tv Power Lunch CNBC February 12, 2016 1:00pm-3:01pm EST
the most interesting on that list is nordstrom, terrible quarter last time. we'll see if they pull it around. they are a luxury retailer. >> josh? deere? >> i actually am long deere. not expecting much. here is what is cool about deere, it goes up on bad earnings. people are over the cycle. >> that does it for us. enjoy the weekend. "power" begins now. hey, everybody. happy friday and welcome to "power lunch." i am brian sullivan with michelle caruso-cabrera and melissa lee and tyler mathisen. happy friday it is. we have a major rally going on right now. let us start with oil. crude oil is up. in fact, having one of its biggest days in a number of years. the only downside is that we're having a big pop, but still under 30 bucks a barrel. brent crude similar story. and as oil heads higher, so too do stocks. we're trying to get out of a six-day losing streak for the overall market. and unless something turns around, guys, next three hours, we should get it, the dow, s&p
and nasdaq all higher. >> we're close to session highs. so with yesterday's big recovery and today's big rally, is a panic selling nearing an end? joining us is paul hickey of bespoken investment group. good to have you with us. what is your take on how this market feels at this point? >> obviously an up day is welcome after several down days in a row. this market, the day to day moves are more fickle than a 4-year-old. so we get big up moves, big down moves. so i wouldn't read too much into this right here at this point. it is just -- again, welcome, we have been getting killed all week. >> still down for the week. >> yes, still down for the week and still down considerably on the year, no matter how many -- no matter what measure you look at. >> what signs are you looking for that would mean we have hit bottom? anything that rings the bell for you? >> i wouldn't say there is any necessarily bellringer, but, you know, some of the -- if you want to look for encouraging signs now, you have sentiment measures are very low.
aaii individual investors. second lowest rating since 2009 this week. we do a consumer pulse survey where we ask people every month what their views on the stock market are and a number of other things. that hit the most bearish level in the history of our survey this past month. so that's one thing. and you look in the market. so you look at new highs and new lows. in august, and january, we saw at the lows about 37% of stocks in the s&p 500 hitting new lows. yesterday, we made new lows but only 17% hit new lows. so that's something you can at least start to hang your hat on a little bit here. as far as, you know, valuations started out the year very much above average. we have seen the pe of the s&p go down. that's good. and the dividend yield of the s&p 500, what you're looking at is that is above the ten-year yield, which is pretty uncommon. you saw it in 2009 you saw it happen. you saw it happen in 2011 near the lows there.
>> that's a very long robust -- seems to be good signs. >> looking for good signs. >> the bottom isn't here now, it is not far off is what i'm hearing you say. >> tyler, a great point. from a day to day perspective here, the market is going to -- you're going to see moves. have we seen lows? i wouldn't bet on it. but if you're willing to look out more than a month or so, i think you can step in and get decent values here on the market. if you look at yesterday at one point the 30-year yield of the treasury was lower than the yield -- dividend yield on the s&p 500. >> to know, paul, when the market is at a bottom, you have to know who the buyers are going to be. to know that, we have to know who the sellers are and i am confused as heck because we have that headline for the uae yesterday, turned out to be erroneous, it moved the entire market up. apple stock, we showed, soared. the moment an oil related headline came out, apple has
nothing to do with the price of oil, that led me to believe that it is all algorithms, all machines that have certain string of words, opec production cut, whatever it is, they read those words, boom, started buying, are mom and pop selling stocks? who are the sellers here? >> i think they're foreign sellers. >> how do we know when the bottom is in. i don't know is in control of the dog gone market. >> that's the thing. we are seeing mechanical selling in the market. you see pressure on the market, every day. if you look, we have an intraday chart i sent over earlier, the s&p 500 composite from the prior close to 2:00 p.m. we're down cumulatively 15% on the year. if we had those last two hours of the day when the european markets are closed, the asian markets are closed, we would be up 4% on the year. you see the market just consistently trade lower from the -- >> that tells you what? >> that tells us, like you said, seeing overseas selling, seeing selling from, you know, sovereign wealth fund selling, seeing just mechanical selling here. >> but sovereign wealth funds
are selling, oil is still very low, even with the recent surge. this move doesn't necessarily help them balance their budgets, doesn't that lead to selling? >> you need to see oil at least stabilize but that's what brian was saying, you see oil in the headline, you see the market -- >> let me jump in for a second, guys. i know you've been asking about that rig count all week. >> yes. >> it is a big number. baker hughes saying that oil rigs fell 28 last week. so we have been seeing declines of 2, 3, 12, 28, one of the biggest declines, melissa is shaking her head, 28 down, now down 817 rigs from last year to 1358, one of the lowest levels of overall drilling rigs in the united states in many, many years. so we're finally at least one week seeing some kind of a meaningful reduction in drilling rigs. the problem is, we know, guys, as we have said, production is still really high, we're still doing about 9.2 million barrels a day in the united states. future production, though, at
some point, at some point, paul, will come off because if we have no rigs, there is no wells. >> right. and crude oil in the u.s. is way oversupplied. record levels of capacity. but over time, most of this, like we said, more of a supply story. overseas, that's not a good thing here. in the u.s., not like demand is greater here. and the u.s. economy is holding up relatively well, given the overall turbulence. >> bottom line, where do you see value in this market? if you're saying the signs of a bottom are being laid down and you do say that some parts of the market are undervalued or getting too reasonable valuations, what are those parts? >> we don't want to focus on energy now. that's not a -- that's a sector we still avoid. but we want to focusmestically . the early part was low quality stocks, investors were focusing more on high stoquality stocks
look at more stable cash flows now rather than promises of future earnings and growth. >> steve liesman, a cnbc rapid update on the economy. what is said rapid update, sir? >> rapid update brings together the tracking forecast of -- >> it is an update that is rapid. >> right. it is becoming less rapid as i speak at the moment, you know that. >> drag this out. >> we want to drag this out. here is the deal. strong retail sales numbers this morning confirming economist outlook for a bounceback for gdp in the fourth quarter. we didn't change the q 1 tracking, 2.3%, but some folks did change. range now 1.4 to a higher 2.7%. and then q 4 tracking 0.3. let's see who is where, because there say story in this. the atlanta fed, one of the most bearish on the street and was correctly bearish about the fourth quarter, now tracking 2.7%. that's up .2%. goldman sachs also up .2% to 2.1%. and you don't see it -- there it
is, morgan stanley, was below 1% for the first quarter, now at 1.5%. so the idea of a consumer bounceback really being confirmed. early days yet still a lot of data to come, but we're not tracking -- >> those revisions are based on the numbers from this morning? >> that's right. >> they put those numbers in and came out today. >> you had a strong core retail sales number track over. i want to also get into some comments that were made by bill dudley that also seemed to pop markets along with the data. he said negative rates should not be part of the conversation right now and there are many steps that the fed would consider before negative rates. if you look at an intraday chart of stocks, there were with pops. don't see the early one here, which came with retail sales at 8:30 and the announcement of deutsche bank saying they were buying back stock. but you can see there was one leg up and then another leg up. that other leg up was directly tied to dudley saying negative things about negative interest rates, which tells me --
>> double negative. >> i was helping my kid with calculus last night and i wasn't much help. >> that's better than a rapid update, by the way. >> we thought we would get a -- >> you have your tracking north of 2% and that's -- what was nice is you look at the s&p this morning, the market paid attention to the economic data, which it has not been doing. >> paid attention and interpreted good news as good news as opposed to good news as bad news. >> even just paying attention, melissa, think about the way market ignored things like the jobs numbers -- >> i tried to -- we tried to talk about the separation between the stock market and the economy. and they are telling totally different stories. is there anybody anywhere in america who has gone out to buy a car and you know, myrtle, maybe we shouldn't get the new accord because the deutsche bank coco bonds are all screw y. >> i want to talk to that person. >> that person doesn't exist, that's the point.
