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tv   Power Lunch  CNBC  February 4, 2016 1:00pm-3:01pm EST

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unfortunately, judge, they still have time, but the time is starting to run out. >> still have time to do what? >> they have got to put out something that excites people once again. they have not been able to execute. the session was a complete bomb. because of that, drop the price, drop the price, that's been an issue for them. >> thank you. "power lunch" starts now. welcome, everybody, to "power lunch." with melissa lee, michelle caruso-cabrera, and brian sullivan, i'm tyler mathisen. stocks and i'll flat on this thursday. but the heat is on down in washington. and on the drug business. embattled former pharma chief martin shkreli's appearance on capitol hill leaving lawmakers furious. shkreli infamous for raising the cost of a drug from $13.50 a pill to $750, was there to testify on soaring drug prices, but he refused to answer any questions. it all began back in september when shkreli's former company hiked the price of that drug.
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the response to democratic presidential candidate hillary clinton, she said at that time, she would have a plan to stop the rising cost of drugs and at that point the ibb biotech industry -- index, down 25% since then. let's get the very latest on this dramatic appearance on capitol hill from meg terrell. >> dramatic is right, asking martin shkreli repeatedly to answer questions about raising the price of that drug. continuously pleading the fifth, though. his face was very expressive as representative cummings was asking him, comparing what they have done to a ponzi scheme, his face getting expressive and reprimanding him for reacting that way. later, though, after he was dismissed because he wouldn't answer any questions, representative chaffetz talking to chief commercial officer nancy retzlaf, accusing her of lying of spending all the money
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on research and development. >> do you know metro yachts charter is? >> yes, i do. >> why would you know them? >> i believe we rented metro yacht charters for a sales meeting. >> for a party. $23,000. did you spend money on fireworks? >> yes. >> did you spend money on a cigar roller for the yacht night, 800 bucks? >> yes, we did. >> okay, so don't tell me that you're losing money. don't try to pretend and tell us that this $750 is justified when you got a woman who has aids. >> now, that just one of the very tense exchanges going on in this hearing today. martin shkreli's lawyer attributing his sort of facial reactions to nervous energy. and though he's not supposed to talk to the press anymore per his new lawyer, he comes out on twitter minutes after leaving the hearing saying, it is hard to accept that these inbesimbec
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represent the people. back to you. >> meg, stay with us. let's bring in ayman javers. the lawmakers are asking pointed questions. are they trying to score political points or are they in the drug industry's back pocket at this point? >> they're trying to score political points, that's what politicians do on capitol hill. if there are reformers on capitol hill who want to change something in terms of drug pricing this year, they may have missed their moment. this is not a year where any major legislative change is going to happen. of course, you got democrats and republicans at odds with each other over just what exactly you should do. both bernie sanders and hillary clinton, for example, out on the campaign trail saying that medicare should be allowed to negotiate with the pharmaceutical companies, under its medicare part d program to lower the prices. right now, the law prohibits the government from negotiating for a better deal on prices they would like to change that. republicans like ted cruz on the other hand say the real problem is that the government is in the way, and the fda among others
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needs to focus on creating incentives to innovate and create new drugs that cure diseases rather than drugs that just maintain the patient through the course of his or her lifetime. those can be profitable drugs, but curing should be the focus, not just maintenance. a real schism in terms of what people want to do. >> this weird guy, puts all this focus on drug pricing here in the united states, and it takes it away from one of the bigger issues which is we americans pay more for drugs than any other country in the world, all the other countries, germany, japan, for example, they insist on drug price controls, et cetera, which keeps their prices much, much cheaper for their consumers. i'm not saying that's a good thing. i don't understand why it is that wealthy germans, wealthy japanese people deserve very cheap drugs and we the american consumer have to foot the r & d bill for the entire world. the democrats get their way, how many new drugs will we have in ten or 10 years? >> that's the question.
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there is a divide between how people are approaching this issue. democrats for the most part saying that medicare should be able to negotiate on drug prices, maybe getting closer to the european single payer system. but jason chaffetz saying he doesn't believe in price controls and what he's trying to do here is make sure the market can work so that generic competition can come in and try to lower the prices of the drugs when we see the spikes. really the main targets of the hearing were pharmaceuticals and vallian, but their stock is trading up today. >> michelle's point is excellent and largely true, but most expensive drug in the world is produced by a dutch company in holland, called glibera, treats a rare genetic problem. >> that's a gene therapy which is only planned to be adminis r administered once. it is important to state that. it is not $1.2 million per year.
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>> not like they created cheap everything overseas. that's my only point. >> the ability of those countries to negotiate with the drug companies is really behind why the prices are so much lower. >> they do. we pick up the rest of the bill. >> we pick up the rest of the bill, exactly. >> we fight steel on steel, on tomatoes. we do on nearly every product we make, we get angry when countries do things that work against our competitive interests, and yet on drugs, we're silent. we don't say anything. >> right. >> frustrating. >> meg what is the real deal though when it coulds to s come citing drugs for rare diseases. prescription prices went up 12%, which is far from the thousand percent increase. >> what a lot of people say is the kinds of price increases we have seen are outlieers. the industry raises prices on its drugs, sometimes by 8% twice
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a year. you see drug prices going up a lot. the argument now is how much should drugs cost, how much money should drug companies make. and there is a real debate going on about that. and a lot of people have different feelings about how to regulate the system. >> meg, thank you very much. and thank you as well ayman javers. martin shkreli's attorney ben brafman will join cnbc today on the closing bell at 4:00 p.m. eastern. we expect to hear from congressman chaffetz, the chair of the committee conducting the hearing earlier today sometime over the next hour or so. we look forward to that. brafman called his client a hero today. >> a hero? >> yes. wonder what that meant. the state of the individual invest, the ceo of td ameritrade will join us next. you're watching cnbc, first in business worldwide. [beekeeper] from bees to business expenses, i'm in charge of it all. so i've been snapping photos of my receipts and keeping track of them in quickbooks.
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td ameritrade hosting its big conference in orlando, florida. with an ugly start to the markets, how are they dealing with this volatility. fred tomzic is ceo of ameritrade. always good to see you. >> great to be with you today. >> i remember when you reported your earnings sometime in january, you said people are beingdefinitely taking a wait and see attitude. the market is up since then. what have you seen changed since that low point for the market
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this year? >> well, so far we continue to see a bit of the same trend. marginals are down, cash allocations are up, people are very cautious here. but we're starting to see some signs of people moving back into the market. we had a couple of big buy days recently. i think the market hopefully is starting to catch itself here. >> you see the metrics down, but are you seeing activity up? are people still trading even though there is all this volatility? >> there is no question they're trading. our trading levels will go with volatility. we had a volatile january, a lot of overnight news around the price of oil, or around what is happening in china. fears of global recession, so there is lots of volatility, and with that comes a lot of trading, they're very active right now, people are very engaged in their portfolios. >> walk us through how this impacts your business, fred. if people are being more cautious and pulling the horns in on one side because of the volatility, on the other side, they're increasing the amount of trading and then you also have low interest rates, really harming your business model,
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when the fed was believed to be rising -- to be raising interest rates, all the online brokers are going nuts. on fire. now we have the reverse situation happening. so walk us through how all the levers impact your business. >> well, no question, you know, i think us and our peers are very interested in the stock as are most financials. i think none more so than the online brokers. 45% of our revenue is tied to interest rates in one way, shape or form. we saw lift in the fed funds rate. i never saw it -- i don't think any of us saw the flattening of the curve the way it has come down. this has come down a good 30 or 40 basis points in the next couple of months. that will impact our stock, that will impact the trajectory of our earnings as we go forward. >> how is your pricing and how competitive is the pricing environment in your business right now? >> you know, it is always a competitive business. and pricing has been relatively stable now for five years.
