tv Power Lunch CNBC February 8, 2016 1:00pm-3:01pm EST
so if anything, i think the pros are probably more excited about a really negative reaction if they're bullish on the name rather than trying to place a big bet ahead of time because earnings reactions have been tough. >> all right, we'll leave it there, guys, good to see you. market clearsfuls clearly in fo. "power lunch" picks it up now. thank you, scott. welcome to "power lunch." i'm michelle caruso-cabrera with melissa lee and tyler mathisen. we begin with a massive sell-off, all down 2%. dow jones industrial average coming off the worst of the session, but lower by nearly 2%. ditto for the s&p 500. the nasdaq the worst, and the russell 2000 hit hard. all ten s&p 500 sectors are down. we're focusing on energy, the financial stocks, and the technology stocks. some of the worst performing sectors of the day, they moved around quite a lot. but once again, all ten are negative territory. let's get to bob pisani on the
floor of the nyse. >> the damage just about right across the board, though utilities not down as much. show you the s&p 500, we went straight down at the open, similar to what happened in europe and this is pretty broad weakness we have seen. financials are the weakest group. off the lows here. as europe closed around 11:30, the selling did abate a little bit here. in the middle of the day, take a look, call it euro weakness spilling into the u.s., 5-1 declining to advancing. almost 400 new lows. volatility is modestly elevated. that's interesting. the vix not that high, 26. you would think it would be higher. new lows, want to point out the big money center banks, bank of america, goldman, morgan stanley, all at new lows, citigroup, all the big money center banks at 52 week lows including the regionals like 5th, 3rd and state street.
chesapeake energy went to $1.50, halted several times. the company halted the stock for news pending, came out and said they were not considering bankruptcy. halted several times on the way up. it was halted a few momented es. it just reopened. they get halted at 5% trading bands and the volatility is high today. that's been halted several times. the consumer names have been unusually weak as well. you can't say this is just an energy story in the last few days. i put up names like nike. nike was $62 on wednesday. you can talk about exposure to china, but now 12% in three or four days. that's pretty noticeable. starbucks and under armour weak on friday and weak again today. bear markets, people asking about it, we got some. the russell 2000 is 25% off, 52 week highs, historic highs. transports, 25% off. banks, that's the kbe, down 25%. and materials in the s&p 500 23%
to the downside. the vix at 26 now. that's very interesting. you would think the vix would be a lot higher given the volatility of the last few days. i think part of the problem is there are other options out there, a lot of other ways to play options including weekly and monthly options and what you look at is a quarterly options. the s&p 500 quarterly and i think there is simply less action in that. i'm wondering if whether or not the vix represents the volatility now. i think we might need a broader index than the vix to see exactly what is going on in options land. back to you. >> bob, thank you very much. stick around as we bring in cnbc senior economics reporter joe liesman. joe, let's talk about why you upped what you see as the possibility of a recession now to something on the order of 40% from 30% or so, not that long ago. why? >> it may be higher, tyler, given the price action today in
stocks. but last quarter the economy grew .7%, data since then. suggesting growth might be a few tenths lower and doesn't look like the current quarter will be much more than half a point. so we're moving awfully close to zero if you will over the past quarter and this quarter. while i see growth rebounding, a lot will depend on financial conditions and whether markets can stabilize. right now it is looking more and more shaky. >> steve, are your numbers showing the same things? >> no. street is not as pessimistic as joe is right now. he's right that the fourth quarter had a couple of tenths shaved up . we ticked up to 2% last week. these are very early days for the first quarter. >> the predictions of -- >> for first quarter of our ten tracking forecast that we follow. so the street is a little more optimistic. joe must have built in, if i'm
not mistaken, a very weak consumer and really big inventory sell-off here to get to your -- a couple of decimal points on the first quarter there. >> right. and, steve, to me, it is a possibility. one of a big inventory correction. further weakness in exports and very soft business spending. i have decent consumer spending. i'm not sure why the street is upbeat on q1 as they are. what is interesting about the data is every time we have been at 346 on the workweek, we revised it down. i think those estimates for the current quarter are too optimistic. >> why is this happening? why are we seeing such an increase in pessimism about the economy? is it the situation in china? what is leading to you to do this downgrade of your expectation? >> so for me, i mean, i saw the gdp revisions, they troubled me because it turned out 20 10 was the best year for growth. we revised growth down and 12 and 13. and then what i noticed was that
manufacturing looked like it would slip into a recession. the dollar continuing with a rise. the inventory build is excessive now. the global economy is a lot softer, certainly there is weakness in china. and importantly, michelle, the consumer didn't respond the way i would have thought with the low energy costs. something fundamentally seems remiss and the problem now with the u.s. economy, it is being driven by one sector, the consumer, which wasn't the case the last time we had this sort of global crisis in '97, '98. >> you were one of the great bulls on wall street for a number of years. you were the leading bull on wall street and now took 40% chance of recession, that caught my eye this morning. what prompted that kind of eye catching number. >> i saw it coming in this year, we have about a one in three chance of recession and i saw for every 1% moving the stock market, the recession probability would move that amount. which feels the right way. if i went to people and say, look, let's say you knew nothing else and had an equity
correction, what would be your probability of recession. most people would say 50%. i don't think that's a wrong way of looking at it. i just get worried about the lack of breadth and importantly the inability of monetary policy to do anything else, and as you know, with the election, the fiscal lever, for the near term, is paralyzed as well. >> what does this do to the fed, steve? the fed is sitting there watching former bulls like jose 40% chance of recession, i think barclays said they see two rate hikes this year. >> which is two more than the feds fund market. it is not dialled in that the forecast comes true. there is a bunch of other things. we're in a strange place and may sound ridiculous with the market off 300 points, but not everybody on the street is ruling out the fed, even for march, to really get you thinking about this, you have another march payroll number. and if it shows another decline
on the unemployment rate, and another strong wage gain, then the fed could be back in the picture as soon as march with another quarter point. remember, what the sfed is tfedg to do is get on the road. you have this testimony this week, listening closely to janet yellen and whether or not she puts us into a firm neutral here or she still waits to see, you got a cpi report and big jobs report, mario draghi is out there. but right side there, markets in china have to be stable, i think you need those two things for the fed to hike. >> steve, thank you very much. joe and bob, thank you as well. we are watching shares of tesla today, below the $150 a share mark for the first time in two years. this is a 52 week low. lost about 36% year to date. there is a bearish morgan stanley note out today, questioning the production of the model x and whether or not it can actually produce the falcon doors that go up on the sides without a hitch there.