>> it is the manufacturing part of the economy, the overseas part of growth that is down. >> but at some point a sliding market does have a wealth effect. because if you don't feel like you're as rich as you were three months ago -- >> if you're frightened. >> and you see -- whatever it is -- you might ask -- >> it is a good point. i'm worried about the wealth effect. i'm more worried about decisions by ceos amid low earnings. you have this negative 4% number we were on, what do these guys do to change that story? if they don't hire or fire and cut back on capex and r & d, there are short-term and longer term implications for the economy from those decisions to turn around earnings. >> we have taken the rapid update and made it a long update. steve, thank you very much. >> not so rapid. >> awesome, though. awesome. >> started rapid. let's look at ol, i think it is oil, going through the roof at 10%. 12% now. and moving up on that rig count, i think, as well, ticking
higher. prices still, though, down for the week. up next, the details of a widely watched report in the energy world. need to hear what it is now forecasting as you watch cnbc, first in business worldwide. 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. thanks. ♪ [ male announcer ] fedex® has solutions to enable global commerce that can help your company grow steadily and quickly. great job. (mandarin) ♪ cut it out. >>see you tomorrow. ♪
online falling for the eighth week in a row. joining us now more on the price of oil, matt reid, vice president and foreign reports, matt, good to have you here. what do you make of this rally that we're seeing in oil right now. do you believe it? especially because there has been so much skepticism about what the uae energy minister did or didn't say or, you know, what people believe about the possibility of opec coming to a deal, do you believe this rally? >> at the moment i don't. it feels like the market is reaching for straws now and that one straw that everyone seems to have latched on to is these remarks by the uae minister. the catch is that if you looked carefully at the quote and the full quote in context, what he said is that the uae and others and the gcc especially are ready to cut once everyone else is ready to cut. the problem, of course, is that not everyone is ready to cut yet. >> that's what they say every time. we hear this headline over and over again. everybody is ready to cooperate as long as everybody else is
ready to cooperate and not everybody means iran is not ready to cooperate, right? >> exactly. iran is the big holdout here now. if you look at the top five producers in opec, saudi arabia, iraq, iran, kuwait, and the uae, four out of those five now are actually leaning towards a cut. the problem, of course, for the iranians is their oil sales now are now unsanctioned. as of last month. so they're just testing the waters for how much more they can produce. how much more they can sell, and it could take a few more months for them to sober up and decide they too want to contribute to opec cuts. >> do you predict we hit those lows again or even lower? where do you think oil goes? >> i try not to hazard too much of a guess on prices. if i knew where the price was going to go, i would be coming to you live via satellite from my yacht, not from the studio here. the one thing i would caution any market watcher about those, when it comes to a swing this big is that the pendulum has to swing back. there is no way we pill e on to
of this. i think a lot of people are going to think twice about whether or not a double digit bump in price is really rational. >> not to get too freudian, but what does putin want? >> what does putin want? he would like to see opec cut for him. >> cut production for him and iran to go along with that? >> ultimately, yeah. there is no opec cut without some kind of special arrangement for the iranians. they would have to agree to freeze production at a certain threshold, or if they ramp up production in the next few months, they might have it dial back. >> you know, we spent, matt, almost the entire 1990s where oil was in the 15, 20, $25 range. now, granted, that's not going to be the same dollar value now with inflation, but the point is, oil can and has stayed low for very long periods of time, even if opec reacts. there is going to be some political endgame here, what is it going to be?
>> as far as political endgames go, a lot of those are domestic rather than big picture geopolitical stuff. you look at some of the opec members like venezuela, for instance, venezuela is dealing with inflation upwards of 700%. which is just unbelievable. >> you say that like it is a bad thing. >> well, the thing is that, you know, for the average person in venezuela, it is a bad thing. then you look at the other opec members, you look at some of the important ones, iraqis. iraqis are facing a $5 billion budget deficit every month. the saudis are burning through reserves now at a pace that is alarming, even if they can weather low prices for longer. there is enough of a reason for all of these countries to sit down and talk seriously about cuts. >> that about shale oil production that is supposedly is going to decline. do we see any signs of it declining at this point? >> no. >> well, the thing is is if you look at total u.s. production, we have already lost about 500,000 barrels going back to
april 2015, when u.s. production overall was about 9.7. now we're around 9.2. if you look at the eei predictions, this year they think we might settle around 8.7 million barrels a day. next year, could lose another 200,000 barrels a day. some of that is spread around, but it is the shale producers who are going to take a hit there. not all of them. some of the base and some of the plays are more economical than others. >> we haven't seen it fall below 5 million per day at this point, right? >> no, no, this symbolic number 5 million barrels a day for light tight american oil is something that is -- it is symbolic in that a lot of people are look at it as a mile marker heading in the wrong direction, but so far, shale oil has held out. the last few months, the eia forecasted the following month we would cross that threshold, but so far shale oil -- >> i could jump in, i'll be a guest if you don't mind.