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but doesn't mean you don't have some deep discounters continue to try to -- to pick off clients with pricing schemes. but basically we do negotiate with our better clients and some of them are on negotiated schedules. the pricing environment isn't any more competitive than it was a year ago. >> so you don't see margins coming down, even though you are, i mean, i would imagine that you're in a fight to keep those assets under the td ameritrade roof at this point. >> we always do that. we had a great quarter to start the year. we gathered at a double digit rate, the fastest growing online broker in the industry based on asset gathering rate. so we don't see that necessarily slowing down. we continue to do quite well in the market relative to our peers. >> are you shocked by what has happened in the stock market? >> you know, it seems a bit overdone to me. but i think we all got to stand back and since january, i think the s&p 500 is only down 7 or
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8%. so not as bad as it might seem because of the volatility. i think the volatility exasperates the impression of how far the market is down. but no question, you look at someone like us or financials, i am a bit surprised how much the financials and the banks have come after. >> fred, we'll leave it there. great to speak with you. good to see you. brian? let's bring in sarah isaac. >> hello. >> 36 hours today and has a news alert on christine lagarde. >> the biggest headline she made was not on the imf view of the global economy, pretty downbeat, an optimistic note she sounded about china addressing the question that every global investor wants to know now. listen. >> china is going through that massive multifaceted transition. and we do not expect a hard lending of china as has been
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talked about for many years, actually. >> so there she is with a vote of confidence. she went on to talk about how china is trying to transition its economy to what she calls quality and sustainable growth. but did say that the chinese authorities need to be careful when managing and changing their monetary policy and their currency like the weakness that has been spooking global investors this year. that it is, quote, well communicated. just the latest politician to tell the chinese authorities to communicate their policies. but overall, she said this transition should not be a negative, keep in mind the background here, the imf recently announced it is opening the process of appointing a managing director when christine lagarde's term ends this summer. she's expected to get a second term and got backing from the uk and germany. one of the hallmarks has been covering eamericamerging market paying attention to the troubles they're facing now. it will be interesting to see if she gets the support in the process as emerging markets have been trying to have their own
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representation at the head of the imf or world bank. >> historically, though, never happens. always a european. on the china currency situation, there needs to be more transparent and communicate better. did she give any sense of what she thought about -- they want the currency to float. right? but that would mean right now that the currency would move lower sharply. do they want world stability or do they want, you know -- >> she didn't talk about the direction of what would happen. she did say, though, she reiterated the imf stance, they are moving and should be moving toward a more market driven exchange rate. that's the official language. no word, though, on -- one of the questions i submitted was how concerned is the imf about outflows from china, pressuring the currency. she didn't really address that, except to say very carefully that they should communicate what they're doing and continue on this pace because they are moving in the right direction. >> or maybe everyone should just stop talking between china and the ecb and our fed and the imf
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and the oecd, no wonder -- paralyzed with fear because you hear all this stuff and they don't know what to make of it. >> but soothing words. she was trying to calm down the situation. so there won't be a hard landing. >> but it is just talking. it is adding -- >> that's what they do. >> they buy 100 shares of intel is not probably too afraid to buy it because they hear stuff from europe. >> i just report it. >> no, no. >> we put it all under the magnifying glass. we're the megaphone. >> i've been called worse than megaphone. >> thank you. >> every day we hear something new -- >> a cacophony. >> yes, exactly. like a thousand seagulls all chattering, i guess you say the same about us. >> sarah, thank you. big bank fears. some of the debt of one of the world's largest banks taking a hit today. how worried should you be? what is the bank in the spotlight? we'll tell you next. "ow..."
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"are you okay?" "yeah, i just got charged for my credit monitoring. that's how i know it"s working." "ah. you know you can go on creditkarma.com and check it out there. it's completely free." "really?" "yeah" "oh, that didn't hurt at all." "yeah, completely painless." "credit karma. give yourself some credit." welcome back to "power lunch." the german dax moving to a new 52 week low earlier today. shares of deutsche bank moved lower. shares are back in positive territory now, but getting a lot of note, moves in some of deutsche bank's bonds, not the senior bonds, trading near or close to par no signs of distress. look at subordinated bond in 2014. back in august, trading at 105 cents on the dollar.
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last week, 88 cent oz on the dollar. today, it is 77 cents on the dollar. the yield has moved from the original coupon of 6% to 11.25% today. and the thing about this type of bond, known as a cocoa, the bond can stop paying interest or even convert the bank and stop paying interest or convert the bond to stock in times of trouble, hence the nickname cocoa, which is short for contingent convertible. in certain contingencies, it is convertible. what the action may be saying investors fear the interest payments may be suspended at worse, maybe converted to stock, which means the current stockholders could get diluted and own less of the company. the cfo said last week on the conference call they would be able to make the payments on the bonds, but the bonds and investors, i feel uncertain about that. >> markets are a discounting mechanism, aren't they? it is interesting because citi had a great note about the deutsche bank situation, saying
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they could be on the hook, they might have to do a capital raise of up to 7 billion euros. would that fall into the category of extraordinary capital requirements or -- >> so if a bank in europe starts to get in trouble and has to worry about the capital ratios has to figure out how to raise more, you can convert the cocoas, maybe that's not enough, maybe a capital raise. but all diluted. you the shareholder have less of the company. >> diluted cocoa. >> the worst. >> awful. >> why is deutsche bank so bad for so long, so troubled? they can't seem to be able to get out of the way. >> they're one of the few banks, certain parts of banking business have gotten more expensive due to regulation. a lot of banks in the united states and overseas said we're not going to do certain businesses, but deutsche bank stuck with, we want to be this kind of big supermarket. we want to do everything. that's very expensive. >> reminds me of citi. >> very expensive and haven't
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been able to return -- make the returns. >> a problem you'll find them in the middle of it and you'll find citi in the middle of it. >> look at deutsche bank, in the financial crisis, the troubled banks were uni credit, commerce bank, banks no longer exist, west lb, banks nobody heard of in america unless you're a credit trader. deutsche bank took a lot of that stuff. a good analogy, bank of america, buying countrywide or forced to buy countrywide. it was bad. got an upset stomach. deutsche bank has an upset stomach. is that a fair analogy? >> how do they get there? in part this. >> that's the whoa question about the book. what is the book worth? nobody knows. >> credit default swaps have gone nuts open deutsche bank. and spooking people out. >> seema mody has market flash
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for us. >> tyler, look at philips 66. shares are nearing session highs, up about 2% as warren buffett acquires another 1.69 million shares of the company, according to an s.e.c. filing s over 15 days of buying since the beginning of the year. berkshire spent $964 million to add almost 13 million shares to its philips 66 stake. the stock is up 1.9% on the day. brian? >> seema mody, thank you. >> one of the few stocks in the secretarier that sector that is positive for the year. >> bought an index. looking at it right now. waiting for the year to date stuff to come up of buffett's portfolio and on average, he's down about 12% over the past 12 months. in line with the market you
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don't know how much. this is an equal weighted basket. philips 66 -- >> any other oil? or refiner or anybody? >> let me go through here. putting me on the spot. some of this stuff could be old because he doesn't file that often. >> as with all of the filings. special exemption from the s.e.c. where he doesn't have to do what other people do, necessarily. >> phillips 66 flat to positive for the year. refiners have been the one bright spot. >> as of the last date, here you go, sun core energy, a huge canadian -- huge. midsize now. mostly, you know, ibm has been a big focus for buffett. phillips 66, look at this turn on the buffett -- >> the issue is that there is a glut right now of refined products on the market and so there is some thinking that the refiners, which had been the one bright spot, there will be rotation integrated oil names at
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this point in terms of upside. we spoke to doug terrace last night on fast money, number one ranked oil analyst on wall street, according to institutional investor and he said he is looking for the next leg down to be in the refiners because we're coming up on -- >> maintenance season. but also people didn't drive for the better part of two or three drives in the northeast. all the storage tanks got filled up. so now you got these 70 cent gasoline price wars going on. >> his call to go into the integrated instead, interesting because if you think that we have bottomed or oil moves higher, where do you get upside? not the refiners. you want juice. you got down areas of the markets. >> we're waiting for the chairman of the committee that was interviewing or grilling as we say whenever we seem to talk about d.c. martin shkreli, about the drug pricing issue as he gets wired up. we're going to take a quick break and come back after this. i'm here to tell homeowners that are sixty-two and older