a lot of bearishness coming in on tesla. also look at the f.a.n.g. stocks, taking a beating with the exception of netflix. higher right now, but not so fast, because netflix is down about 27% year to date. is it time to get out of some of the momentum names. brian wheezer is analyst with capital research and joins us now. great to have you with us. you look at, you know, stock like a facebook and google, they had very, very good quarters, very strong quarters and both of these stocks have lost their earnings pop. every single point of gain on the back of the strong earnings they have lost so far what is this telling you about the environment we're investing in this area? >> investors don't have a lot of confidence to say the least. i think that there is a lack of appreciation in some cases that, you know, future growth is in some way volatile. i don't think that's the case, especially for facebook and google. when linkedin's numbers came out and people were disappointed about very company specific things, i think that had a major
effect on these names. yes, there is a risk around recession, yes, there is reverse of a momentum driven trade out there. but the degree of the reversal of the names was way, way overdone. >> at what point, it seems like investors are rerating the sector. at what point do you start thinking maybe i should rerate? i'm looking at facebook. your price target is 136, a 36% return from where we are right now. >> i look at relative alternatives available to investors. again, if the alternative is always a risk free asset that is levered, you know, you got to see the numbers change enough to justify change in the value of these stocks. i think that sentiment is something that can be volatile inside of a quarter. i try not to change every day, try to limit the changes in how i look at the market to once a quarter ideally because, again, on .dthe day to day basis, it c be all over the place and reverse next week. >> why are you less sanguine about google than facebook,
twitter, yahoo!? >> with google, i think it with facebook is in a co-dominant position in the internet advertising. the two companies take virtually all of the growth of the industry. the problem with google is firstly its catholic expenditures continue to grow robustly in the near term. and i think that the valuation already accounts for its growth prospects and margins, which are going to continue to compress. >> i can't bring myself to call it alphabet. i can't. i don't know why. i'll have to get used to that. >> as it turns out, the nongoogle parts are pretty small anyways. >> yeah. but basically you say the price already reflects the growth and they're going to have much more spending ahead of them? >> exactly. that'sy disagreed with the consensus on wall street that tends to ignore the scale of the ungoing capital expenditures. supporting youtube isn't cheap. >> back to melissa's question about rerating the sector, there
has been a leadership shift for sure within the markets. few areas that have done well are, you know, areas like utili utilities, if you can say they have done well. people have gone far more defensive. if we go into a tough economic time here, wouldn't that last for a long time no matter what you say about the stocks individually? isn't it going to be tough for them to outperform? there has been a real shift in sentiment. >> two things, every recession can be a little bit different. it is possible to have just a very tepid recession if we do get into one. but secondly, even in a downturn, that doesn't say that individual securities necessarily fall off in terms of underlying efforts. facebook and google could benefit from a reconcentration of spending. there are advertisers who diversify spending away from facebook and google because they don't want to put all the spending in those two places. >> unless they cut spending because it is a tough economic time. >> that's true. they could do that. i think facebook and google could be net beneficiaries.
i'm saying that's a possibility you want to be mindful of. now all downhill for everybody. >> thank you for joining us, appreciate. brian wheezer of pivotal research group. to dom chu for a market flash. >> shares of go pro, the action cameramaker, holding up strong amid the sell-off today. the hd maker saw stocks slam last week. this rebound today comes on heels of the news it signed a patent licensing agreement with microsoft. it could have short covering. the stock is taking a massive beating over the last year. it lost three quarter of its value. go pro shares up, but the trend to the downside. >> dom, thank you very much. we're counting down to those new hampshire primaries and larry kudlow will speak with the republican presidential candidate donald trump next. here at the td ameritrade trader group,
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welcome back too "power lunch." feeling the pressure from worries about banks in europe. deutsche bank and credit suisse plunging today. barclays at one point this session was halted for volatility. and look at the etf that tracks the european financials, ticker eufn. that's down by more than 4% now. let's bring in jon najarian. we're seeing a lot of warning
signs about these european banks, specifically deutsche bank. >> yeah, but just as tony dwyer said, the blowup, it is big, because the credit default swaps, five year cds are double what they were 30 years ago. simple english. that means the insurance cost is doubled what it was just -- >> perceived risk is that much higher. >> exactly. credit suisse up a little over 40%. you're seeing that sort of volatility explosion, it is big, but it is not big relative to where it was in 2011, mel. this would barely be a blip. in other words, they went up over 600 and 700, not where they are here, not at 144 to ensure that risk of the default. >> but the action we're seeing on the equity side of the equation for deutsche bank and contingent convertible side indicate there needs to be a back stop which it seems like it
would be an even more severe act than what happened in 2008. how can we reconcile that if we're saying, it is not as bad as situate, but the echo on the coco side, that spells disaster. >> the equity explosion to the downside as it plunges to new depths, that's huge. to see that and to see the people are fleeing european financials in this way makes you think maybe mario draghi and/or some sort of pan european effort will have to be made to keep these stocks, if not solvent, to take people's minds off the risk because a run on a bank is something you don't want. this number doesn't tell me we're going to see a run on a bank, but if it tripled from there, that would tell me that. >> doc, thanks for stopping by. dr. jon najarian. to dom with an earnings alert. >> this is what is happening, yelp earnings are released right now during this early afternoon
part of the session here. yelp comes out, online review site, with earnings per share, adjusted base of 11 cents per share. that beats the average analyst estimate. revenues coming in slightly better, $153.7 million. analysts on average looking for $152 million. they also announced plans for a cfo transition. rob crohnic, the current cfo, will step down. we're going through the details now, but the shares are halted, have been now for about five minutes or so. prior to that halt, the shares were down 6% in decent trade, about 3.9 million shares have traded. they are indicated to open higher given what is happening in the market now. we'll keep an eye on this. shares are hamted on yelp due to volatility, this after an earnings release. we're watching what could be trades right now, just starting off. yelp shares just reopening for trading after a circuit breaker
halt. now down 10% in trading, so yelp shares taking another hit here on the heels of what appears to be an earnings release during market hours. we'll keep an eye on this for you. for right now, yelp shares down by 10% after reporting earnings and sales and, of course, a cfo transition as well. more details as we know more here. back to you. >> the stock is volatile. you're saying we looked at -- when you started, it looked like you saw a tiny pop off the bottom when it came to yelp. jon, you want to join in here? how do the numbers look? >> we were expecting the numbers after the close, so just looking through the release myself here, a company that has been under real pressure, remember last spring when there was a lot of interest in yelp as a possible acquisition target, we know management took yelp off the signing block. we know real pressure, user growth slowing.
big part of the reason, i'm sure dom will touch on it as well, yelp depends on search engines like google to drive its growth. already, of course, down very hard over the last 12 months. >> why is the stock sell off so hard if i'm reading this right, they massively beat on earnings and beat by a little bit on revenue you is the cfo change important, josh? >> i think anytime there is a shake-up, investor and analysts will have a lot of questions about that. overall you have a strategy in place, company that has been pushing its own mobile app. we know marketing expenses ramping up. more national ads. we know ceo has been trash talking googlen whtalk talking google whenever he has a chance. that strategy has not so far at least convinced investors even before this latest earnings result, we saw a stock that was
under just tremendous pressure, down some 70% over the last 12 months, guys. >> a bit of a bungee jump there. now down 5%. >> tough when an internet based company gets the technology wrong. >> exactly. >> thank you very much. we're going to take a quick break as we await donald trump. he's got some things he's busy with today and he hasn't called in just yet.