i had a meeting about this with the api on wednesday morning in d.c., trying to get a better handle on this and it is because the technology is so good now that wells are lasting so much longer than even more -- some of the most optimistic projections. they're simply not draining as fast and important, matt, to remember really there is two types of oil in the country. shale is great. it is light, sweet, delicious, i'm told. but many of our refineries are set up for heavier sour crude, so we need both. that's part of the problem. so we talk about declines in oil production, we got to also be clear as to what we're talking about declining. the reason we're still importing a few million barrels of oil a day from countries. >> when it comes to u.s. production going forward, the problem for shale particularly is that, you know, even though year on year, for nine years now we have seen gains in initial productivity from these wells, the problem is if you look out six to 12 to 24 months, they
still fall off pretty rapidly especially when you compare them to conventional wells. >> matt, we'll see, thanks so much for joining us. matt reed on where oil might not be headed. >> is it is setting up to be a bullish end to a bearish week. one sector is down. may not be worth getting into. getting bullish on it. it is up this week. plus -- >> up next, power pitch. a startup planting a new seed. >> using our technology anyone can grow with just the swipe of a finger. >> will the panel nip it in the bud? >> how much does this cost? >> what kind of gross margin are you looking at now and then in the future at scale? >> stay tuned to find out. 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
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and with a complete view of her finances, she could control her cash flow, and keep the ranch running. chase for business. so you can own it. time now for today's power pitch, where one entrepreneur gets just 60 seconds to convince a panel of experts that her startup is the next big thing. >> hi. i'm brielle with grow with root. we develop smart gardening products for everyone. our first product root is a turnkey device that allows you to grow a variety of plants in your home seemlessly. people like to grow culinary herbs to canvas. we have an irrigation system that mimics a plant's natural light cycle, saving energy and the cost it takes to grow. all you do as a user are take
small plant pods, situate them in root and connect to our app to start growing. root will give you push notifications reminding you when to add water and nutrient to the system. because we use hydroponic technology, you can grow more pants in a tighter amount of space. it is as simple as that which is why we call ourselves the keurig of growing. everyone can grow with the swipe of a finger. root is available for presale now and launching later this winter. so stay tuned and check us out at grow with root.com. >> and welcome to today's pitch, everybody. i'm mandy drury. you saw her pitch. now let's meet the panel. patrick rea, co-founded canopy boulder, business accelerator and investment fund for seed stage marijuana startups with 19 cannabis investments under its belt including leaf, a smart growing system for pot plants. and kelly hoey, a limited partner of la conia capital group, which invests in seed and series a stage companies. and from the bayer, david wu,
general partner at maveron, focusing on consumer startups. he invested in and mentors over 30 startups. welcome. thank you for joining us. patrick, first question to you. >> great pitch, clear and concise, a b plus on that one. and for full disclosure, i have an investment in a company that is somewhat similar, but so i love this market. you have so many possibilities, so many applications for this product. what market are you going to target first? >> one in three americans statistically want to garden. but the earliest adopters will be in the cannabis space because people are willing to pay the price for new technology today. >> question to you, kelly. >> a good marketing pitch, i give it a b because as an investor i want a few more details. how much does this cost? >> the msrp for our starter kit is $299. that will give you everything you need to get started growing. so unlike some products out there where you have to do a doo it yourself approach and grab everything off the shelf, we give you all the pots, nutrients
and fully automated light and watering system. the ongoing costs will include all the follow-up products you need to just maintain root. we're going to keep that within a $35 to $50 targeted price range so that users can easily just basically opt into a subscription model, like a keurig machine where you have your starter kit, with the first flavors, and then we're going to roll out the refills. >> david? >> i thought you did a nice job with the pitch. i give it a b. it was really clear what the device does. we have been talking about this keurig model. i'm curious, over time, do you expect to make most of your money on the device or on the replenishables? >> so over time with scale we will be able to make a really decent margin on the product itself. the other very interesting point is we can take the technology that is used in the root system and scale that to an entire family of products. >> what kind of gross margin are you looking at now and then in the future at scale? >> our aim is from 15% to 16% margin on the unit and pods the
same if not better depending what we put into the add on packs. >> do you have any patents or anything else that would be defensible against a competitor who could come in with a similar product? >> all of our technology right now is patent pending. we have a programmed light stream that will be -- to what a plant experiences in nature. and because of that, we're able to grow plants a lot faster as well. >> david? >> back to the subskripgs mcrip model, are you going have more of an open system approach or more of a closed system where you got to use your seeds and your starter sets? >> we're aiming at -- towards using our seeds and our starter sets and that there is a reason for that. we spent a lot of time testing everything else on the market and we want to provide our customers a guaranteed grow. so by using our nutrient line and our medium, you'll be able to see the same results we see in our labs. >> okay. we all heard what she had to say. now we need to know if the panel is in or out. patrick? >> i like the team and the
product. going in the culinary herbs and vegetable market seems more appealing to me than going to cannabis because you need to control light cycles and there may be some odor issues. the products are going to be great for schools and kids, is i'm going to be in. >> okay, kelly? >> i'm concerned that there isn't enough to kind of have this defensible against somebody else in the market and i would like to see more than a subscription service because consumers can be really fickle with those. so i'm out. >> that means, david, you are the deciding vote. >> i like the design centric team tackling a great product. at the same time, i think this business is really difficult to make money on the hardware side. and you're going to have to have lock in with the brand and the subscription. and i really worry that once the novelty wears out in the urban farming market that this is going to end up in the garage right next to the old fish tank that you got excited about. so as much as i like it, i'll be out. >> okay. what is your reaction? >> well, we have a whole fan
base of consumers who are really excited for root, so we're incredibly excited to get it out to market and want to thank you, guys, again. >> thank you very much for joining us today and best of luck to you. >> thank you. thanks to briele of root. that is today's power pitch. thank you, mandy, wherever you might be in australia, hello. are you in or out on root, america? tweet us, using the #powerpitch. and for more power pitch, you can visit power lunch.cnbc.com. let's look at gold prices and how they're trading. closing right now. what a week gold has had, up to one-year highs in yesterday's session, up 7% on the week. take a look here, 1239.40 per ounce is the last trade. down today by just about .7%. pulling back on the gains made. look at the metals complex, seeing a little dollar strength in today's session. silver and platinum returning slightly lower today. copper making the biggest gain there, up 1.2%.
ty? to the bond market we go. speaking of assets that have had quite a week. rick santelli tracking the action at the cme. hi, rick. >> hi, tyler. it is amazing how much volatility we had, but i can't stress enough it is really where you close. and sometimes on the week, on the month, on the quarter, it is more important than on the session. let's look at the yield curve, shall we. 5s now, up six basis points on the day, down five on the week. 10s up 8 on the day, down 8 on the week. and if i look at 10s, what really jumps out at me as we trade, 1.74 yesterday the low yield. intraday, not the close, 1.52. a lot of machines doing a lot of day trading and not so much on the position side. above and beyond all the liquidation we have talked about ongoing, if i look at 30s, they're up 9 on the day, down 7 on the week, dollar index very interesting here. hovering just over 96 now.