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good morning, everyone. or good afternoon as the case may be. i'm sue herera. as you saw live here on cnbc,
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former drug executive martin shkreli repeatedly invoked the fifth amendment this morning at a congressional hearing on drug pricing. he sparked outrage last year when his company raised the price of a life saving medicine by more than 5,000% to $750 a pill. after being dismissed from the hearing, shkreli posted a tweet calling the lawmakers imbeciles. the 19-year-old virginia tech student accused in the murder of a 13-year-old girl has been denied bail. natalie keepers is accused of helping fellow student david eisenhauer dispose of the body of nicole lovell. it is believed lovell met eisenhauer on the internet. a new air bag recall to tell you about, continental automotive systems is recalling five million air bag control units can be found in cars including honda, mercedes-benzk. more than a million u.s. vehicles may be involved. and president obama attended his final national prayer breakfast as the nation's chief
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executive. president obama called for people of faith to respect the right of every single american to practice their religion. just yesterday, the president made his first ever visit to an american mosque. that is the cnbc news update this hour. back to you. >> sue, thank you very much. let's get more on the soaring cost of drugs and martin shkreli's appearance on capitol hill now. joining us is congressman jason chaffetz, republican from utah. chairman of the house oversight and government reform committee. mr. chairman, welcome, good to have you with us. it was a theatrical morning at the very least. you had some pointed questions for people in mr. shkreli's sort of cohort there. what did you learn today and more importantly, what can you do? >> well, i thought it was a good hearing. i was disappointed that mr. shkreli didn't choose to testify. he has taunted congress and said that if we just got to know him, we would think more of him. and gave him every opportunity
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to provide his side of the story. but nevertheless, look, you have drugs that have rapid increases in pricing and in this case, less than $20 to more than $700, closer to $750, then you would think that basic economics would allow competition to come in and undercut that pricing and still maintain a healthy profit. but i -- more of my focus, long-term, will be on the fda process. we have more than 3,000 drugs that are in a backlog at the fda, congress had passed in 2012 legislation nearly unanimously in the house and senate that allocated $1.5 billion in user fees to loosen up this process. but there is still a backlog. and drugs are not allowed to get on the market fast enough and i think that would undercut anything that mr. shkreli or any other company wants to do. >> this particular drug that went from $12.50 a pill to $750 a pill or whatever the prices
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were, was a long-standing drug, as i'm recalling, that was basically the only drug in the market to treat whatever the ailment was that it treated. my memory fails a little bit here. so why didn't -- and he bought it from another company and promptly raised the price. there is nothing to stop him from doing that if the demand is there, right? >> well, the drug was developed in 1953, readily available. for less than 3,000 people a year are using it. and i believe in profit. i think profit is a good motivator. and far be it from congress to go in and micromanage or set price controls on an individual company or private company. but what we also see is that market entrepreneurs would want to come in and also participate in this, but when they have this backlog at the fda, you have suddenly a drug used by a small population that is able to generate in this case tens of millions of dollars in revenue in a rapid course, i was very
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concerned this company had been misrepresenting certainly mr. shkreli misrepresenting this drug and how much they put into research and development, all trying to win the heart strings of the american public, but i take issue with that. >> do you know for a fact that other drug companies were trying to get in on the action, so to speak, by putting in an application in front of the fda? was that the holdup? if you come in and threaten drug companies with potential price controls, that is going to in and of itself limit companies from wanting to even enter the fray to try and produce a competing version. >> the last thing i wantly gove controls in place. we want to maximize the companies that want to participate in the marketplaces. when you have more than 3,000 drugs in this backlog, that's a key indicator to me it is not just about the dare prim, but thepharmaceutical market
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and i hear from people, yes, we want to do this, but the fda is slowing us down. >> sir, michelle caruso-cabrera here. here in the united states, as you know, we pay far more drugs than anywhere else in the world. other countries basically stiff it to the drug companies. they seem to think r&d should be free and places like germany, japan, the average income, these are not poor countries or poor people, they think they have the right to cheap drugs. why in the united states, we're so focused on what we should be doing here, why do we never use the wto like we do when it comes to steel or any other product to fight back and say you guys have to contribute your fair share to r&d so we have more drugs down the road? >> well, look, a research and development has done amazing things in this industry. and think of all of the family members we all have and the drugs that we use. they're vital to our health and the united states of america is the very best place to do that.
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and the successful companies will invest in r&d long-term. we have to continue to incentivize that. i think congress has done that to a degree. the use of the wto, i haven't dove into that, i haven't. in these specific cases, the priority review vouchers, something we're really looking at and other inhibitors to the marketplace, that's where we're focus ed, at least for me personally on the fda process. >> one big reason why the prices are lower in those countries is that those countries have single payer systems by and large, number one. number two, whether they do or they don't, they negotiate very aggressively about the prices with the american companies. something that we do not do in this country. >> i think it is a red herring and a false argument to actually go out and suggest that government price controls are going to drive down the price of drugs, nor do i think they will actually increase the research and development that is so vitally needed.
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the marketplace will work if companies are allowed to get in and paratticipate. when you is a backlog, i got to question that the marketplace is as competitive as it should be. >> back to michelle's earlier question, congressman. i mean melissa's earlier question. do you know whether there were other drugs in the pipeline that were being stalled at the fda, that would have competed with dare prim? >> there are drugs that are in the process that are not necessarily revealed not of public knowledge and nor have we looked at the full and complete list. what i heard routinely across the board from industry leaders and new market entrants is the fda has been slowing down the process. they have improved somewhat, we want them to be thorough, not just automatically put a stamp on it. >> these are two different issues. the fda can be slow. >> you want them to be thorough. >> are there any drugs that would actually come in and compete with the likes of a dare
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prim or another drug in the market that is overpriced in your view? >> dealing with the problem that dare prim actually helps to solve is a very small marketplace. i think the point was actually this is why it is a healthy dialogue to come in there and say there hasn't been any innovation in this, because it does serve such a small marketplace. and so was it $17.50, that was there before, was, maybe not, maybe it should have been more. i had mr. shkreli say at least publicly that one thing -- one mistake he made is he didn't raise the price high enough. but we try to ask him these questions and he came in and pled the fifth. obviously thinks he's done something criminally wrong that he doesn't want to talk about. >> i want to talk briefly about flint, michigan. you said you're going to hunt down dar eanell early, have you been able to serve mr. early
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directly with a subpoena, will you get him to washington? >> so last week i noticed the hearing. he said he wasn't going to hear until i served the subpoena. we tried to do that to his attorney. they turned it down. we asked u.s. marshals to hunt him down and serve that i was told in the last hour they found him and served him that subpoena. >> so darnell early has been served with a subpoena and you expect him to honor that and show up for a hearing? >> show up for a deposition. date specific, i don't recall what that date is off the top of my head, but he has been served that and he will come to congress, both sides, republicans and democrats, one hour at a time, will ask him questions under oath. >> sir, i want to get your comment on what you think about what martin shkreli tweeted out after his appearance and lack of willing not answer questions. hard to accept these imbeciles represent the people in our government. he called you imbell si eed you.
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>> we gave him every opportunity to cite his side of the story, he chose not to do that. but it is disappointing, but -- >> his attorney called him a hero. his attorney yes call call him >> yeah, if he pays his bills, i'm sure he thinks he is a hero. it is not cheap. but whatever. >> let me get the bottom line, mr. chairman. you also talked to the ceo of vallian pharmaceuticals, also coming under scrutiny for drug pricing. what exactly do you want to happen because it sounds like you do want to allow the free market to operate. you want prices to increase, so it can draw other competitors into the market but don't want any price controls. what is the ultimate goal of all of the hearings? >> people want to have improved quality of life and access to pharmaceuticals and getting the overall rise in drug pricing, that's a huge issue for people. you ask anybody on street, are your health care expenses going up or going down?