welcome back to "power lunch." i'm michelle caruso-cabrera. presidential hopefuls barnstorming new hampshire today ahead of tomorrow's first in the nation primary. and that's where we find our larry kudlow who is live in manchester, new hampshire. larry? >> thanks, michelle. we're fortunate enough to have mr. donald trump come on. mr. trump, first of all, are you out there, sir? >> i am indeed, larry. i'm right now in beautiful, beautiful area where it is snowing a little bit. >> a little bit. i appreciate your time very much. i wanted to bring you up to speed on -- we had governor jeb bush was here earlier today. and he severely criticized your trade plan. he says the 45% tariff would cause a global trade war. do great damage to the u.s., and he said it is not a serious
policy. mr. trump, what is your response to that. >> i'm not talking about 45%. he made that up. because he said that, what china is doing to us is the equivalent of a 45% tax. and we have to get china and other countries to behave, larry, because they're devaluing and absolutely killing us with our business. you see what's going on. other countries too. japan, look at what is happening to caterpillar with kumatsu. i said the equivalent is 45%. that doesn't mean i'm going to tax them. i've seen jeb, he'll say anything because he's a desperate nervous wreck and he'll say anything at all to try and, you know, get a few votes. the guy spent $114 million on a campaign and he's nowhere, at the bottom of the barrel.
he makes these things up. 45% is the equivalent, low number, as to what they have done to us with their various devaluations over a period of years. that doesn't mean i'll tax them. i want them to behave and stop it, because it is impossible for our companies to compete based on the kind of devaluation that they're doing. >> so, just to clarify, a lot of people on wall street have raised the same issue. you regard this as a negotiating card? >> absolutely. that's a way of putting it, yes. we'll say, look, if you're not going to behave, we're going to change some numbers. i guess you could put it that way, this is a negotiating card. this is what the tax should be if we ever want to catch up with what they have been doing. but that doesn't mean i would use it. but it is a hell of a good negotiating card.
>> i also read, you're very pessimistic about the u.s. economy. i believe you called it a jobs recession. you're worried about a bubble, credit market bubble, and so forth. can you tell us more about that? and basically, sir, what would a president trump do if he came into office, and the u.s. is facing recession in. >> well, i would cut taxes very substantially. because we're losing our companies, pfizer, moving to ireland or many others, they're moving out and leaving jobs behind by the thousands. we're the highest taxed nation in the world or very close. i would do a large tax cut for business and middle class and we have to keep our companies here. i would try to get the money to the corporate conversions. i would try to get the trillions of dollars outside of the country, i would get it back in. everybody agrees it should be back here. everybody agrees that the republicans and the dems agree
it should be back here. we have no leadership so they can't agree. >> you said you wanted a 15% corporate tax cut for large and small companies. you also said you would close a lot of the special carve outs and loopholes for the large companies. can you tell us how that would work? >> hedge fund guys, we would simplify the codeme mencode. you've seen it. it is actually on the website, the -- we're simplifying, lowering, reducing business tax greatly. the money coming in i would charge 10%.
we'll get business going again, larry. we have business leaving the country. used to be that new yorkers, let's say new york and it got larger or something. now they're leaving our country, all parts of our country and moving to other places in europe and asia. and we can't have that happen these are big companies, massive companies. this is a bad sign. >> stock markets down 350 points today, mr. trump. the market as you know is in a pretty bad slump. >> i've been talking about a bubble for about -- for a while, larry. let's see, i hope i'm wrong. we're in a big, fat, juicy bubble. the only thing going right was the stock market. the whole jobs report is a phony deal. when they say it is 5%, it is a
joke. ridiculous. >> you've also been on the campaign trail, criticizing drug companies, criticizing insurance companies, criticizing oil companies. i wanted to get a sense of what specifically your criticism would be. >> i'm criticizing them because all the candidates, like jeb bush's campaign finance minister, he's upset because the guy is losing so badly. but woody john son, you wonder why we don't bid out drug prices and why snts the united states bidding out drug prices. he's the head of finance, ahead of fund-raising essentially for a guy like jeb bush, who is not going anywhere. he's not going to be -- he's probably, you know, going on out
to of here pretty quickly. you have a guy that runs finances, the drug companies continue to get sweetheart deals. but i'm just saying, i'm still funding my campaign, i'm putting up my money. i'm not asking people. i have so many people put -- you know me well. i turned down so much money, but i'm self-funding my campaign so i can do what is right for the united states, not what is right for a certain company. >> if effect, if you cut out the cronyism, you would be redefining the republican party, redefining the republican party, kind of away from the chamber of commerce and maybe more towards mainstream. put everybody on a level playing field. is that something that occurred to you? do you want to reform and change the gop? >> i never thought of it that way.
but better do it or you won't have a republican party. the republican party has tremendous structural problems right now. frankly, i never thought of it the way you put it, bought that's the way you put it. unless we start changing, we won't have a republican party. we're never going to win another election. >> one last one, mr. trump, i guess in a town hall today, you were asked about children, syrian refugee children coming to the states and you said no. why? >> because we don't know who they are and where they are. they have a breaking report in europe they have tremendous problems going on now as we speak. tremendous in germany and various other countries. breaking news now. we have no idea where the people are coming from.
i said, if they're not here yet, i would keep them out, we have to keep them out. we don't have the luxury of bringing in people that we have no idea. we don't know where they come from. it could be a trojan horse, maybe not. but it could be a great proethen horse a trojan horse. we should do it that way and do it smart. but we don't have the luxury of taking people in, where it could be a disaster. take the look at what is happening in germany and speed sweden and europe, it is a disaster. >> i think we have to protect the homeland. anyway, mr. donald trump, i know you're busy. we may be losing you. thank you for giving us your time. best of luck. >> thank you very much. i appreciate is very much,
larry. >> thank you for bringing that to us. >> i'm still here, michelle. >> what should we believe about what he's saying in terms of china? >> well, look, i think what we heard donald trump say is that he's not going to mandate a 45% tariff. that's not his goal. but he wants to put some heat on china and other countries. he's a dealmaker, as you know, but not set in stone to do that. a lot of investors talked to me about it. i'm a free trader myself. i think it would upset the economy. i didn't hear trump say that.