yes, that's up half a cent on the day. still down a penny on the week. it is the blending of all of those charts when you look at the fixed income and the dollar index to troy to gauge exactly how much of the selling is ongoing, as long as we remain above a 95 preponderate .50, ma less input from the second guessing going on with regard to central banking. may be more attention to fundamentals like today's retail sales number. michelle, back to you. have a great three-day weekend. >> you too, rick. happy valentine's day. telecom and utilities, those are the only two s&p sectors still higher for the year. there may be one more sector you want to start feeling bullish about because it is the only sector that is up this week. "power lunch" is back in two minutes. the microsoft cloud allows us to
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stocks. exxon and chevron. chevron up more than 2%. that helping the dow as well as all of the averages. the s&p 500, for instance, is only off its highs of the day by about 8 points now. now to sue herera for the latest headlines. >> here's your news update this hour. two students were shot and killed this morning at independence high school in glendale, arizona. police say the 15-year-old girls were shot once. they are not searching for any suspects as a weapon was found near the bodies. no word on who fired the shots or the relationship between the girls. greek farmers gathering in athens to demonstrate against the government's financial reform plans. sporadic clashes broke out as people tried to breakthrough police lines and smash windows in buildings. police responded as you can see with tear gas. bill cosby's wife camille must submit to a deposition. she's been ordered by a federal judge in massachusetts to answer questions under oath. the judge says she can, however, refuse to answer questions about their discussions as a married
couple. and san francisco is all abuzz over a $15 cup of coffee. it is call ed finca sophia. the crops took eight years to produce. those who tried it say it tastes like top shelf liquor. no way i would pay 15 bucks for a cup of coffee. not happening. >> brian said that's a sign of the peak. >> a lot of that could be. >> sell the house, sell the kids. >> $15. >> slow in real estate. >> tastes like liquor. >> it is just a different -- it is just a different kind of buzz, i guess. >> they can sip $15 coffee in their $1.5 million three bedroom ranch in santa clara and we can all say, we told you so. >> that's right. >> sue, thank you. the market is rallying as west texas crude surges 11%. so we have been asking all day long, is this the bottom for
stocks? why not ask it again? bill stone is here, chief investment strategist. mike binger at gradient investments. welcome to both of you. as i read my notes, bill, i think you both sort of agree that while maybe not being willing to say this is the bottom, that we're tippy toeing around a place where things might start to look better for equities. right or wrong? >> no, that's right. i think, you know, our analogy is 2011 versus 2008. and if we're right that we're more like 2011, you're certainly closer to that bottom than you are to, you know, having much more pain to take. it could be more obviously. but i think you're right, that i think we're getting closer and certainly sentiment is really washed out. >> mike, i guess my sort of conversely phrased question would be is the bull market over? are we destined for a bear market or about to turn around and resume the bull market?
>> i agree with the last guest. i think we're -- the bias is positive right now. yeah, there is some concerns out there, china, oil, you know, the direction of interest rates now. but i think what people are forgetting is that on a global basis, stocks have already corrected 20% in the u.s., they have corrected anywhere between 15% to 20%. so those concerns, i think, are reflected in stock prices now. i think the economy is okay. earnings are coming in good. i think people are losing sight that good companies like cisco, johnson & johnson, coke, microsoft, great earnings, valuations are much more reasonable, i think the bias is higher now. >> several of the ones that jim cramer, you just mentioned, jim cramer pointed to yesterday. coke, johnson & johnson, cisco. >> and to equity, you were saying we spoke with john paulson yesterday, paulson and company, in puerto rico, and he felt that, you know, he said he wasn't jumping in head first at this point. but overall, he was fairly positive on the economy considering and kind of
confounded by what the stock market was doing at the same time. take a listen. >> a disconnect between the forum a performance in the stock market and many companies, particularly, you know, that we have invested in our portfolio. that the companies are actually doing very well and yet the stock prices are declining. so that is kind of an imbalance and eventually that will sort itself out. so i would say that the market is somewhat overreacting to the current state of the economy. >> the key word there, eventually, went on to say, every time he buys something, it only goes down even more. so i think some people are still concerned, bill, at this point. >> yeah, there is reason to be in the sense that, you know, the numbers are not great in terms of out of the u.s. economy. i'm in agreement, i think growth will be okay this year, we ended on a sour note and that's kind of left people with a bad taste in their mouth. we think it turns around, particularly, you know, keeping
an eye on what the consumer is doing. today's numbers on retails, was good news, the consumer is key to what happens and i think, you know, we are keeping a close eye on that. i do think it has been an interesting earnings, while have really been pretty good, no one has cared. it is all about what is going on with oil, that given day, up or down. >> mike, want to ask you about twitter. this is the ultimate contrarian -- >> so do we all. >> we're all curious about it. first question, first question, hold on, first question is, when did you get in? >> we're buying some more yesterday, and we bought some, you know, in the high teens. >> what did you first get it -- high teens is when you first entered? >> high teens. >> you see pretty much nothing but down, except for the position that you put on yesterday. >> exactly. we're down a little bit. but i think investors are being very shortsighted. i would like to read you something here about a company that we compare it to a lot. so just not that long ago people were saying, the shift to mobile
is killing facebook's ability to make a profit. people were so negative, they get focused on these little metrics within a company. twitter, it is maus. i think they're overlooking the fact that this company grew its top line 40% year over year, doing it profitably. the profits will expand, still grow the top line big. i think they'll fix, you know, the hash tags and efficiencies and complexity and difficulty. i think they'll make it a simpler platform used more. get the maus straightened out. >> that's monthly average users. >> yes, exactly. i think it is a value down here. and you have an option in your back pocket that if they can't fix it, i think someone swoops in and will fix it for them. i don't think there is a lot of downside here and a lot of upside if they fix that one metric. >> gentlemen, thank you very much. bill stone with pnc asset
management. mike binger with gradient investments. thank you. go to powerlunch.cnbc.com now to see what bill and mike are avoiding in this market. that is powerlunch.cnbc.com. stocks are rallying today. right now the dow, the s&p 500 and the nasdaq all in positive territory by nearly 1% or more than 1%. financials, materials, energy leading the way. utilities the only sector in the red today, moving against the trend that we have seen for much of the year. much more market coverage coming up on "power lunch." don't move.
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i thione second it's there.day. then, woosh, it's gone. i swear i saw it swallow seven people. seven. i just wish one of those people could have been mrs. johnson. [dog bark] trust me, we're dealing with a higher intelligence here. ♪ the all-new audi q7 is here. ♪ . after a one day pause, street talk is back. these are stocks we believe you need to know about. ready? first stock, kroger. starting coverage with a buy rating and $45 target. they say in a competitive industry, they are outcomping, i didn't know this, 47 consecutive quarters of positive same store sales growth at kroger. wow.
that beats the industry average by 1% over the past decade. they say sales growth is driven by relentless focus on both sides of the value equation. the company is a leader in digital omni channel capabilities. $45 target implies 13% upside. >> a lot of investors and analysts say it is a big reason why stores like whole foods, fresh market had difficulty because they're taking share. also in this defensive market environment, kroger is a beneficiary, of course. second time we're watching netflix, cautious note. you hate f.a.n.g., taking the price target down to 100 bucks for 125. still bullish considering where the stock is now. the analyst says the u.s. market could be reaching a saturation point also. execution misfires and international markets could impact growth. >> amazing the love that people had for netflix at 130 bucks. you couldn't find enough bullish commentary at 130, and now we're struggling to find bullish commentary at 86.