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they're going up. the president promised us these things are -- we do the affordable care act, everything will go down. people save $2500 a year. i'm not aware of anybody saying that kind of money. we're going to continue to look at this i didn't expect to have one hearing and solve all the world's problems but i think it was enlightening and we'll continue to move forward. >> congressman chaffetz, thank you for your time. we appreciate you coming on cnbc. martin shkreli's attorney ben brafman, describes his client as a hero, will join us for cnbc exclusive today on "the closing bell" at 4:00 p.m. eastern. rick santelli tracking the action at the cme. >> let's concentrate on the maturity that moved the most in 2016, the five-year note. look at a two day of the 5s, especially noticed the 120 intraday low yield yesterday, open the chart up to august of 2011, you'll see why it is so important. this is a major level to pay attention to.
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115 to 120, both tops and bottoms. the five year is basically at the lowest yield in a year. so is the ten year. you see on this chart, almost to the exact day. if we look at the iryo euro ver the dollar, it has broken out of the reins. december 16st, last year's char, dollar index is the mere image of that, maybe the dollar is topped out. strange how topping out had more to do with reversing the carry trade than any type of global fundamentals. "power lunch" will be back in 120 seconds.
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street talk now. stocks you need to know about. first stock, exelon. raising the price target, saying they're significantly undervalued at the current stock
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price. the merchant generation portfolio is valued at 30% discount to publicly traded merchant power stocks. raise the target to 35 from 33. about 10% upside. not a lot. but as utility also pays a 4% dividend. >> look at the tail end of that chart there. you see it. up 16.5% year to date. it does live in the sort of defensive safety zone that investors are gravitating towards these days. second stock, go pro, a lot analysts out there today after the disastrous earnings last night. tavis mccourt, who we had on "power lunch" yesterday, slashed his target from 16 to 30. darkest before dawn or darkest before pitch black? which really summarizes the questions that investors have about the stock now. tavis says march feels like a bottom fundamentally, but management was clear that march is the transition quarter. the strategy laid out by the ceo is risky, bet big or go home kind of situation.
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i guess travis is betting big. >> i own three go pros. >> why? >> for my race car. put them on, wreck, you can say, look what happened. i don't care -- i'm camera agnostic. sony has one, polaroid has a cute -- there is a lot of competitors out there. and you wonder if forget about the commoditization, it has to be the best and the cheapest. >> if they don't care about the brand, then -- >> i'm slow today. it is going to be okay. third stock, zumiez, upgraded to buy from a hold off earnings, even though same store sales fell, fell less than some feared. the junior products growth category is a positive and should drive growth in other categories. go to buy shoes for your kids, pick up a pair for yourself, new product initiatives may be taking hold, but target 24 bucks, about 30% upside on zumz.
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>> and a 30% increase since the end of december. nice rise for shares of zumiez. fourth stock, this goes with the go pro call, amborella moving the opposite direction today, which was surprising except for the fact that they came out, upgraded to buy from $43 price target. he says the sales to go pro will be weak in the near term, should resume the july quarter. it is a buy, he feels like a bottom, feels look a bottom now. >> i'll ask you a question, you talk about it on "fast money," 5:00 p.m. eastern time, 2:00 p.m. pacific, what if go pro goes to someone else's chips? sometime you see that. they're in this product, and then the next generation comes out. >> that would be a risk, but amborella has a lot of other end users other than go pro. they're well into the drone market. that is not even a market that go pro penetrated yet.
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>> my mom says you have to be happy when it is raining, a smile is the best umbrella. they're constitu jeffries coming away from a investor meeting very positive, be careful here. $18 target. >> $18? >> 150% higher than the current stock price. double and a half, a lot of optimism, here is the thing, drug trials, doesn't mean they're going to work. there is other stuff too. >> a lot of unknowns. and the fda may be too slow according to some in congress. >> they have drugs known as .001 and .004. nothing is guaranteed is the point. but the jeffries analyst optimistic, and the high price targets -- >> just be careful. >> an interesting stock. smile is the best umbrella. >> i should get paid for having to put up with this. >> you work for free?
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>> more. check out the yield in italy's two-year note. it is down more than 100% in a year. that's because the yield is negative. italy is one of several countries with negative rates because of either the central bank or market forces. should the u.s. be next? we'll discuss that coming up on "power lunch."
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welcome back to "power lunch." here are this hour's power points. stocks are higher. materials and industrials and financials, those are the best performing sectors now. free port mcmoran, alcoa leads the s&p 500. power is back in two minutes.
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tough times in the workplace as layoffs or planned layoffs hit a six month high. walmart leading the way with 16,000 planned cuts, many of the big oil producers also getting ready to pull out the pink slips. if you need more proof, google now says robots can run their search engines faster and smarter than humans do. so get this, they just hired a person essentially to put its programmers out of work. with almost no corner of the job
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world safe anymore, how do you protect yourself in a changing environment. stretch tackles this very question. the author barbara mystic joins us now. welcome, good to have you on "power lunch." you know, the workplace is always changing from the '80s to today, can't think of a time it depos didn't. what is different this time is the speed with which it is changing. you talk about the things that people, workers today need to learn to prepare for the next chapter. what do they need to unlearn? >> people have to unlearn this tendency to let -- to sit back and wait for the market to change to come back over time. they have this sense today that the future is really on you to look at what you want your dreams to be for your career. so what we have really discovered in our book is that people are very nervous in the workplace about becoming obsolete and what is really driving that is the speed of change, just as you identified.
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people are seeing automation take over jobs today. i think the world economic forum just came out and said, 5.1 million jobs are going to go away because of automation. oxford is saying one out of two jobs won't be there in the future. so what people have to really recognize is that this trend is real, that this trend is now. and that they need to pay attention. >> i know i'm always terrified there will be the avatar who can read the news and we won't have to do our job anymore. >> i am an avatar. >> give us some specific advice, for example, right now we know there are so many layoffs going on, for example, when it comes to oil and gas workers out in south dakota, north dakota, montana, et cetera. that's a pretty specific line of work. any advice you can give them at this point. >> they're not going to come at developers, maybe they are, i don't know, right? >> i think that is the challenge today. that you really need options for your own career. and so those options can be different for each individual and each job segment. one of the really important
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thins that you can do is to stay abreast of what's going on in your industry so you're not caught short and you can be prepared when the unexpected happens. so what we tell people to do is to really look for different experiences, wider range of experiences, but i think the number one thing, the bottom line is to recognize that your development is on you. it is really all up to you to take responsibility for your career. you really can't count on your industry to give that signal to you that the market is going to change. look at how quickly the changes happened in the oil industry this year. it has been phenomenal. you can't really depend on your boss to take a -- to keep an eye out for you in terms of opportunities. or your colleagues. so that's the number one item that we really discovered is that you've got to take responsibility for your own professional -- >> tremendous amount of change in our very own business, the media business. you point out that people will and this has been the -- people have been pointing this out for years, people will have many jobs during their career. i'm very, very lucky.
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i've been very blessed. i worked for two, two very, very good companies in 40 years in the workplace. 40 years, two companies. i'm not kidding. >> but you're nice and talented. >> i've been really, really lucky. i've had lots of jobs -- i've had lots of jobs in those two companies, but it occurs to me that one of the things that is changing is the idea of the permanent job and that fewer of us will have permanent jobs for a long period of time and more of us will do project work, right? >> you hit the nail on the head. the bureau of labor statistics says that the average person will have 11 different jobs over their career. so what we're seeing is that today about 80% of employers that we surveyed for our book "stretch" said they would hire more people for temporary assignments, for gigs, you know, a lot of people call it the gig
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economy, not just hollywood that has gigs today, but people are going to have to up their skills because you get hired, the success of those gigs is going to be dependent on you being really relevant and current in your skills. so everything that you can do to constantly keep learning, i think that's -- that's one of the number one things to take away, you do -- you earn a living, but in many cases today, you really are learning a living. so it is about being open to new opportunities. >> i think i can speak for my friends on the table here i think one thing we all love about our job is we learn something new every day. the beauty of what we do. barbara, thank you very much. the book is called "stretch", not about yoga, it is about your career. good luck. >> last year goldman sachs's commodities team made big waves. they said that oil would fall into the $20 range. they were widely ridiculed, also very right. here now for a "power lunch" exclusive jeff curry at goldman
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sachs. welcome. thanks very much. you were right, took a lot of heat for it. what do you see now? >> volatility. volatility on the rise and trendless market, trading in -- trying to create what we call the inflexion phase. taking that supply out of the market finally. i think one of the most unique things about this market, despite the pullback in price, if it is oil, gas or metals, we haven't seen a supply response. so we argue the market is down at levels and zip code that is starting to create that shift in fundamentals and it is going to take time. we think lots of volatile, protracted arduous process fork the next six to nine months. >> supply not coming down. then is demand going up? you just got back from asia. are we seeing any evidence of resumed increases in chinese demand for oil? >> none whatsoever. i think that -- that's one of the most fascinating aspects of my trip to asia was the unanimous bearishness that existed through the in terms of sentiment. however, i think it is overdone.