he said we want to settle the currency issues and a more level playing field. china are no angels. he's saying let america have a much bigger stake. >> it is a complicated issue put a lot of fears is china may not have a choice at some point about devaluing the currency, they may be running out of reserves at the pace the numbers we just saw last night. all well and good for donald trump to say these thing, but at some point the market takes it away and forces them to do things, it becomes a moot point what he's saying. >> i don't think china is running out of foreign exchange concerns. there is a lot of capital flight from china. some of this is pro market
reforms. but combined with the soft economy, you're right. the yuan will dominate. it is always hard to negotiate currency moves. i just think he's trying to say, this is my interpretation, you heard him too. he's trying to say i'm not set in stone about a 4%. >> if there is nor capital flight out of china, that puts more pressure on and down it goes. thank you very much. great to see you. final thought, go ahead. thanks, larry. >> i was going to say -- thank you very much. >> all right. if you look for safety and the two-year note it hadding thittit
since october. >> we're off nine abasis points. if you look at the year to date chart, down 52 basis points to 175. this is year to date. not only has been it been put-- speaking of which, look at year to date of boons, down 42 basis points on the year after selling the 1962 last trade. what about portugal, up over 80 basis points. here is the real killer. would you ever believe in year to date euro versus the dollar is three full points higher from 108.60 to 111.70. the risk off trade carries
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hello, everyone. i'm sue herera. here is your cnbc update. royal caribbean says its ship anthem of the seas that sailed into a storm off the coast of north carolina will turn around and sail back to its home port in cape liberty, new jersey. passengers say they were ordered to their estate rooms after the ship was hit by 30 foot waves. russia says it rested seven it is militants. video released by the russians shows three of them in a room and confiscated items being inspected. iraqi forces clearing isis from part of the city. iraq retook the center of the city last december with heavy air support from the u.s. led coalition. and the new york knicks fired derrick fisher after the
team lost they're fifth straight game and nine of the last ten. he's being replaced by curt rambus. back to you guys. >> thank you very much, sue. back to the markets on this very busy monday. what is the best place to invest? joe duran and joe quinlan. welcome to both of you. what are you doing with the money in the accounts that you manage? why. >> the first thing we're doing is making sure people's core allocations are in line. after market declines, or have a lot of different performance, you can be overweight or underweight a lot. we tell people, make sure you're
allocated along the risk you can and should be taking. second is do nothing. you can almost never do well by making extreme moves when the markets are very volatile. your emotions are a dreadful gauge of how you should invest. we had a very anemic recovery for seven or eight years in the economy. if we slip into a recession, the odds are higher than they have been, it is probably not very pain. iny we're not going to. when you're at 1%, 1.5% gdp, it doesn't take a lot to go to minus 50 basis point. the russell is the canary in the coal mine. as long as the russell 2000, what you're seeing is more risk, cost of debt going up for smaller companies. credit spreads widening and
economy slowing. again, you have warnings, but do nothing extreme where the markets are as volatile as they have been the last -- >> joe, do you basically subscribe to that thought, better to do nothing than to do something and get it wrong, but let me also get your sort of thoughts on where we're headed economically and what you're advising customers to do? >> he would don't see a recession. we have the pullback in capital expenditures and exports and globally we're looking around 3.5% growth. the backdrop is okay. there is sogginess out there. we're looking long-term, like five, ten years out and see good opportunities in health care, water infrastructure development, defense, financials look good here. if you're an investor, we're putting some money to work, but carefully, not all at once, there is a lot to work out with energy and the fed in china.
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that's why the stock has been jumping around. at one point you see it did take a peek at positive territory. we also have a statement right now, coming out from yelp, about the appearing inadvertent release of their earnings during market hours. a company spokesperson said the early release was caused by a vendor area by pr news wire. the way these earnings reports are disseminate ready usually through pr news wire type services. in this case, yelp is saying the results were caused by a vendor error by pr news wire and there is an inadvertent market hours release. but the stock has been all over the board. people still trying to figure out what the earnings numbers are and how comparable they are to earnings estimates. we'll bring you more details. yelp statement is that it was a pr news wire or vendor type error that caused this during market hours release of their earnings. back over to you. >> oops. all right.
sectors, telecom and utilities, look at this chart in positive territory, financials, health care, all intuitive, sharply lower. should i chase that. should i go to telecom and utilities now seeking safety or are they going to go lower too? >> they should go lower if this keeps melting. but chasing into quality at a high price because none of those sectors are cheap now, you're literally trying to anchor on the dividend stream. >> would you recommend that or is it too late? >> so we have long-term investors and clients who own them, but own them for the consistent long-term and stream of it. i would not chase the valuation part of it now. >> sounds like you derisk your portfolio overall. still overweight in equities. within that portion of portfolio, how have you derisked? if you don't like telecom utilities seen as a defensive trade. >> i give you the classic answer as a long-term investor is stocks went.
we go through a correction and we talk about this before the break. this feels like the correction in last august. some of it headline driven. we need something with stability around it. oil. we can get stability on energy prices, back to your comment that we talked about on sustainability of energy prices, not an affect on credit markets that can stabilize too, china matters an awful lot as well. you had mentioned emerging markets. we actually took out the last bit of emerging markets that we had last june and august in portfolios because the change in -- >> out of emerging market zz s not mean out of stocks. >> japan and europe, partially hedging some of that still. >> you worried about what the european banks are signalling? >> yes. >> does that get you more ner nervo nervous? >> looking at ing ing at deutsc
we're seeing a lot of pain and pressure there now. we don't think it breaks, but we're paying a lot of attention to it. back to the question you asked me before, credit markets and banks need to find stability. until they do, markets will be pushed down a little bit further. >> richard, thank you. >> good luck. >> a cheery thought, richard, thank you. jpmorgan, "power lunch" will be right back. i'm only in my 60's. i've got a nice long life ahead. big plans. so when i found out medicare doesn't pay all my medical expenses, i looked at my options. then i got a medicare supplement insurance plan. [ male announcer ] if you're eligible for medicare, you may know it only covers about 80% of your part b medical expenses. the rest is up to you. call now and find out about an aarp medicare supplement insurance plan,
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welcome back to "power lunch." i'm melissa lee. look at the markets, we're just off the session lows. nasdaq down 3.25% now. the s&p and the dow jones industrial average sharply lower. look at what is taking us there in terms of the new lows for the session. we're seeing real pain out of the financial sector. that group is down by 3.75%. this is a session low, 52-week r low, a multiyear low. these are lows we have not seen for two years. best performing sector, no surprise, utilities, that is down, though, by about .8%. >> shipping sector like many others under intense pressure in the last few months as global trade slows. the baltic dry index is the measure of shipping prices seems to hit new lows nearly every single day. it is a painful chart. here on set with us is herbie hansen of nordic american tanker
out with new numbers. the title of your press release is nat, your symbol, is a very different company from other tanker companies. that's your title. and yet your stock is down 35% year to date, yield is around 17%. what doesn't the market understand about this company? >> well, we have dividend for 74 quarters. we have excellent results. we are different from all other companies. >> why? >> because we have only one type of ships. and they are performing excellently. we do business with the big boys, like exxonmobil, like shell, like british petroleum. and i'm so pleased with the performance of my company, very much so. i'm the largest shareholder myself and i'm very, very pleased with it being there. >> let's explain to people that it is that you do. we built this wall graphic, you have 26 suezmax oil tankers.