>> you wonder if the pendulum has swung. this week, week today, netflix is up 5%. >> good sign, maybe people are nesting. staying home and watching narco. next up, square, btig says buy square and that visa may eventually buy the company. so visa announcing a stake, 9.9%. some people say that was taken a few years ago as part of a class b offering. whatever. the point is the analyst says visa stake serves as an endorsement of square's business model, and sets up a potential take-out. like many in the payment space, square has been pounded lately, but visa's stake is a vote of confidence that could serve is a buy. not saying it will, could maybe should. either way, $15 target on square. stocks at 8.94. 45% upside. >> i saw this news and thought of twitter. why would jack dorsey be ceos of two publicly traded companies unless there is thinking he'll take square public and sell the
rest? >> i like your thinking. >> twit, by tter, by the way, u sharply. next, palo alto networks, caution report out of cleveland research, the best performing last year. growth expectations should be more like 30% to 40% versus the prior 40%. the whole sector we should note as you know has been under siege. investors questioning the valuations, becoming more risk averse and that data out of tableau, data, that really threw a wringer in this group. >> all the cybersecurity headlines we talk about and on a weekly or daily basis. >> breaches. >> and these companies are struggling in the stock market. finally, insight corporation. your under the radar name of the day. now defending this biotech and reiterate their $100 target. they say the stock oversold following a sell-off from news that the company is stopping
testing its jakafi drug. analysts notes that sales came in ahead of estimates anyway because of strong demand growth for treatment of milofibrosis, saying they're moving through a phase of growth, that $100 target implies 50% upside, not quite. closed stock at 67 bucks. jmp out defending -- not a new call, but defending insight, that's your under the radar name of the day. >> i have one thing to say about that, the ibb, the biotech etf is down 27% this year. >> arguably because of deutsche bank or the fed. >> stop. >> right, tyler? because deutsche bank impacts everything from toilet paper sales to bioteches. >> absolutely. as we pointed out yesterday. thank you. let's look now at the yield on the ten-year note. what a week it has been. but that one, as you see it now, 1.74. let's call it 1.75 up from yesterday's low. but still down over the past two months. and quite a bit.
that rate falls, so too have mortgage rates. getting close no tow a record low, just as we enter the spring house selling and buying season. the impact on real estate coming up on "power lunch." thanks. ♪ [ male announcer ] fedex® has solutions to enable global commerce that can help your company grow steadily and quickly. great job. (mandarin) ♪ cut it out. >>see you tomorrow. ♪
welcome back to "power lunch." i'm michelle caruso-cabrera. a big rally on wall street. and oil is soaring 11%. the dow, the s&p 500, the nasdaq, they're all up more than 1%. financials, materials, energy, they're leading the gainers. and jpmorgan leading the dow, up 7%. free port mcmoran leading the s&p 500, up 13%. and baidu leading the nasdaq higher by 7%. tyler? all right, michelle. let's look at the stocks in the s&p 500 that hit new highs today. kellogg's, mm, mm good. kello-double good. hormel and mccormick, the spice companies, off their highs. they're all consumer staples. is now the time to bet on the consumer side of the economy? that's coming up on "power lunch" in a couple of minutes. ♪ there's a lot of places you never want to see "$7.95." [ beep ]
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staples sell off along with the market because i thought they should be defensive and then i think, well, lots of emerging markets, much more international and they're all getting hammered. how should we look at them and is the worst over for these guys? >> yeah, well, you can really segment consumer staples into two separate categories. very u.s. centric stocks like reynolds america or constellation brands and megacap globally exposed names. but what we have seen is money flows coming into some of the defensive names, given the market volatility. it has been an interesting bifurcati bifurcation, on one hand the emerging market situation should weigh on a lot of the names like coke and pepsi and procter and colgate, but those stocks did fairly well and are outperforming year to date. on the other hand, you have companies much more u.s. centric and beating numbers and taking numbers up and those stocks have actually sold off. so it is kind of interesting what is going on in the market. >> doesn't make any sense to me unless you thought for some reason we're getting a recession here in the united states.
maybe. and even then shouldn't they be defensive? >> well, yeah, there are a couple of things to think about. one is, hey, maybe some of these winners some of the stocks that have gone up the last few years are being sold off to raise capital given what is going on in the market. we have seen a general theme across our trading desk, selling the winners and buying the laggers. that might be partly explaining some of the bifurcation now. >> your pick is knew lnewell rubbermaid, right? >> lumped into a whole discretionary trade we have been seeing, people worried about a discretion. they just announced they'll buy jardin. we think it will be an attractive deal over the next couple of years. the stock is now trading at 12, 13 times earnings. 27 estimate. and the reality is we actually think that there is upside to numbers, not downside, and even in a recessionary scenario, we think the company is going to be a lot more defensive than we saw in the last cycle, given the amount of cost savings they have. >> nick, can avon be saved?
>> well, look, the direct selling business model is a good model, it is a viable model. mary kay does a fantastic job, just they're private. i think avon's issues are really a function of many, many years of mismanagement, and i think that they're going to have to spend a lot of money to fix the problems. look, i think -- >> do they have the money? $45 stock ten years ago. it is a 3 buck stock today. they need money to make money, but do they have money to put back into the business? >> they have money, they need more. and we have been cautious on avon from 25 bucks down, so we still think they have some clen challenges ahead of them but they're making right choices, getting rid of north america will help them, they have capital from that. but we think they need more money and we think numbers have to come down more. we would be cautious on avon. >> are you concerned the defensive tilt in the market is leading to flows into your sector and stocks that may not deserve such high valuations? i'm curious what your
perspective is on how the stocks are trading relative to their own historical pes and whether or not investors are paying a premium for them at this point. >> yeah, it does concern me a bit, especially with some of the megacap names where we have seen numbers come down and the stocks have held in there, so the pe has gone up more on a relative basis. we saw this happen starting in november. so it carried in and kind of got accentuated in january with market volatility. i am a bit concerned. most of the names i refer are not those names, right? it is the newells, reynolds, constellation brands, energizers and i still think there is a lot of opportunity for those stocks because they have underper fofod lately and pes are much more attractive. >> thank you for the ideas. nick mody at rbc capital markets from some place sunny. >> two hours and 30 seconds exactly before the long weekend. and here is what is happening to your money now. the dow with a very nice rally of about 120 some odd points.
if we can bring it up there, i'll give you the exact number. 218 points. i misread it. 1 15,878. nasdaq up . big names you may well own. alphabet down, but just a little, a buck lower at 7 05.19. apple lower at 93.46. microsoft is up and jpmorgan chase, partly on news that jamie dimon is buying shares, i this think a half million shares. the big story in the market now is the massive move in crude oil. up 11%. john killdove of again capital is here again. anything going on in your world this week, john? >> quiet, tyler. spring training. >> pitchers and catchers. >> having some fun here.
bar tending. what can i get you? >> a side of oil. so where are we in this? do you put any credence into those headlines that were later walked back from yesterday, came out roughly about this time, that the uae oil minister, energy minister, said there may be some opportunity for cooperation, collaboration and production cuts. >> it was a well timed comment too. because we were about to go over it and it looked like a lost momentum building, volume was heavy, we broke the lows from last month, 26.19, down to 26.05. and, no, i don't believe it. but there is a lot of weak conviction in the shorts that come late to this party, so as much as they want to believe john killdove, shouldn't buy into this, they have to. >> to cover the shorts. >> yes, short covering today a lot. >> a lot. very much so. >> so what is next for the price? >> now the uae ministers comments are parsed heavily and picked apart, translation from a
tweet from a dow jones, one of those crazy stories that get people burned unfortunately. and that's what you're seeing. so, no, they just parroted the saudi position yesterday. that's all you got, nothing different. and there is no cut coming, not yet anyway. >> rig count down. what do you make of that and does that ultimately at some point translate into lower production? >> it has to. it is a remarkable drop. and it is really almost a fine gravity, if you will, in terms of how the overall u.s. production number has not fallen since october, november, despite the numbers. >> well there is a well, there is a way. >> yes, very good. that's why they -- >> you can use it. >> wow. >> may have to steal that one. >> proud of that. >> yes, the technology has been incredible. their ability to extend the lives of these wells is incredible. but the hidden story is that some long-term gulf of mexico projects have come on that have have added about 200,000 barrels a day to the overall count.