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i won't say demand is great, it is not falling off the cliff. i like to hear the word benign is the best way to describe it. >> when you look at oil, and you look at the companies that keep pumping oil, if you could sit down with the ceos, what would you tell them as they keep pumping. 9.2, 9.3 million barrels. imports are going up. and inventories are going up. >> correct. >> going in the exact opposite direction that anybody with -- who got a d minus in economics 101 would have theoretically thought would have happened. >> absolutely. we identify two types of stress points in the market that can create a correction. one is financial stress, which we have targeted at $40 a barrel, which means running into issues such as bankruptcy. the other one is $20 a barrel, had which we call operational stress. in historically you have to hit operational stress before these companies really begin to adjust. that means running out of storage capacity, running out of cash or the commodity.
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>> was it the last oil bust that we saw? did we ever hit that -- that operational cost? >> we are hitting it right now. you hit it in kushing when we expired in the february contract. it is not 100%. it is something closer to 90. how do you know when you blew out storage? by looking at the time spreads, cash versus forward. they go beyond the cash and carry, you sever that relationship. we hit it, but i also want to emphasize running out of stor e storage. >> have you built a calendar model where you say here we are at the point where operationally we see an effect where people stop producing as much as they were before, what time period do we have to watch and how much do we have to see come off every day before we back into balance and then what happens to the price? >> i think there is two ways to answer that question. one to look at the market and the other to look at the data. so far you look at the company
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announcements that have come out in this reporting season, you extrapolate on an annualized basis, we will get the production climbs we ned ed to rebalance this market. what is going to be the buy signal, hey, we have turned the corner. it is going to be the shape of the forward curve. right now you have a deep -- spot prices here, forward prices out there. >> spot is cheaper. it is, like, around 30 bucks, and then if i want a delivery for six months from now, a year from now -- >> that's part of the problem, when you're -- i used to trade commodities in a different life, a long time ago. it pays you to buy the stuff and store it and store it and say it will be priced out more down the road, you're encouraged to pump more -- >> you say that has to change? go like that. >> then you know you've got the green light to get -- >> any sign that that curve is starting to flatten out? >> the fact that we -- we blow
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out storage and you sever that cash and carry relationship, the curve gets relatively tight right after that. we have to wait for it to get tight on a continuous basis. we're beginning the process of just why we like to call an inflexion phase. we use the word inflexion phase over inflexion point because it is not a continuous process. it will be very violent and very disconcontinuous. >> can we see other markets stabilize? is that going to spell relief for some of the distress? i'm not using that in a financially -- but the ones that have been having a hard time, that word -- like a freeport mcmoran? >> the answer to that is no. one thing energy has that metals don't have is the whole idea you can fill storage. to make the point, you know, for metals, all you need is a parking lot, chain link fence, a guard dog to protect it. you can stack the stuff to the moon. there is no natural correction
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mechanism like you have in energy. you got to run margins down and you look at the coal industry, we know chapter 11 is not enough to get them to stop. they have to run out of cash, which is what you would call operational stress. >> there could be more downside ahead for companies who are miners as opposed to companies that are oil or gas. >> what you just said is incredibly important. because when we have been out in the field, i've asked some of the producers, okay, if you go bankrupt, you know, you got to ask them gently, does that mean production stops? because there is a assumption, well, the company is going away, therefore, no. someone else -- the creditors run it, another company buys it, bankruptcies may not slow down production. >> what are the saudis trying to do and who are they trying to hurt? >> i don't think they're trying to do anything. when we use the term new oil order what do we mean by it? we mean shale technology has
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changed this industry and it is the fast cycle nature of shale. it can be turned on and turned off very quickly. what that does, it undermines the ability to run a cartel. in the old days, time to build. in the old days, if you saws capex drop off with the nonopec producers, it would take years before they get production back online. with shale, two months. in the old days, you saw capex drop, you're opec, you cut back production, nobody can cut back your market share. today that's not true. if prices rise, self-defeating, they're back in the field drilling and production is up. i argue the new order neutralizes the ability to run a cartel. >> i assume you expect to see more, give any guidance on how long or how much worse it can get when it comes to the big dividend players. >> cash is king. anything you can do to conserve cash and be able to ride this out, the better position you
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will be. if it is cutting capex or other types of mechanism, to sustain your overall cash balance position, it will be important. >> so me as an individual investor, if i'm worried about the dividend, go and look at the cash available and what they can do in order to preserve paying that dividend. >> absolutely. i think that, you know, also in terms of thinking about having cash, not only to survive, but to be able to go out and make acquisitions will be important. >> different note, you still see gold under a thousand an ounce? >> look at gold, they had -- >> don't worry, we make predicts once a year, my predict was under a thousand last year, i was wrong. i'm not paid to make prediction, you are. >> the way i view gold, it doesn't have a sponsor right now. if given the type of financial uncertainty we're experiencing now, gold should be up $100 an ounce. barely moving, which is an underscores the fact we're in a very different macro environment. i like to emphasize gold is a hedge against the basement of
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the u.s. dollar. what was the best performing asset? u.s. dollar. there is not a substantial need right now. yes, it is in the current environment we're sitting in today, but thinking about the bigger longer term -- >> the dollar will resume its downturn and gold will, like a little brother, tag along with it. >> gold is the currency of last resort. we think about -- as long as the u.s. dollar is not the worst currency in the neighborhood, you don't need to own gold. it is not a positive view on the dollar on an absolute basis, but relative basis. >> all right, jeff curry at goldman sachs, we appreciate it. thank you, see you soon. >> thank you for having me. take care. here's what's on the menu for the rest of the hour. more on the high drama on capitol hill as lawmakers go face to face with former pharmacy martin shkreli. and good investment advice, what you should do to protect your nest egg from the recent market
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volatility. and the fed should follow japan's lead and let the u.s. fed should go negative with interest rates. ron insana defends that bold call when "power lunch" returns.
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welcome back to "power lunch." movie and tv studio lions gate says it plans to explore a
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combination with stars. back in 2014, lions gate nearly acquired stars but decided not to bid. these will be stocks to watch as lions gate reports quarterly results after the bell today. >> seema, thank you. a big interview coming up later on cnbc. martin shkreli's lawyer benjamin brafman will join the "closing bell" team. the ceo refused to answer questions over the dramatic price increase of the drug dare prim. if you missed any of today's hearing, here is how it went down. >> do you wish to make an opening statement? >> on the advice of counsel i will not be give an opening statement. on advice of counsel, i invoke my fifth amendment. i intend to follow the advice of my counsel, not yours. on the advice of counsel, i invoke my fifth amendment privilege against self-incrimination and respectfully decline to answer your question.