24 out there now. two in production. >> and they are traveling all over the world. >> but the reason they're called suezmax, the maximum side they can get through the suez canal and ship oil, right? >> correct. 1 million barrel in each ship. and we carry oil from west to the east and from the east to the west. and we have only one type of ship. we make it simple for investors. >> you spot price on those ships. how much does it cost you to operate them on a daily basis and what do you get paid on daily basis. >> $12,000, everything is included. >> per day? >> per day, yes, per ship. and then last quarter we had about 39,000 or $40,000. >> so every ship is cash flow positive on the operating basis. >> absolutely, very much so. >> what were you getting paid two years ago, though. >> what's that? >> what were you getting paid two years ago? >> half of today's price or less
than that. >> explain that to me. are you storing it? why is the price so much higher now? >> because the fare on the street. and people don't care about the -- they don't seem to care about the -- >> fear is what you're saying? >> yes. we see that oil transportation is increasing. we had three ships in china every month. and i buy more and more oil. and we carry as i said all for the big companies, and people will not -- cannot understand what this is all about. but fear is the dominant factor i believe. i'm very satisfied with the performance of my company, and we have paid dividend for 74 quarters since 1998 and average of 1.5 -- 11.5%. >> is the dividend at risk in any way, cutting it in some form
or fashion? the yield is so high. the market seems to believe you're going to are to cut it? >> i haven't cut it for 74 quarters. >> have you been in a quarter like this before? >> yes. this is one of the best quarters we ever had. this company is in excellent position. >> all right. even so, as you mentioned, there is a lot of fear on the street. i was looking at a chart of your valuation, on a 12-month forward ebitda basis, you're trading at financial crisis lows. trading at valuations that you had back in 2008. why is there such a disconnect between what you're telling us and what investors are discounting into your price? this is a 12 month forward. >> i'm not telling us, i'm telling investors. investors know exactly what we are doing. and we are very transparent. and we are -- we are producing money. we are a money-making machine. and that is really gratifying
for me. >> how much are you shipping. are your tankers used for storage? >> not so much, no. that's not true. that's not true. people say that, but that's not true. >> these reports there is all the ships out on the ocean with nowhere to go. >> carrying and driving it. >> we're carrying it, yes. and then we storage has been exaggerated. and we have the number of ships in storage, having been storing oil, is exaggerated. >> how do you keep your ship safe? >> we have an extremely good safety record. >> i mean specifically, safe from violence, from people who would -- >> or piracy. >> we have people on board, armed guards when we are in dangerous waters. one of your previous colleagues was on our ship, at one time, going with it, and we have armed
guards, but in the eastern part of the world, the piracy has come down. now it has increased in nigeria. but we have safety measures. we have barbed wire. barbed wire and things like that. that it is of great concern and we are following it very, very closely. >> what is your outlook in terms of ship replacement and fleet renewal? one analyst points out the average age of your fleet is 11 1/2 years and at 20 years it is harder to employ those ships, people don't want to move oil on older ships. >> that is not true. >> it is not true? >> no. analysts -- >> i'll tell abn amro it is in the true. >> please tell them. when they're good enough for exxon, for shell, for british petrole petroleum, they're good enough for us. a ship that was built 20 years ago is about the same as today. >> did i stand correctly, you're getting paid more on the spot today than two years ago?
>> absolutely. >> why? >> why? because the price of tanker is -- function of supply and demand. it is the same as price of oil. if there are many tankers, the price goes down. >> yeah. >> if there are few tankers, the price goes up. that's exactly the same mechanism you see for the price of oil. and -- >> so fewer tankers today than two years ago? >> what's that? >> fewer tankers? >> no, there is more oil. and they carry oil all over the world. and the point is, one big difference now, compared to ten years ago, we carry oil from the west to the east, from nigeria, from angola, to the east, around africa. and we carry oil from the east to the west. it is just like europeans, transporting cars to america. and you guys transportation cars
to europe. it is the same. and this has created a new dynamic position in the tanker market, which is very, very beneficial for us. >> the sector has performed. we look at your stock over a one year period, you're still in positive territory while a lot of shipping companies are not. they have gotten pummeled. >> because they have done the big mistake. if a person, a country or company borrows too much money, they go to -- and that this industry, and i've been in this industry for 42 years, i can tell you, i know what i'm talking about, and that is ship owners borrow too much money and let the banks -- >> your debt is manageable? >> oh, yes. 20% -- $5 million or $6 million per ship and the scrap value is $12 million or $11 million. and this has been a nightmare for the industry that my friendly competitors are
vulnerable. >> how did you resist that? and why do they always fall prey and it is not just ship builders. it is everywhere. everybody falls prey. >> that was why we had 2008 crisis. wall street did not understand risk. and they priced it wrongly. and they said to borrow money is a good thing. that's what we should do. but i had been extremely cautious. i own -- i have a lot of money in the company and they cannot go bankrupt. i will not -- >> because it would hurt you personally. >> absolutely, of course. of course. i am in the same boat as my shareholders. so that -- >> literally. >> pun. >> that is really the same boat. >> how often you to run on your ships? >> few times a year. when i come to rotterdam, come to the exxon refinery half an hour drive from my city in
norway. and i follow them very, very closely. because you mentioned the dimension of safety and i feel personally very higher responsibility for my crew. >> how many crew are on one of those big ships? >> 24, 25. and it's safety for crew, safety for environment, and safety for the ships. that's what this business is all about. and confidence and credibility with our clients. they rely on us because -- and we have full transparency as you see in our report. they know everything. and i have learned in business, never lie, and never cheat, and i'm doing that. and people are relying on us. and they have reason for relying on us, you know? that is really the gist of what
we are up to. but in summary, i'm very, very pleased with what i'm seeing. and now it is 17% yield. you don't get that in the bank. >> no, you don't get it anywhere. except venezuela. >> thanks for joining us. we appreciate it. >> thank you. >> the stock is up 4% right there. right there. since you started talking. see that? that's the cnbc magic right there. >> can you see the chart? it is higher by 4%. >> that red thing going up, you like that. >> that is -- i am in the business of making people rich. you know. that is my job. including myself. >> okay. >> excellent. >> we love that in america. >> okay. >> up 5% there. >> just since 2:00. just, like, 11 minutes. made a lot of money on a per hour basis. thank you. >> thank you very much. crude oil hovering, down 30%
from its highs two years ago and oil stocks are feeling the pain. the oih services etf down 2% to date, down 34% over a year. is it time to get in on some of the beat down oil services stocks? brad handler covers the sector at jeffries. what do you say? time to get in or stay away? >> thanks for having me. i think it is time to still stay away. i don't think it is time to get in yet. >> what would change your mind? >> a better understanding of a few things. the commodity environment would help a lot in that. but part of what we're seeing is oil companies react to credit constraints, there are agency rating pressures still coming into view. oil companies trying to navigate between managing dividends, managing their own balance sheets, staying within cash flows, and that's still an evolving process until we have a better sense of how far down that goes. we're going to tell folks to stay away from the sector.
