a significant error in terms of facing the trade situation and uncertainties but at the same time also overtightening in the last couple of months we have started to see mild fine-tuning of policy stance towards stabilizing expectations making sure that systemic risks do not erupt, making sure that reserve ratios are adjusted. you know, basically closing the back door in terms of shadow banking and a lot of i will legitimate credit supply and also opening the front door to more transparent channels. >> i noticed in your portfolio you don't seem as weighted
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towards towards some of the export names, alibaba, ten cent. i am assuming you are still confident the consumer is strong >> the consumer side is doing very, very well in china those larger players in the internet space have been gaining market share over the past couple of years as well. in fact, i think the policy makers are pleased to see that overtime china can hopefully reduce reliance on exports and reduce reliance in terms of infrastructure investment and property sector. so there has been a lot of relatively tough policy towards those. in terms of domestic consumption confidence is very strong and fundamental are very, very good from what we can see so far. i think there is going to be more policies like this to support for example, recently personal income tax cuts i think those types of policies will continue to be introduced >> everybody loves an income tax cut, right, no matter what country of the world you live
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in helen good to have you on, with black rock. coming up in a few hours i am going to be sitting down with the former white house adviser chief strategist steve bannon. that's at 4:00 p.m. eastern time only on cnbc as you noticed david faber is here on set with me for the hour you were speaking with investors about the trade fight in china what are they telling you. >> john gray of blackstone given how much business they do in china. they are launching their first p/e fund second real estate fund and chinese money is something they call on to populate some of the funds they are investing in as well on the limited partner side as well it seemed appropriate to ask mr. gray what is his view here in terms of these potentially growing tensions twaen our country and china and how does he see it playing out. the fight is really about the extent of that shift in rebalancing. now, is this going to be easy or
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clean? will it happen fast? i don't think so there are a lot of big issues at stake. and there will be some volatility along the way but i do think if you look at the broader trade issue, the same underin approximatings exist. it sounds like there is probably more progress on the nafta front. behind that europe in china, given the scale of the issues, is behind that if you step back looking at it from a long term perspective, we believe there should be some resolution here. but there is obviously risk for all of us as investors >> michelle, i'm sure you fine this, too, i don't find anybody who says eventually it won't all work out have you talked to anybody who says otherwise >> no. everybody thinks ultimately the end game is we are going to have lower tariffs across the board. >> right or rationality will prevail because it would be bad for both sides. >> right. >> we heard helen, our last guest say the same ruben stein says the same.
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gray says the same i wonder if we may be surprised. everybody is on the same page. >> i'm going to ask steve bannon this he is one of -- i don't know if you call him the architect but he is certainly in tune with the president's view on this issue and on being extremely hard on china. he thinks we are already at war with china he uses that phrase. we will explore that more. what does he think is on the other side here. >> and how much more could come. >> exactly. >> with a what will the impact be, well beyond the dollar amounts themselves which i know the president focuses on. other stuff we are talking about today. new sports teams values are out today. tilm oicanffer teeda is shooting up the list like a rocket. we will discuss that next.
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who says owning a professor sports team is all for vanity not for profit i usually do but boigs disagree with me. forbes is out with its list of most valuable sports franchise the numbers are going up and up. eric chemmy is here with the eye popping details. >> it is a great time to be a sports franchise owner blockbuster tv contracts, owner friendly collective bargaining agreements, and global marketing
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exposure it is a leading to all these record prices, including sales and valuations look at what forbes data says. the average profits, $103 million among their top teams. that's up 13% from last year over 100 franchise right side each worth over $1 billion you can see the value of all of these teams. let's go through the top ten in particular the top five behind me the dallas cowboys the most valuable sports team in the entire world that's followed by three european soccer clubs actually manchester united in there fc barcelona another one that's a surprise. the new york yankees, though, no surprise always a very valuable team. if you look at the next set of five, these are all domestic u.s.-based sports teams. of course big markets and successful teams the patriots, the knicks, not because of their winning just because they are in new york the lakers and the giants and the golden state warriors and
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the washington redskins, all worth over $3 billion. these numbers are a little bit out of whackbecause when peopl want to buy these teams they will spend a lot more. look at these behind me. tillman fertitta from "power lunch" fame, the owner of the houston rockets and joseph sigh of the brooklyn nets bought their teams for over $2 billion. those sigh skyrocketed the valuation of those teams when people want to buy the prices are more unanimous what forbes says they are in these estimates. back to you. >> they are definitely eye popping numbers. thanks so much, eric. let's get over to dom chu for a delivering alpha alert. >> michelle, that is right now as you can see samantha greenberg on stage at delivering alpha. she's the chief investment officer of margay capital which she founded in 2016. before that she ran the media and consumer sector team at paulson and company hedge funds. greenberg's best idea is all about fun is games specifically video game
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publisher take two interactive she is making the case that gaming is the most engaging form of social media out there with the biggest share of minutes per day spent by users games also are cheaper in terms of cost per entertainment hour than movies, cheaper than theme parks, than sporting events. take two trades at a valuation that disappears. looks at a target price of $167. 41% up side from current she can see a $202 price target. 60%. downside is a 20% drop we are seeing price action to the upside in shares of take two on the heels of samantha greenberg's comments back over to you. >> thank you dom time spent in my household, dom, i can tell you that's dead on, with my teenagers. the countdown is on for michelle's big interview with former white house chief
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strategist steve bannon. they will on stage here at delivering alpha in a couple of short hours from now you can imagine, china, the economy, and whether the trump agenda is still on track are all subjects michelle will get io nt with mr. bannon. you are not going to want to miss it. stay with "power lunch."