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>> let's bring in bob mull roy of merrimac pharmaceuticals. bob, great to have you with us. does your industry have a pricing problem because acco according to congress, drug prices are being increased too much and drugs are going to market at much higher prices than they should be. >> i think what is going on in washington right now is really about a bad actor and i think everyone that i've talked to in washington and all of the proposals i've seen understand the difference between arbitrage and real innovation. and real innovation, new medicines, actually save costs in our system and the face of the industry, you know, isn't the bad actor it the clinicians, the researchers who are trying to save lives and what they do in the innovations they bring, i see is really value creating because it keeps patients out of the hospital, keeps people healthier and back in the workforce and that really cost of innovation that is the price of drugs and that's real value, i think, for everyone. >> does that mean you think martin shkreli is a bad actor because he jacked up the price by more than a thousand percent?
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>> having been in this industry a long time, i think that heroes in the industry, the patients, the groups and clinicians driving value, that's what we need to support. it is innovation that will save costs and lives over time and so i think that's the people we need to support and focus on to create val you for everyone. >> congressman chaffetz, we just had on in the last hour who was conducting the hearing today, i don't mean to bog down too much on what was going on in washington, you weren't there, and doesn't really involve you, but it does in an interesting way. he made the point that there are lots of drugs backed up, bottled up at the fda that if the bureaucratic process could be broken through quicker would lead to lower drug prices, more competition. do you agree with that? is the fda a problem for a company like yours? >> you know, i think the fundamental problem really is the issue of sustainable innovation. if you look at the total cost of
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developing the new drug, 70% is before we get to the clinic. >> is that mostly the clinical trials? >> 70% is before we get to the clinic. it it is finding that one drug to put in the clinic. our clinic success rate is not great, but the fundamental problem is what i call the biology gap. we don't have the predictive models to understand what is going to work in the patient before we get there. if you think about the obama moon shot, right, we got to the moon not because of tang and rockets, we got there because of math and physics created models of what we needed in space and built those tools, we don't have that in biology. it is that gap in biology that creates the risk and creates the cost over time. i think the fda has been incredibly supportive over the past five years with new policies that are moving cancer drugs faster. but the innovation we need is understating the software of biology, the innovation we had in the past year, understanding what the hardware is, what the proteins are -- >> does big data help that? >> understanding interacts with all the parts, that's what is so
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exciting about the industry now, a big boom of ipos, incredible technologies, great companies coming out, who put those pieces together. >> what happens to research and inno he vacati innovation if there are drug controls. what happens to innovation is price controls are put on drugs in this country, as we heard some politicians suggesting would be a good idea. >> that's the death path, right, because for the innovators, the prices of drugs are the cost to get there. and we have to support that future r&d. that will lower the overall cost of care. think about asthma, go back 30, 40 years, patients spent 30, 40 days in a hospital, today it is zero. >> merrimac has a drug, 1999. >> 16 years of operating costs, i assume on zero revenue? >> on zero revenue, all fund-raising, that's right. >> the point is, 16 years you toiled to create a drug to fight
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cancer, you're starting to see a benefit from that. we never hear about the companies that never make it. >> and all the investors who po poured money into those companies. i'm not defending jacked up drug prices, but i'm saying it is like actors, we think all actors like brad pitt are famous, we famous because we know them, we know them because they're famous. we don't talk about the companies that don't make it. >> 3% of biotechs founded get a drug approved. >> 3%. >> 3%. after we spent a billion dollars in r&d and pick a drug, only 700 cancer drugs get approved. the immense investment that goes on in this industry to create new medicines is missed because we're so focused on the ones that are approved. those dollars are in the true inoue vaft compai innovative companies. >> in order to get the money, you have to promise somebody that money back. >> that's right. that's right. people have to believe in your technology making a change. thankfully for us we were successful and our core of our
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company is we're trying to create those models, predict of models in biology to take the risk out of it and so we found investors who believe in that promise of creating the same kind of aerospace models that transformed flight and getting to the moon for biology, that's where we're going to save money in clinical trials, take the risk out and get more approved. >> this may not be your problem specifically, in terms of drug pricing because you have one drug in the market, but it is your problem. your stock is trading at ipo levels in 2012. has it been difficult to raise more money given the rerating of your stock? >> what is going on now across the whole sector has been a massive decline in small and midcap biotech, people exited for oil prices. >> and price controls. >> and price controls as well, a serious impact, it will limit the amount of capital the company gets to invest in things that will change health care. >> does it make you angry at congress? >> well, you know, i don't see
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anyone in washington who is serious about price controls. i see everyone i talked to, every policy i've seen is differentiating between arbitrage and innovation. >> you say arbitrage, you talk about martin shkreli. >> companies who are profiting without reinvesting back in r&d to create new medicinesment for the companies, you look at the companies investing in r&d over time, their margins, their returns to investors are not better than any other sector, banking. if it was true there was big time profiteering in our sector, would see a massive difference between returns and pharmaceutical companies and everybody else. but the reality is that cost of getting a new medicine and the investment that it takes and the energy it takes is just reflected in the pricing. i think you're just on price controls, you're missing the real value added here, when medicines work, they change the entire cost structure. and if you think about price controls, drugs are only 14% of our entire health care system. and our health care costs go up
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by -- cut the cost of drugs in half, you lose innovation and you haven't changed the trajectory of our health care system. >> very good point. >> you need this innovation. you need this to fundamentally change health care in the country and that's the life blood of not only young companies, the young biotechs, but where we need to go as an economy. >> thank you, bob. bob mulroy. coming up next, it is back to the markets with some big money advice on how to protect your 401(k) from the recent volatility. and then later, fresh proof a big, beautiful bubble may be bursting. the full details when "power lunch" returns. at ally bank, no branches equals great rates. it's a fact. kind of like social media equals anti-social. hey guys, i want you to meet my fiancée, denise. hey. good to meet you dennis. approaching medicare eligibility?
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the s&p 500 moved out of correction territory briefly today. still down 6% year to date. how do you protect your 401(k) in this environment? jonathan clemens says he sees more downside. he's the author of "jonathan clements money guide 2016," you probably remember reading his stuff in "the wall street journal," used to have him on cnbc a lot. good to have you here. >> great to be with you. >> somebody is nervous about their 401(k) who is watching now. what is your number one advice, piece of advice to them. >> number one piece of advice is to go home, and look at the
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enemy in the mirror and figure out how you react depending on what happens with the markets from here. if you look at your overall investment mix and have more in stocks than you're comfortable with, i would be inclined to panic and sell now rather than waiting until the market is a whole lot lower. we're only down 10% from the may 2015 peak and meanwhile the market is still up over 180% from the march 2009 low. you probably have good profits if you're really nervous about the market, i would like to panic and sell later. >> this idea that, oh, gosh, already down so far, why should i bother with the reallocation or anything. i'm not going to at this point, it is too late. you disagree with that kind of thinking. >> no, i mean, clearly when i look at the market, to reach fair value, i think the market probably has to drop another 20%. so if you're nervous now when the market is down ten, how do you feel if the market drops 20%. much better to panic and sell now. before you do anything, all you really want to do is figure out
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where you stand. look at your entire investment mix. how much you got in stocks or bonds, not just in your 401(k), figure out if you're taking more risk. >> you keep saying if you're nervous. let's underline that. it is different for every individual, right? if you can't sleep at night, you probably need a far more conservative portfolio than somebody who says, okay, you know, i got another 20, 30, 40 years, i'll ride this out, right? >> the problem is not the volatility of the market. the problem is how you are going to react to that volatility. that's the big issue. you're absolutely right, michelle. you look at the typical 401(k) investor, they might be 10, 20, 30 years from retirement and once they retire, they might have -- might live another 20, 25, 30 years, they have a investment time horizon that might be 50 years or longer. what happens today, tomorrow, it is simply immaterial to how much money you're going to have at retirement, unless you panic and sell. >> couple of questions, jonathan. a lot of people have their tax
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deferred portfolio, 401(k), their 403b and their tax portfolio. where do i go first? >> you may be inclined to lighten up. there is no reason you have to do that selling in your taxable account. you'll end up with big tax bill and will mess up your 2016 tax return. if you want to lighten up on stocks, it is much better to do it in 401(k) plan and i.r.a., a tax retirement account because all that trading has no tax consequences. >> if i'm trimming my stock holdings, do i stop contributing to it? >> that would be a huge mistake. number one thing people should do every year is put as much money as they can into the 401(k) plan, doesn't have to go intoing into stocks. you put money in a 401(k) plan, you get this investors triple play. up front tax deduction, tax
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deferred growth, and you may get some sort of matching contribution from your employer. failing to get that full matching contribution from your employer is probably the most foolish investment stake anybody can make and yet a couple of surveys last year found somewhere between 25 and 33% of 401(k) contributors failed to put in enough to get the full company match. >> jonathan, great -- did you have -- i thought you were going to ask. no. okay, sorry. we're having miscommunication here on the set. jonathan, great to have you on. jonathan clements, author of "jonathan clements money guide 2016." we'll be right back. don't move. more "power lunch" in two minutes.