>> the companies you follow on your list, which ones seem to be best positioned to benefit when and if things turn around? >> well, as things turn around, the answer might be slightly different. so if you allow me, i'll answer it slightly differently first and then switch. because what we are recommending for now is a very defensive posture within our space. and so stick with companies with very strong balance sheets, which have, we think, relatively less downside risk both the top line as well as earnings over the next couple of years. and that list include s sclumberger. >> that's your defensive posture for now. if you were to turn away from the denver broncos defense and wanted to go more offensive, where would you be? >> what we look for in a recovery is for north american
on shore, so land-based services to really take the lead. we have seen incredible efficiencies driven in u.s. shale and pressure pumping and completion services have a whole lot to do with that. there are a few companies that fit that mode pretty well, but also have a strong balance sheet or in some cases maybe you're dipping down a little bit. so good examples in that category, where we look to get more aggressive, again, kind of coming out, but superior energy is a good example of that. res, which is a stock that is done very well within this environment might fit that bill as well. >> all right, brad, thank you very much. brad handler with jeffries. appreciate you being with us. to dominic chu. >> the dow jones transportation index is a notable underperformer. nearly all 20 members are negative here with airline stocks weighing down the most so far. shares of american airlines, southwest, jetblue, delta, down around 3% or more. all of this despite crew dipping
if the consumer is showing signs of slowing, what does that mean for mall operators. bill toutman has a portfolio stretching throughout the united states and asia. great to have you with us. bill, i'm sure you're very familiar with steve's work. his note was titled back in november, downgrading the mall sector to hold, staying on the sidelines until retail environment improves. what have you seen? it has been a very tough quarter, fourth quarter, for the retailers. >> well, we have had some strength. victoria's secret was strong. has not been a perfect quarter, but a number of tenants that have shown good strength. number of the other companies have already done earnings. we're due in it days. i can't speak about the quarter. but i can say in general the strong males continue to do well, traffic continues to be good. the weaker malls do have some
weakness and i think steve agrees with that based on what he's written before. our company, because we're defined by the luxury malls we own that are known throughout the country, our strength has been good. because that's a sector of the market that has done the best overall. >> why would you scrap the miami mall? some analysts were concerned about the scrapping of that mall project and going to street retail instead, a much tougher environment. >> we did a thorough analysis of the market. we have been involved in it for almost three years. we came to the conclusion that given the overall competitive context, the cost of the project, that we didn't think it would be a good investment for the shareholders at this time. and we made a decision to look at a street retail alternative, which will be a better return. >> steve, tell bill and tell us what you think and what taubman has done. >> i think moving to the sidelines on the miami project
was a smart move. there has been a number of malls built down in the miami market, you've got brickell city center on its way to opening this fall. there is the miami design district project which is also in -- i'm not sure that the market probably needed another mall at this time in that marketplace. so i think it was probably a smart move to scale back that project and re-evaluate it at this time. >> it seemed look a big sort of important part of that downgrade was the retail analysts at your shop downgrading macys. i don't follow that person's research. what are you seeing from macy's and is that the critical part of this call, seeing that bill says there are -- there is strength in other areas such as victoria's secret. >> first, i would say the downgrade wasn't predicated on any one specific retailer. clearly we saw some weakness out of nordstrom in the third quarter, and other companies that had problems. so, you know, i think it was
more of a general pervasive slowdown happening going through the holiday shopping season. and i would agree with bill that the class a malls in this country will continue to grow and take market share, but i think the number of malls that is becoming at risk is probably growing. i think the public companies have done a good job of shedding some of the lower quality assets that are going to generate slower growth, but we have noticed that occupancy costs, looking at what the retailers are paying to do business inside of these malls has continued to sort of climb at a slow and steady pace, and over time, if the sales environment doesn't really improve, i think that does begin to eat into the rent growth that the mall companies can charge and would ultimately slow down the cash flow growth of these companies. >> bill, i want to drill down on that point about occupancy rates. how concerned should we be or should people be as mall reit investors when they look at former darlings, nike for
instance, under armour, difficult times on the stock side of the equation. that may not correlate with what they see in sales, but we see that stock being pressured in today's market, how concerned should we be about occupancy rates and their ability to expand and to pay rates you're demanding? >> well, as long as the companies are strong and have a good balance sheet, and they believe in the retail strategy is critical to their overall channel solution, then i think they'll continue to expand, they'll want to be in the best locations, in the best malls, the best streets and we see that repeatedly just go up and down fifth avenue and see what they're charging on fifth avenue now. i think steve is right. i think the class a malls win continue to gain market share. we're in an evolving world. you could just see in the way technology is changing the whole shopping experience, both in the front of the house as well as the back of the house. but the successful retailers are learning how to use technology to their advantage, and really as a point of difference and you
see it in both directions, whether it is opening stores or whether it is omni channel retailers allowing you to order on the web and pick up in store and have it delivered from the store. all the different solutions that are available. so i think that, you know, nike is still expanding, vicki's is still expanding, stores are still expanding because they need to reach their customer. and as long as you have great locations, as long as you keep them relevant and keep them fresh, people are going to still come. there is no question, steve is right. there are locations at the edge of the market in terms of quality, that may get hurt out of all of this. but, you know, retail has always evolved. we started in streets and then the malls came in and the malls changed and evolved. when my father started in this business, you couldn't get a mortgage unless you had a woolworth store in the mall, and god knows that changed over the years. >> it has. we appreciate your time, thank you. thank you. i used to love woolworth's.
welcome back. stocks are just off session lows, but still the selling is intense. dow industrials lower by 357 points. that's a decline of more than 2%. the s&p lower by 46 points, 2.5%. and the nasdaq just getting clobbered, lower by about 139 points, that's a decline of more than 3%. brian bell is with us on set, chief investment strategist. why is this happening? do we go lower from here? >> we're not going to say what we said off air, right, about the markets so far this year? >> that they stink? >> they stink, yeah. >> with an s. >> yes. you don't want to cue the music, mondays always get me down. this has been a tough start to the year. i think as we go out and talk to clients, clients seem to are comfortable with our notion that the market was going to go to
1800. we said there would be issues with respect to the election. china, commodities this year that would scare investors. what we really are seeing is what i like to call the great unwind, however, and unfortunately seems like clients want more. they want that typical historical 20% cyclical bear market. now, couple of things on that. things rarely happen how you think they'll happen. frankly the ferocity and velocity, we hear from people we want to see capitulation, this big sell-off. well, if we learned anything from 2008 or even since 2001, nothing in our business is easy anymore. why have this easy capitulation type sell-off. seems like we're going to continue on drip dry sell-off, maybe test the 1800 bounce a little bit and have risk of breaking that. >> walk us through what is going on in the markets on the way to a capitulation. we may not see it as we have seen it in the history books before, but looking at the rotation, it feels like there is
a lot of forced selling out there, winners out there, former winners, being sold, this is after all the -- the facebooks of the world, google of the world, nike, home depot. >> it is a great take. what i would say is look at how financials, but then especially technology, how technology is being used as a redemption tool, very clear. for some of the names you talked about, but also peel back the onion. the key thing to this whole sell-off is that the s&p has been increasingly correlated to the weakness in oil. we know that oil price has been down for -- >> that was the oil price, caused the lights to dim there. >> having some issues. keep talking. everybody can hear us. >> the lord said let there be light. but increasing the core to the weakness of oil. it may be telling us, one day, maybe telling that we're starting to see a bit of a change here, where oil and the
markets will be less correlated and that could be a positive. follow me? meaning energy is not down as much as the market. >> who is doing the selling? >> i think it is -- you see the big stocks that were talk ed about earlier, you're seeing broad-based selling across from long to short to private clients. people are starting to get worried. everybody else, brian, how come there is not a recession? we don't think there is a recession. it has been the industrial side of the economy that has been hurt the most and a self-fulfilling prophecy now. now that you see profits come down, oil price down for $1 for 17 months, it affects the psychology of corporate america. >> when you look at feels like everything is down year to date, but it is not. >> no. >> utilities and telecom are in positive territory by roughly 6% so far still this year. all the other s&p 500 sectors are down and down big. we have this chart we can bring up if we want. do you chase that performance?
do you hide in those same places? >> no. not utilities. there is two points on utilities. they're very expensive still. number two, the payout ratios, still at or near all time highs and cash flow is going down. how do they continue to facilitate the dividend. >> those two sectors, utility sectors at risk. >> telecom, i think when you see moves like that, it is clearly reactive, let's move to the yield side of things. we like yield growth, by the way. that's why you see stocks like j and j and consumer staples do quite well. the issue is that we -- we're in this big unwind from the former trade, former trade, anything with anything to do with international and that is still until we start to see people stop trying to go back and buy material and energy, we're going to continue on with this type of game. >> on that note, speaking of internationals, sit tight, we talk about the oil market, now closing for the day. to jackie deangelis. >> well, not quite at session lows for oil prices but under $30 a barrel at the close.