so that's what is sort of offsetting the overall number. >> is the obx going to give us the oil volatility index give us any clues when the oil can stabilize? i'm looking at it today, it is up 1% given the huge pop that we're seeing in oil, and i know volatility indices, there is weirdness into three day weekend, but it does seem to not be commensurate. >> there is some weirdness, especially in the commodity vixes, when you get to a sustained trend, they come down, even though it is eye popping how low you can go. i think a move back towards -- well, we'll see it back towards the 20, sub 20 area for us to see some stabilization. >> well, i'm going to say something and you tell me, true or false. stabilization is a bad thing, right now, because we're stabilizing at 29 a barrel. >> true. >> yeah, i think that's right. certainly for -- >> they want price gains. >> no, i'll tell you too --
>> the one you did on the train where you showed there had never been -- with the circles and squares and the lines. >> the chart was more than circles and squares. it was colors and lines. >> thank you. >> it was a content rich chart. >> my facebook page shows we never had a recession, the last numerous recessions where oil has been falling, every recession has been preceded by oil spiking. >> the markets may not like low oil prices, but the economy isn't going it like high or rising oil prices. >> i think we can live with it in a range. you -- consumer sentiment, you know, folks are paying $1.60 a gallon, can't believe it, $2 gasoline print or 2.50, which would equate to a 40 to $50 crude oil barrel. so i don't think people would necessarily freak out if prices went back up a bit more, nor would it induce the kind of hunkering down you get and these other recession spikes that we saw, the $100 plus levels. that's bad news for consumers. this is still very good for our
economy. this is still very good for consumers. i think it is the one thing that is -- enabling us to hang in there as an economy. i don't know where we would be if gasoline prices were $3, $4 a gallon. not enough activity in the emp sector to sustain us in the high price environments. >> thanks. >> have a great weekend. >> thank you. >> we're seeing some big moves in the treasury market. the yield on the ten year note bouncing off multiyear lows, and if you think bonds might be boring, you're right. but, they are important as well. because lower bond yields generally means lower mortgage rates. that is a very important thing at this time of the year for housing because we're just getting started, diana olick, with the very famous spring -- even though zero degrees, let's talk about the spring selling season. >> it is a little higher than zero, brian. but, look, it is a bounce off a huge drop and it is not going to move mortgage rates much. we're still hovering near record lows on the 30-year fixed.
take a look. it hit 3.5% yesterday. that is just one quarter point from the record low. we started this year over 4%, and we're even higher than that last summer. and the plunge began right after the fed raised rates. the expectation, of course, was mortgage rates would rise through this year. not so much. borrowers can now qualify to buy a more expensive house, which in this increasingly pricey market is key, and that brings me to an equally big story in housing this week, and that is record low supply. the expectation was that supply would improve during the lower winter sales month, didn't happen. in january, realtor.com showed supply of listings down over 4% from a year ago, and over 7% from december, which is striking. now, of course, people wait until february and march to put their homes on the market, but that addition of homes will not come close to meeting demand and that will just push prices higher in bidding wars. >> why is that?
why aren't -- why is there so little supply when it comes to homes? >> so many reasons. so many reasons. the first, of course, being that people who are going to move up are afraid they're not going to be able to find something to move up to, so they're afraid to put their houses on the market. secondly, you have still a lot of borrowers who are underwater on their mortgages or they're just barely above water and can't afford to move up. and home builders, they're not building. we're building at 65% of normal capacity. and demand is much higher and we have pent up demand from the last four years. builders, one word. >> let's talk more about that one word. diana olick, thank you very much. with mortgage rates so low, will this impact the home building stocks? many of them rallying today. the entire market is up today as well. toll brothers, pulte, kb home, horton, all seeing gains. bob, you heard what diana said about the lack of new capacity in the home building market,
even if we see a slowdown in the economy, are the home builders going to be okay because there are not enough new hopes to meet demand either way? >> home builders, good afternoon, are extremely well positioned. you were talking about the problem with oil stabilization. my favorite word for the home builders is acceleration. so diana is exactly right. we have four years of underbuilding, constrained supply. let's talk about inventory in the resale market. now trending at the lowest point, 3.9 months of supply. the last time we saw that was 2 005. we'll see robust demand for housing. this is the a great setup for the home builders. for prices, they start to rise, median sale price will rocket up given the supply and demand imbalance. >> how sensitive are the prices of new homes, again, i want our audience to know we're not talking about existing homes, talking about brand-new, spanking new homes that no one
lived in before you, how sensitive are prices to interest rates in the new home market because i got to imagine, not as much because the builders already know what they're going to charge ahead of time. >> you know, i think of it this way, you got a very robust labor market now. unemployment 4.9%. the broad service economy, which is the mass of the u.s. economy, over 85%, is doing great. there are some pockets of weakness, but those are the two critical tailwinds. consumer balance sheets in great shape. so what are you doing? you're bringing on an incremental positive with this rate pressure, favorable for the home builders. we like the setup for the builders given what is going on. >> your topics are deere, horton and pulte. can you walk us through the matrix of where you see the sweet spot when it comes to home bu building, geography and price point. there are articles about new york city, maybe pay attention to that more, about the luxury
prices coming down, a lot of incentives on the market for new homes, specifically new builds. i notice you didn't like toll brothers, more exposed to the new york city market. what goes into a top pick today. >> number one, you got to have a great management team that consistently executes irrespective of the environment. that's horton. we like pulte. they have huge sensitive to driving return on capital. we like the strategies of both companies. let's talk about geography for a second. tremendous strength in capital, florida, texas is doing much better than people expected, and georgia and the carolinas are also delivering. arizona is on fire. and nevada is quite well. so we like the setup in the golden horse chute right now. moving on to the northeast, new york and miami, two areas that are being hit, a lot of supply coming to market in the luxury segment. we could see head winds because of those trends up there. but on the national basis, given
very tight resale inventory at 3.9 months, this is a great setup going into the spring selling season, that's why we continue to recommend the builders, which are actually trading at huge discounts to where they were at the start of the year. >> i'm surprised about texas. especially with the price of oil. i would think we would see weakness there. how do you explain that? >> no question. we definite rly see weakness in the market, homes priced in excess of $300,000. but, for the entry level buyer, which is the incremental source of demand, nationally, that buyer is showing up in texas and participating. the other thing to remember, texas has a very diversified economy now. so, yes, there are head winds in houston. that's factored into how we think about valuation for the stocks. the overall trend in houston is much better than very low expectations that people had given the huge decline in oil. >> got it. >> i would say this, housing markets hanging in, we have a lot of upside in store as we
move through the year. >> i don't know when you're coming back from denver, but if you have a chance, go to crickets and get a burger. it is delicious. >> i'm on top of it. >> thank you very much. >> stocks and restaurants, there you have it. right now we're close to session highs of the dow and the s&p 500, both very close there. the dow is just off by about five points from its highs today. as the spring housing season starts to heat up, one of the nation's hottest markets could be cooling off. let's get to josh lipton with more. >> i spoke to a few different real estate agents near san francisco this week who talked about a cooling in the high end of the market here. for example, they noted that in q-2 last year, 18 homes sold for $6 million and up. that number then dropped by about half in q-4. but it is not just the high end. analysts at fitch suggest the san francisco housing market in general could be overheating and they note that home prices hit a