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here at td ameritrade, they work hard. wow, that was random. random? no. it's all about understanding patterns. like the mail guy at 3:12pm every day or jerry getting dumped every third tuesday. jerry: every third tuesday. we have pattern recognition technology on any chart plus over 300 customizable studies to help you anticipate potential price movement.
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there's no way to predict that. td ameritrade.
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i'm sue herera. here is your cnbc news update at this hour. as expected, former drug company executive martin shkreli declined to testify before a house committee hearing today on his actions in the overnight price hike of a life saving drug. the drug price went to $750, a 50 fold increase. earlier on "power lunch," committee chairman jason chaffetz said he was disappointed shkreli didn't testify and the fda approval backlog is part of the pricing
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problem. a strike in athens turned violent. dozens of hooded demonstrators threw gas bombs and stones at riot police as they marched on the greek parliament. union workers are angry about pension reforms that are part of greece's third international bailout. and prosecutors in mexico have ordered actress kate castillo to be brought in for questioning about her encounters with the drug cartel kingpin known as el chapo. authorities are reportedly investigating if joaquin guzman otherwise known as el chapo was involved in any money laundering schemes involving the actress' tequila business. matt leblanc is joining top gear. he'll be the first american to co-host the program that looks at cars basically from soup to nuts and a lot of time the hosts are doing some pretty crazy things. that's the news update this hour. brian, i'm sure you've seen that show many times.
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>> is he going to be the jeremy clarkson? >> no. >> which role will he take? >> like a co-host. i don't think he's -- >> there is three of them. >> i don't think he's going to take the role of clarkson. >> wow. matt leblanc, hey, "friends," there you go. >> we'll see if it works. i'm not sure he's the right guy for it, but we'll see. >> can't put an rv into a 180 slide, he can't move the show. let's be honest. the oil market closing for the day post another loss. wti setting at 31.66, another day with a greater than 1% move. your next guest says there are three kinds of oil companies, the losers, overpaid for land, own bad land and will probably go away or be eaten by the second group, the winners, cheap land and solid balance sheets, and the third kind, the zombies, not dead, not living, limping along. how do we know which is which. rusty brazil at rbn energy, well known to the mad money crew, joins us today.
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thank you for joining us on set. >> happy to be here. >> how do we know who the zombies are? >> if you have a good balance sheet, if you're drilling in the right locations, places like the permian, the scoop, continental is, in good locations and good hedging program, you planned for this, then you're in good shape. >> okay. so, well, good balance sheet may not be the good balance sheet in a year. >> a fact. >> if you're not an oil pro, and want to buy an oil stock, should you automatically begin your search by companies that are either wholly or primarily operating in the permian basin of texas? >> no, you should not be totally focused on the permian -- >> isn't that the low of the cost production region largely? >> you're not looking at the lowest cost region, you want the lowest cost relative to the size of the well produced. in other words, if the production out of the well is high, and the well is -- the
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cost of the well is kind of in the middle, you're okay. it is the relationship between the revenues that are produced, and the cost of the well that that's where you want to be. so, like, for example if you look at the scoop, southwestern louisiana, southwestern oklahoma, where continental is, the wells there are medium cost, but they come in huge. lots of crude oil, 500, 600 barrels a day, 500 to 6 million of gas a day. put those two things together, lots of revenue, i have lots of revenue, not that much cost, and the well is better off. so you have to look at both sides of the equation. >> how do i get that information? >> good old-fashioned investor presentations. that's what you do. if you look at the investor presentations, they will tell you in those presentations what their tight curves look like. it is the initial production rate, how much does a well come on, when it first cranks up, and then what does it look like over time? nice little graphs in there, if
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you see one that comes on really strong, and that it doesn't fall off all that fast, and it is a good -- >> even i could guess that's a good sign. >> and, oh, by the way, if it comes in like 6 million bucks or 7 million bucks, that's a pretty cheap shale well. so if you put those two things together, and you see a company has the ability to do a lot of that, then all of a sudden you've got a -- >> you get this information about master limited partnerships as well? >> absolutely right. there is not that many of the emps that are master limited partnerships but some. and they're not doing so good. >> or pipelines to your point. >> or pipelines. for a pipeline, what you want to look at is not what their reserves are, what their type curves are, they don't have type curves. they have what are the producers doing in the locations where they operate. a pipeline goes from a place to a place. so if they're going from a place where the production looked -- the production profiles looked good, that's a good thing.
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if on the other hand, their pipelines go from not so good places to somewhere else, that's not a good thing. so it all depends on the situation for -- >> tell me why or tell investors why they should be invested in the oil patch at all. conocophillips today slashed its dividend and also slashed its capex saying it should now prepare -- the more prudent route to prepare for lower for longer. they're doing that now. they don't necessarily see a turn, so why should investors get in now? we have been told all along from the top left corner of the chart down to the bottom right that it was time to get into energy stocks. you're going to miss the turn. >> you did not hear that from me. >> okay. just generally. >> right now is the time to get in. >> is it not? >> well, there is a time to get in. and what is going on now is obviously values are down, commodity values are down, and company values are down. some companies like you -- in
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your electroductintroductory pie not going to make it. their assets are going to be picked up by somebody else that has a good balance sheet. when those assets get picked up, then that company is going to be able to come into these markets at a very low price base point. and they're going to make a lot of money at it as prices increase. production is going to dloeclin and it will decline relatively soon. >> soon, you think? >> relatively soon. here's the catch, here's the catch, once they go up, they're not going to stay up. we are in a trading cycle. here is the way it works. production declines, has a decline. when production declines, prices go up, they're going to go up. what are u.s. producers going to do? >> turn on the spigots all over again. >> they turn on the spigots and
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what happens to price? >> goes back down. >> that's right. so we're in a trading range. we're going to be trading for a long, long time. the companies with the strong balance sheets able to keep their strong balance sheets are going to do good in that kind of environment. and the companies that don't, won't. that's the way it is going to work. one of the things i like -- >> it is also global too, by the way. can you see the scene now, can you see the scene in moscow, president putin, we're broke. pump more oil. >> that's what they're doing. >> that's what everybody is doing. so that's the reason the logic of the saudis cutting back makes no sense whatsoever. right? it is just not going to happen. >> to melissa's point, i was sitting at the wall street bar and grill inne ed mmidland, texd somebody said, brian, all fortunes were made in the downturn. >> was his name bubba? >> i may have been named bubba.