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you got to tune in tomorrow morning. there is a special edition of "squawk box". commerce secretary wilbur ross, national trade council director peter navaro, ivanka trump and the director of office of management and budget nick mulvaney. tune in tomorrow. jim cramer interviewed larry kudlow earlier today here at delivering alpha. he contributed for explaining why the flattening yield curve
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doesn't worry him. >> i want to give a hat to my friend. he went back and looked at the yield curve model from the new york fed. it is not tens to twos. it is tens to three month treasury bills. from his work the probability of the u.s. recession predicted by the spread over the next year is only 12.5% through the month of june. so i think people are making too much of the tens to twos. >> joining us now is author of that specific column that larry mentioned. tell us more. why should we not be worried about the flat year? >> i wouldn't go as far as larry said in suggesting we should not be worried buzz it is suggested that if the trade war were to
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spin out of control that could flatten the ten year to three month curve and lead us toward a recession. he also said when looking at the yield curve the time is nine to 15 months with the average lead time is a year. so you do have some lead time. right now it is not happening in that particular curve. >> can i explain just for the novice viewer if you are going to lend money for 30 years in theory you will charge somebody a much higher interest rate because there is so much more uncertainty. >> when it comes to inflation. >> and then if long term interest rates are much lower than short term interest rates why would you want to lend money at such a cheaper rate it is because you are worried that there is lack of demand in the economy. that's why we focus so much. >> it is raising interest rates
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to cool down inflation and the economy. the long end of the bond market sniffs out recession. if the yield curve inverts it is a recession indicator that has been reliable since 1968. >> we have had two guests on today who have decent insight because they have so many operating companies that they own essentially in the private account in terms of the u.s. economy. they both are very positive on strength of the economy. do you agree >> right now, yes. the economy is firing virtually on all cylinders except on trade. we have more open jobs than we have unemployed individuals in the united states. i would argue we are pretty late in the cycle if the fed were to tighten too much. you can see in a rear a recession as a consequence of the fed being overzealous on the inflation front or the trade war could spin out of control and
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cause a global recession that doesn't start here but might end up here. >> thank you for explaining that. >> my good friend larry kudlow, i will disagree with him. i think this is going to get out of control on trade. >> we will ask that to steve bannon. >> a tease for another segment one day. we will have final thoughts from "final lunch" coming up and a lot more from delivering alpha still to come for you. we will tell you who is on deck straight ahead.
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welcome back to power lunch. we are back at delivering alpha. we will be interviewing steve bannon, former white house adviser and very controversial figure. we have done so many interviews on cnbc and this one has more commentary from my twitter feed. >> i can imagine. >> if you have a question you would like to ask him what would it be? >> staying away from some of the more controversial things which i know you may not, i would love to know if he is talking to the president. if he is, what is he talking to him about. you mentioned this earlier on in the show in terms of trade a
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very strong stance that the administration seems to have, is that channeling bannon is there a channel from bannon to trump i think it has to be a key question. >> i'll ask him. >> thanks for watching. "closing bell starts right now. >> it is time for "the closing bell". it is hard to say i'm sorry, but elon musk has issued an apology. >> the biggest investors are giving us their best ideas. i'll have the details. >> i'm josh lipton. ibm will report earnings in about an hour. >> google hit with a record fine over anti-competitive behavior. europe's top a


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