new all time high last year. they're 10% above their prior peak in 2005. more than 60% above their post recession low in early 2012. and now 16% overvalued. fitch says prices have become disconnected from underlying supporting nick fundamentalals, specifically home priced growth in san francisco. they're arguing it has exceeded income growth. back to you. >> i'm not surprised. we see these crazy houses, and the pricing on -- i think you did a little bungalow last year, didn't you, josh, that was more than a million bucks? >> and if the price of money is as low as it is, that offsets, doesn't it, the fact that maybe incomes aren't rising so fast. >> unless -- >> unless you borrow so much more. >> your monthly -- most people buy the monthly pa lly payment,? >> they buy on the monthly payment. >> they should buy in price per square foot. but -- >> the sad serious part of that
area is that if you're a cop or a teacher, you're living 100 miles away, living in lodhi to commute to santa clara because you're 800,000 literally for a shack. you know. >> very hard to make it -- >> almost impossible. the area is amazing, but prices -- i won't say they have to come down because i've been wrong about a lot. i have no idea. >> as we see stocks like linkedin in or twitter taking it on the chin that could fuel a -- i don't know, a correction. >> wealth effect would be harsh, right if you're using the stock. it is your collateral. >> one of those people that has the had hot stock or has stock at all. most people don't get stock at their jobs. >> you say people buy on the monthly payment and they should be buying on price, but you vehic frequently hear, buy the most house you can afford in the best location possible because that has turned out to be a good thing, right? reach, if you reach on anything,
and that sometimes -- >> do not buy when mathisen buys because that will be the peak of the market. >> did you buy? >> i bought the house we live in in new jersey suburb, i bought within six months of the peak of prices in that town. >> have you recovered? >> no, not if you look at things we have put into the house. >> okay. >> but you also sold within six months of the peak. >> that goes back to the former marriage. >> i was trying to find a silver lining. >> always a silver ryan ilining. >> i don't think you can ever make money on a home. >> that's not true. >> i don't think -- >> i have. >> you can. i have made money. >> how? >> you're a real estate -- >> buy low, sell high. >> higher price than you bought it. >> when you do analysis of property taxes. if you -- you to live somewhere, but you talk about interest
rates, i just -- i did the math on my house, i realize no matter how much it goes up in value, i'll never make money. >> in the category of i would rather be lucky than good, i sold a home two years ago, made 50% return on the down payment. >> but what did you spend on the maintenance? >> that's after -- all after everything. >> all after everything. >> 50%. >> i want to do that again. can i do that again? >> once you do it once you want to do it again and again. >> is that the rule of -- once you do it once, it feels so good, you want to do it over and over again. >> talking about selling homes. >> leverage, actually. >> here's what oens t's on the . the one indicator that could signal rough waters ahead. and are the regional banks being unfairly punished in the global banking sell-off? we'll have the ceo of bb & t joining us. and we stay on top of the huge rally in crude oil. the oil market closes in 15 minutes from now. we'll take you live to the nymex for that close when "power lunch" continues.
welcome back to "power lunch." i'm michelle caruso-cabrera. could this chart be the single best indicator for what is next for the global economy? you're looking at the baltic dry index that tracks global shipping volumes, falling very hard this year. it is at record lows. it falls day after day after day. robert perry covers the shipping industry. he's in town from athens, greece. good to have you here. >> thanks. great to be here. >> the baltic dry index would
suggest we're going into some kind of global depression here. right? can't be true. doesn't feel like that. what is -- what is that telling us? >> if you look at the baltic dry index, the thing it tells you is you're looking at basically demand for dry bulk goods, iron ore, coal, driven by china. >> china. >> one thing you need to look at is the supply side. for years these guys have been ordering ships, building up a fleet. and last five years the fleet grew by 45%. demand hasn't kept up. this year the first year global demand has been drown in the dry bulk industry and basically coal demand 30% in china. and china is the largest of importing coal. and it is really just really hurt the market. >> that's dry bulk. >> that's dry bulk. >> we had on the ceo of an oil tanker company. the yield was 17%. we were all incredulous, like, you got to cut that yield. the market is saying you can't maintain that yield, that yield will not last, yes, the yield is
going to last, i'm going to pay that dividend and in fact you look at tanker prices in the shipping of oil, very different than shipping coal and iron ore, right? >> that's correct. iron -- when you look at the tanker stocks and look at supply of crude oil, the increase supply and the decreased price of oil has actually created less supply being built up in the united states or less oil being pumped out of the united states, which means more oil coming from the arabian goulf to the united states. last year 2015 was the best year they had in a long, long time. companies are making money hand over fist.mentioned, i talk to some of the guys and they said they should take the ball and go home, buy their own stock and go private. >> did any of them take you serious seriously? >> there were some share buybacks that were implemented by some of the bigger guys, but most of them haven't really -- >> should i believe a 17% yield
in the tanker segment? >> it is hard. what people are telling you is they don't believe global growth will continue. i think people are a bit concerned about what is going to happen in china and oil demand will slow. we tend to disagree. but it is hard to say what is going to happen in the markets these days. >> thank you for joining us. tom from athens, robert perry, back to you. >> all right, michelle, thank you very much. up next, we are on the hunt for some utility players for your money. some names to consider coming up. we're all over this big market move in crude and in stocks as well. crude oil up about 11%. stock market is up 250 points. we were doomed yesterday. everything is fine. where we will close out the week, though? we're going to head live to the nymex as i get schooled on making money on real estate. we're back after this. t the td e trader offices. steve, other than making me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data
yields and weak oil dragging down the broader market. cheaper oil and cheaper energy in general doesn't help electric utilities that are regulated. they tend to fall because they're required to pass those savings on to customers, meaning lower power prices and profits. is according to our data partners at kenshow, when oil falls below $30 a barrel, as it has done 29 times since 2000, as it is doing now, center point energy tends to lose on average about 3% and duke energy falls 1%. on the flip side, some utilities more diversified and/or less regulated that tend to outperform when energy prices are low, take a look at first energy corp., which has traded higher three quarters of the time when crude has fallen below 30, averaging a gain of 2.5%. also, semper energy. both multiutilities, a mix of assets and tend to fare reasonably well when energyccor
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as we enter the final hour and a half of trading, it looks we're making a push to the upside here. we hit 1860 and change. now up by 1.65%. let's check on the oil markets closing for the day. what a day it has been there. to jackie deangelis at the nymex. >> good afternoon. it looks like we'll have a 12% gain on our hands today. there is some discussion in the pits about whether we bottomed here because for the second time we reached that $26 level kind of yesterday. but at the same time, there is a lot of caution here too. this is partially a technical move because of the big sell-off yesterday. you also have short covering as we enter into a holiday weekend. you also have a lot of discussion about opec what it will do, won't do, the truth is, we don't know what opec is going to do. but people are concerned that that could give us a little bit of a pop if we see some sort of action. meantime, saudi arabia has not said that it will do anything.