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somebody is going to get rich after this ten years from now. >> no question about it. >> we want it to be our viewers. >> excellent. they have to wait for exactly the right time. >> that's easy. >> thanks, rusty. >> thank you. all right, it was the economic shock heard around the world, the bank of japan choosing to move to negative interest rates last week. joining the ranks of some of the european central bank and other banks in northern europe that already implemented this dramatic economic measure. will the u.s. be next? should the u.s. be next? joining us now for his take on the global monitoring divergence is cnbc contributor ron insana. should the u.s. go to negative interest rates? still talking about whether or not they should hike? >> whether people believe the fed was boxed in before, they're now trapped by the actions of not only the global economy, but by other central banks, to the extent the fed raises rates from here and widens the difference between interest rates in the united states and everywhere else in the world, put a strain on foreign exchange markets and
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are begging for some sort of market event that would be troublesome, i think. >> the dollar has come down. >> yes. >> in part because the pressure of fed raising interest rates has been interpreted to be abating. >> they'll take into account the head of the new york federal reserve, yes, and suggested that they're going it take the global market turmoil into account when they meet in march. they may be willing to delay any future rate hikes. it seems that given the economy is slowing down here and weakening around the world that the u.s. not only can't raise rates, i think the fed rever reverses -- >> how worried is the world about deflation? >> the fed stopped talking about it. the rest of the world deflating. you look at the eurozone, japan, wouldn't have negative rates in japan, wouldn't have negative rates in europe, wouldn't have them elsewhere in the world if this was not still the single largest economic problem on the
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planet. >> did you answer the question that michelle -- >> yeah, they should go negative. >> okay. i want to get that bottom line. should go negative. doesn't that spell i don't want to say armageddon but real trouble for the banks. >> it is not a clear sign. for everybody who said once the fed starts raising rates, we'll see a spread. 230 to 180. the yield curve is flat. it would be horrible for pafrba. >> a lot of pain felt by the banks? >> i don't think that's an intentional effect, byproduct of having to change policy to reflect global economic reality. it would be painful for banks, would be painful for customers too. the banks could go negative ultimately and charge consumers to hold deposits. >> where does it all end, though? >> we don't know. we haven't done this before. japan has been struggling with this for 26 years now since their markets peaked. the u.s. is in considerably
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better shape than the rest of the world, given the strains and the divergencdivergence, you ha assume the fed can't raise rates without causing china to devalue its currency rather radically or any country that has -- rates go up here, they have to make adjustments there, this is a complicated problem. >> it sure is. >> thanks, ron. ron insana, read his piece on cnbc.com. this pablo picasso painting, this -- there it is, went up for auction last night in london and the price it sold for, could be a very bad indicator for the art market, robert frank joining us now with more on that story. >> picasso matisse, even monet had a bad night in london with totals down 45% from last year. is it a momentary slowdown or the bursting of the art bubble? very ugly numbers coming up after the break. that lived with a family. one day, it started to rain and rain.
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water got inside and ruined everybody's everythings. the house thought she let the family down. but the family just didn't think a flood could ever happen. the reality is, floods do happen. protect what matters. get flood insurance. call the number on your screen to learn more.
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the art market was red hot throughout most of 2015, emphasis on was. but recent auctions have shown in today's uncertain economy, even the great masters aren't getting much respect. robert frank watching the story and joins us with the latest. not a great night for picasso, monet. >> all the blue chips.
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you can call it the picasso correction. the auctions in london this week falling well short of their prices and expectations. sotheby's christie's selling $210 million worth of art, down 45% from last year's total of 381. at sotheby's, sales of 135, they missed the low estimate of 138. 15 of 53 pieces failed to sell. the star of the show took a big tumble. 1935 picasso, sold at auction three years ago for $40 million. yesterday, went for $27 million. so the value of that piece dropped by a third in flee years. a monet was expected to fetch $17.5, that went for 16.7. another picasso, all failed. they saw continued market activity across all price levels and this rodan sculpture went for $17 million. that was a good price. all of this confirms that the art market is turning and that
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2015 may have been the peak, we don't know whether it is a correction or a slowdown, but christie's last week reporting its first annual decline in sales since the financial crisis. sotheby's expecting a loss between 10 and 19 million. and the fourth quarter. what is interesting is that all we heard for the past five years is that art is an uncorrelated asset from the stock market, a safe haven and a new investment class. >> right. >> who pulled sno eed out? >> it is all correlated. oil, art, picasso. it is all correlated. >> okay. i hear your point. you foreigotten more about this market, is it possible that's a one off. >> no. >> if you sell a painting at a $16 million loss, you're in big financial trouble? >> right. >> one buyer that overpaid -- >> we had hundreds of one offs in the past six months. so if you look at the fall auctions, look at certain categories of the art, some people say the art market is 150
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micromarkets, all different categories, starting three years ago, you see it started to see some categories weaken, now almost all of the categories, so you look at broadly, the whole market, it is going -- >> this reminds me of the conversation we had with ron insana about deflation, this is it. deflation happens right now. to tyler's point, somebody is -- >> it should benefit art. >> it should, but there is other stuff going on. the middle eastern guys are gone with oil. the russian oligarchs are gone because -- >> to brian's point, if interest rates can't hold it up, is the fed pushing on a string? are central banks pushing on a string? they keep going lower and lower and it doesn't matter. >> six seconds to answer it. >> you're not helping the art market anymore, it is really not helping the rest of the economy. chinese were not at this auction, that was the big news. >> that's -- >> thank you. next up, art to gold. don't move. equals great rates. it's a fact. kind of like bill splitting equals nitpicking.
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but i only had a salad. it was a buffalo chicken salad. salad.
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sometimes they just drop in. always obvious. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances. ♪ light piano today i saw a giant. it had no arms, but it welcomed me. (crow cawing) it had no heart, but it was alive. (train wheels on tracks) it had no mouth, but it spoke to me.
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it said, "rocky mountaineer: all aboard amazing". let's talk precious metals. larry mcdonald and a little royal on the metals and what's driving that? >> last fall you and i had the
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conversation if the fed pauses or if at the end of the day, if the credit markets veto the fed policy path, gold mineers will outperform oil and commodity space will outperform and that's happening right now. it's taken some time but the perception is that the credit markets and chinese economy are vetoing the fed policy path and it's starting to get priced in and that means you're seeing a major reversal in gold and commodities and probably in the mid to early innings of this game right now. >> maybe a big no thank you to policies we're seeing. what do you make of some of these stocks? >> i think in general, look, this is a massive positioning trade. you can make money in the near term by playing the positioning side of the equation where you've seen a massive, massive amount of short piling on to a sector that had inkredably
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negative sentiment, like copper or zinc or any of these, they are structurally bad investments. so people piled on there. it's a repositioning or derisking if you will. you're seeing that in the dollar as well. i look at it very clearly, you're going to have an opportunity for the month or so, two months to make money on the upside it is a structural short sale and you lay them out they'll go lower. >> our audience has been warned. larry, david -- not larry david we appreciate your enthusiasm, never curb it -- >> he's in fine form. >> even did a monet pun. >> lucky american viewers. >> head to trading nation.cnbc.com.
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>> as we head toward the final hour of trade, nike and home depot and merck. they are all off by more than 3% each. more power in two minutes.
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welcome back to "power lunch." i'm looked forward to the interview coming up on "closing bell." today he said he was a hero at the end of this story, he is a hero. i want to hear him defend that? >> how is he a hero? >> that's the question. >> he was not a hero on stand today. >> especially when you look at the tweet he did after refusing to answer any questions, hard to accept that these imbeciles represent the people in our government. that's not going to do him any favors, what makes martin skreli so interesting. >> unapologetic for sure. >> lessons with sully today, if you're buying oil stocks for the
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dividend, i think conoco phillips woke everybody up. >> that's a bunch of would loneny. >> don't insult it. it's delicious. >> it's better to be paid 3% to wait but if you're stock is going down, it's not going to offset the decline in equity -- >> think about how much higher your yield is. >> because you think it's done going down and you get the dividend. >> some people -- >> i got -- literally gave you the brush offer. >> she went like this. haters are going to hate. shake it off. >> we'll be talking about what other companies out there could be looking -- >> you've got brett favre on. >> launching a new social platform. so yeah. >> that's great. >> brett favre on "fast money". >> favre. >> gold copper.
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>> tonight talking about his new social platform. thanks so much for watching "power lunch." "closing bell" starts right now. >> hi, everybody, welcome to the "closing bell", i'm kelly evans. >> conco phillips to cut its dividend. which other names could follow suit. and the rise of the robo adviser, mike santoli will join us with a special report on how they are dealing with the rise of the machines in this investment world. >> also ahead, duncan brands store sales are slipping. the ceo will join us to discuss whether mcdonald's all day breakfast is eating big time now into his customer base. >> in many ways the story of the

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