$29.69 where wti finished. there was volatility in this trade last week to the upside because of those opec headlines, the thought there may be some coordination or emergency meeting. none of that materialized. now we're getting back to the fundamentals. why are rigs going down and production is still staying constant or going up marginally. the most recent conversation about this is about the u.s. producers continuing to produce, maintaining their output because it is too costly to shut down some of the rigs and then bring them back online later. they're hoping to weather the storm. this shows you we could see prices test the lows we saw earlier in january, that $26 level. a lot of traders telling me they're neutral or think the prices are going lower. >> thank you very much, jackie. what do you make of that? if we test even lower, that's based on what you said earlier, tougher for the stock market then. >> it is. on a day like today, one day. the reaction and the relationship between oil and stocks is becoming less correlated. clearly the market is still
reacting to what is going on around the rest of the world. we're entering a particular potential period for energy that we're having to see less negative, less negative price performance and you'll start it see a bottom develop in both the market and wti. >> gold, the best day in a couple of years, is that just fear? >> i think it is fear, tyler, but also, given the fact there is still qe around the world, as long tlas isas there is qe arou world, that is going to continue as long as those central banks will be loose with their monetary policy. >> do you feel good about recommending stocks to investors now? sure we do. you've been on the show a bit and granted this is only a couple of months into the year, month and a half or so, but it has been a terrible month. and february lost more points in the s&p than all of january so far. >> thank you for asking that. it has been a tough start to the year. and it has been horrible. and we never like to see people
lose money. melissa, you have to think about how long do you own stocks for? do you own stocks for three to six months or 12 to 18 months minimum or three to five years. hopefully three to five years. if you look at the average client in america -- >> if it is three to five years, you say own stocks. if you say three to six months, you say what? >> continue to be -- we look at the types of sell-offs and try to pick out your favorite names to kind of start to nip a little bit. i would be leery right here to try to chase stocks on a short-term basis. >> thank you, brian. >> thank you. >> so, melissa, guys, watching shares of tyson foods, which earlier today hit an all time high after bmo cap pal maital ro 62 bucks from 53. the firm says tyson outperformed the industry data points during first quarter. the company reported strong earnings last friday. the stock is up 50% over the course of the last year or so. certainly tyson green speck here in an otherwise down tape. watching that and more here on
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111.95. more on what is go on. down to bob pisani at the nyse? no. all right. melissa? >> to trading nation then and talk about the sell-off. larry mcdonald, aaron gibbs, we're looking at the yields on the ten year bond, this is a sort of measure of sentiment in the market here hitting lows we have seen in about a year, 1.78%. larry what does this tell you? where do you see yields going? >> a bloomberg poll in december and 71 out of 73 strategists and economists said u.s. ten year wouldn't go below 2% this year. so only two people said that u.s. ten year would go below 2%. i think in terms of the buying spree on u.s. ten years, it is extremely strong. today felt like a real capitulation buy. a big short account got taken
out. for the near term, u.s. ten years are overbought from a trading perspective. i think if you're long, utilities, long interest rate sensitive investments, like bonds or ten years or tlt, you want to take the money and run right about here. >> erin, you're an equity gal. you see low yields, we have gold trading at the highest levels we haven't seen since june what does that tell you and how does that influence how you seat s&p 500 this year? >> it is clearly a flight to safety. and not only just on u.s. equities, but globally and concerns about chinese growth and the chinese currency reserves are also what is really putting the money into those long-term treasury bonds. with respect to the u.s. market, we have a lot of capitulation. it is risk off, risk off, flight to quality. i could see this going still for another few weeks as we shake
this out. any numbers that are a little hard to interpret, like the jobs report on friday could make things a little more volatile. so short-term, i think we could still see some more downside, but longer term still very bullish on u.s. equities. >> one of the worst performing sectors in today's session in the past few sessions has been financials trading at two-year rows. in your view, how much of this is because of the concerns about the european banks? are you concerned that there could be some sort of transmission mechanism of can page e contagion. >> u.s. banks are off to 30 to 36%, european banks 45 to 55%. you're seeing underperformance there in europe. europe is a big trading partner with china and you have coco bonds that can turn into equity. so you have all these dynamics around european banks and u.s. banks.
i think from a risk perspective, the u.s. banks, short-term are better place to be. you want to see some of the dynamics play out. >> we'll leave it there as the s&p 500, couple of points off the session lows. thank you. for more trading nation, check out tradingnation.cnbc.com. more on today's sell-off. a substantial one. bob pisani at the new york stock exchange. >> there was a hope that once we finished over in europe at 11:30 and ended the lows on europe, we would see some kind of move off of those and that did happen, but only for about an hour, hour and a half. getting close to 1:00, we started drifting lower and the lows for the day, in terms of sector, fairly large swath of the market down 2.5% to 3% here. the s&p 500 down 2.6%. a big swath of all of the money in banks.
let's be frank. all of them are at 52-week lows. bank of america, goldman, morgan stanley, citigroup, jpmorgan, all the 52 week lows including regional banks, not down as much, but weak as well. want to show you a few charts of some companies. and the notable declines in the last four or five days. look at nike, nike was $62 last wednesday. it is $54. you do the math there, that's about a 12% decline in nike. that's a dow component in the last four or five days. starbucks, starbucks was over 60. 61 or so last wednesday. you see here, it is right now at $54. close to a 12% decline. facebook was $115 last week. and facebook just broke $100 as you can see, $98, that's a 15% decline. and one you don't know is related here, avalon bay, most stronger a week go, avalon bay,
$172. now it is $162. what ties the companies together is this was all the stuff that worked. and you can argue now that we're getting somewhere near some kind of bottom because all of the names that were working suddenly have been selling off in the last four or five days. i have no idea if we're near a bottom, but it fits with a standard pattern here. are we at a bear market or not? it is pointless because very large swaths of the stock market are at bear situations. russell 2000, transports, energy, the banks, material names, all more than 20% off of their recent highs. right now, something close to 60% of the companies of the s&p 500, melissa, are 20% below 52 week highs. so close to 60% of the companies in the s&p, 20% below their highs. let's not dither. the s&p itself is not there. 14% from the recent high. but very large portions of the market already are in bear
market territory. >> people often at these times look for volume as a sign of what is going on. and it has been relatively orderly, hasn't it? >> it has been orderly but heavy. we're almost $800 million on the floor. we'll do probably close to 5.5 billion shares, 3.5 is the normal day. that's substantially more than normal. we have seen a lot of these days in january and february. unfortunately, tyler, what we're not seeing is the demand pickup. we're seeing plenty of supply, that is sellers keep coming into the market, but we're not seeing buying demand pick up. we're not seeing the buyers come in and try to pick up the bargains the way they used to. nobody can specifically say, here is the point we're at a bottom right now. >> bob, thank you very much, bob pisani and as he just mentioned, financials getting hit very, very hard. i think the sector is down 14% this year and the year is young. coming up, you'll hear the case
for the banks and the bearish one. and now, the latest from trading nation.cnbc.com and a word from our sponsor. >> during bull markets, many traders find themselves attracted to small cap stocks because they have a tendency to be higher beta, they generally move up faster than the broader market. make sure you don't own too many small caps because this can be risky. if you experience a downturn, you'll finds they move down faster than the broader market.
welcome back to "power lunch." i'm michelle caruso-cabrera. the sell-off holding strong as we gear up for the final hour of trade. right now, the nasdaq is off by more than 3%. the industrials by more than 2%. the s&p 500. a few stock headlines on our radar. pepsi'sed pepsi's bid to buy chibani has been rejected. go pro signing a patent licensing deal with microsoft involving file storage technology, one of the few stocks positive today. with where it is trading, the move is a gain.
dennis hamilton at harmon international was arrested friday and accused of insider trading. prosecutores say hamilton bought 17,000 shares in harmon the day before it released an upbeat earnings report. chesapeake energy shares plummeting on reports that it hired restructuring lawyers. check piece denies bankruptcy rumors. let's bring in darren hughes, senior portfolio manager at invesco. darren, great to have you with us. >> hi, melissa, thank you. >> what is the high yield -- what are the high yield bonds telling you? >> certainly today oil continues to drive spreads and drive the market. today energy, no exception. across the board, off a point or two points plus. in the case of chesapeake this morning, off a little bit more than that, as the rumors circulated they hired counsel.
>> walk us through your expectations of defaults, within high yield energy. today, compared to say three months ago. >> certainly we believe they're going higher. in the sense of say of maybe three to four percent over the next 12 months. >> as i look at the high yield -- there's quite of bit of energy trading 30s and 40s and below. it doesn't make a great deal of sense for companies to continue to sacrifice the future growth by paying coupon paemts. at this point in time it's better to get the restructuring now out of the way. protect the optionalty into the future. >> what is this doing in other parts of the high yield market, are we seeing pushing higher other parts of the high yield market and other sectors? >> the increase in spreads have certainly rippled through the rest of the high yield market. look at today overall and spreads are pricinging in a mild recession over the next 12
months. when you look at default rates and implications being priced in you're looking at 9% plus. half of that if you call from energy space, the rest of that from the broader market which at some point in time we don't see defaults picking up to that degree away from energy. it does drive flows into other parts of the market. look at the more defensive type sectors, health care and food and staples and cable and made i can't media -- >> thanks for your analysis. >> we love our sector checks here on "power lunch." let's look what's happening in the broader market, in the sector. all of them in the red. "power lunch" will be right back. it's hard to find time to keep up on my shows.
that's why i switched from u-verse to xfinity. now i can download my dvr recordings and take them anywhere. ready or not, here i come! (whispers) now hide-and-seek time can also be catch-up-on-my-shows time. here i come! can't find you anywhere! don't settle for u-verse. x1 from xfinity will change the way you experience tv. the dow is down 354, the financials, the second worst performing sector, among the biggest losers at this hour, morgan stanley and moody's e trade and bank of america. let's bring in brennan hawken bullish on the sector and fred
canon a little more cautious. welcome both of you. let me begin by asking you, you recently upgraded jp morgan, goldman sachs and maybe that's among others but the heart of your argument is that most of of the pain is already in there, am i understanding that correctly? >> that's the gist of it. banks and brokers tend to be early cycle plays and suffer a lot of pain up front. right now at this point, the investors are talking about recessionary levels, we took up our estimates for credit costs to the period that looked a lot like the last cycle we went through here. both on the commercial side and -- where moefs of the risk is where the home growth is centered. in market shocks or recessionary periods they tend to trade off 25 to 30% and that's roughly the range we're at. i don't know where the bottom is going to be. i don't know what the catalyst is going to be to get there but
the risk reward is starting to scream more favorable. >> before i turn to fred, are you saying that basically other sectors will catch up with the financials but it doesn't necessarily -- you think they may outperform those other sectors but that doesn't necessarily think they are going to go up from here? >> exactly right. what we see when we turn to a recessionary environment, once the banks take their pain, they tend to move side ways for a while and s&p catches up. it's more a relative outperformance call than it is an absolute one. >> we'll lose less from here. okay, fred, your view is slightly different in that you see real structural challenges to the big banks. have i got that right? >> that's right. essentially what we see is a banking system with good capital. the question is can the banks earn any money. we heard credit costs are going up and 10-year and seems like a
free fall going lower it's hard to figure out how much money the banks can make in the future and figure out the multiple. we have two headwinds hitting estimates number one interest rates and number two credit costs. >> should we be worried because of what happened in 2011 it sort of feels like a repeat. there were concerns about debt then and concerns about european banks today and playing out in the u.s. side of the markets, the likes of morgan stainly and that's exactly what we're seeing. is there any concern what's going on in europe if the financial sector and how it translates to u.s. banks? >> if you look at the cds spreads on deutsch banks, there are concerns getting priced into those big banks and with the contagion, there's always a feedback loop. it's a different situation in terms of banking crisis.
it's more an issue we're getting more questions than ever to us about what happens if we have negative rates in the u.s. and how can the banks make money. >> brennan, bernie sanders wants to put you in jail and fred in jail and everybody sitting behind you in jail. i'm being only slightly facetious but hillary clinton seems to be talking the same game. what about politics? any worries that if either one of these people get into power, anti-wall street talk as well they are going to be prevented from making money any way possible based on certain politicians. >> listen, if you want to get electeded in this type of environment, bash a bank. that's kind of the easy play. it doesn't mean it will become reality. what they say on the campaign trail, we all know from watching these cycles over and over again, doesn't really translate into actually what they can do in office.
the ability to get through congress is a whole other matter. like it or not and maybe bernie is a democratic socialist. >> socialist. we do have a capitalist society and you need banks and capitalist society to function and need them to generate sufficient returns in order to attract private capital and have them buy the equity. they don't -- there's no ability to come up with a new financial system no matter what the sound bites might tell us on the campaign trail. >> all right, guys, thank you. >> fred canon of kbw, interesting to see such views. in terms of markets today we're looking at close to session lows at some point. take a look at the momentum stocks really losing ground, technology one of the worst performers today. tonight on "fast money", jp morgan's head he have derivative
strategy and says there are bubbles brewing within the tech sector. you'll want to hear what he says where the bubbles are. >> still, even with the sell-off. >> okay. looks good. >> thanks very much for watching "power lunch". >> "closing bell" starts right now. >> hi, everybody, welcome to "closing bell" i'm kelly evans. welcome ba. >> what i welcome back i've gotten, big sell-offs following friday's big sell-off. not one sector that's causing this today. you get the financials and energy and technology and in fact all ten sectors of the s&p are trading lower right now. the dow right now down 350 points off the lows. >> and even facebook and google and sales force are not safe from the latest sell-off. we'll discuss where to find growth worth