also this dollar drop giving a little boost to crude here. so right now you've got two sides to this trade, some people are very cautious about it, saying we could move higher from here. others are still calling for oil to go back down to the teens. we had more oil rigs come off line this week, again, in the double digits. that is supported as well. got to see on wednesday, if it starts to impact u.s. production. that's really where it matters here. but, of course, crude today, seeing its best one-day gain since february up 2009. back to you. >> jackie, thank you very much. and have a great weekend. >> you too. big energy companies really feeling the pressure lately because of what jackie just talked about. today, a side, within the last week, anadarko and conocophillips slashing their dividend. many companies just cut their capital spending projections over and over again. and let's take now a closer look at some of the major credit risk and what companies may be at risk for the d word, default. sri rahman joining us now.
how many companies, we talked about this a little bit on the show in the past. how many companies in energy, oil and gas, are operating at a negative cash flow right now. any energy? >> >> i don't know the exact number. but some are working with negative free cash in the production region of the sector. to spend so much money on finding new regions to explore oil in and that was when oil was at 100. talking about projected profits at $100 and oil at 30. today it went up. it is a pretty sad story for the companies. they're not prftable at theofit prices. >> they all have a different cost of production, whatever. but how many companies, what is the difference, i should say, in companies that would be free cash flow positive at 30 or free cash flow positive at 40? does 40 make a difference for anybody? >> i think it does move the needle a little bit. the reason i say that is we don't follow oil prices as
watch. we look at transcripts. ceos during earnings calls. a lot of them point to oil at lower 40s being okay for them. >> okay. >> okay for them. they don't say it is fantastic, but we can operate at oil -- in low 40s. up 30 now. so it is far below where they would like it. but all of them say to the end of 2016, they would like to see oil prices and that's what they're anticipating. >> looking at how you're calculating this, you're looking at free cash flow this is negative f you did -- what are some of the things in their back pocket they can do to shore up free cash. if you eliminated the dividend payment, does that buy them more time, does it make that probability of default go lower? >> this is the probability of the default they will default in the next one year. the assumption is they won't sell assets. you can sell assets and raise money. you can go to the debt markets, now the point is our credit default models that we have, we give them high rate of default this means credit ratings are not strong. going to the debt markets is
expensive for most of the companies. we're talking about companies that maybe constrained in terms of raising new capital, but can't sell assets to raise money. >> they can cut their dividend. >> they can cut their dividends. that's most likely scenario, it seems like already some of them are selling off some of their assets, might see m&a activity, deeper pockets might go in and swoop in companies which might be in a credit risk so that a year or two down the line, maybe they could take advantage of those assets. >> we have been showing people what the highest probability is, petroleum, 14% is the biggest one you see energy transfer equity lp, 7% et cetera here. >> that's amazing. a huge company and that's a billionaire, we interviewed her in dallas, that's a big company and a big number. >> it is a big number. it is a systematic way we come up with the default. we look at transcripts, what they're saying. we have a word search document so we have a tex mining model. we have credit risk model that looks at in advance, written model. we look at the fundamentals.
>> what is the average? what is the medium? how does that compare to the whole sector? how big eyed, bug i'd should i g get when i see that? >> take this into consideration, the median credit default probability within the next one year is .15%. >> they're at 14%. >> 100 times higher according to our credit models. >> look at their bonds. one of the bonds, due in 2019, down 62%. the last trade, showed the bond down at 62%. >> the market is priced in a lot of what you're talking about already here. >> it is pricing in a lot of it, but, i mean, you never know what -- where this will end. when does the bloodshed ends. can they avoid bankruptcy? that is the big question. >> as you look at the universe of companies that you follow, are you saying that less than 1% of them are likely to default --
basically go out of business, be absorbed by somebody else because they're in distress over the next year? >> yes, .15%. >> .15%. >> less than -- >> how good of an indicator has this been? >> this is a fantastic indicator. we have accurately predicted 90% of these. >> 90% you predicted. >> correct. >> that sounds low to me. >> universal companies. >> exxonmobil, chevron, all the highest rated companies out there. >> this is globally -- >> is that all -- >> all companies in the world. >> oh. >> not just the energy secretarier. >> not just the energy sector. >> what does that mean in the energy sector? >> it is lower than 1% also. it is still much -- still much lower than 1%. >> comparing apples and oil fields, right? >> to be clear. it is powerful stuff he's saying, you're not saying they are going bust, but according to
your model, a 14% chance that whiting petroleum will fall next year. the bonds are down 68%. >> stocks not looking good either. >> you look at other companies that had been at that level of 14%, what is the -- what does history say? >> i don't have the exact numbers. i don't have that number on companies with that 14%, but a lot, we have seen time and again companies with that large of a default risk do tend to have either good default or be bought out or do something to get out the discretion situation. has to be some serious action that -- >> some transaction. >> sri, thank you. by the way, most of your point on dividends, the problem with energy transfer is for a lot of the mlps, the pipeline companies, that's their whole reason -- >> they cut it, nobody will -- >> no reason to own the equity at all if you're a pipeline or mlp, that's it. i don't know how you cut it when -- >> you can't. >> look a restaurant, we won't
serve food anymore, but please come in. >> thank you. let's get to sue herera, news update. >> here's what's happening this hour. iranian foreign minister mohammad zarif says iran and saudi arabia must overcome their years of strained relations and work for stability in the middle east, saying they can have shared interests in syria. he made those comments at the security conference in munich. pakistan's intelligence agency is announcing the arrest of 97 alleged terrorists. the arrests follow a series of raids in operations over the course of several months. the house approved a bill to ease the fda's new calorie labeling requirements. that bill would leave the rules in place but make it easier for businesses to comply. for example, supermarkets would be allowed to use a menu board in a prepared foods area instead of putting labels on individual items. the bill now heads to the senate. and 350 couples tied the knot in a mass wedding in
manila. they have become popular in the philippines as a way for couples who can't afford a ceremony to tie the knot. congratulations to them. but i don't know, with 350 couples, what does one bring if one is attending the ceremony? >> 350 lawyers. >> maybe so. there you go. >> what a romantic. >> happy valentine's day. >> there you go. happy valentine's day, brian. retail and financials up today. he doesn't make money in real estate either. tough start to the year. could that mean some buying opportunities? mike, welcome. i just want to start with my note tells me that one of your key models switched last august 24th from a bull reading to a sort of bear chaotic reading. and it was -- it turned out to be right. what does that model tell you today? >> it is still remaining, still telling us we're in a be
bear category. it basically allows us to identify the type of market state we're in. so for 2 1/2 years, we have been in a bull regime, you have positive stock action and low volatility and all the things that we throw into the soup to come out with that outcome is -- told us in mid-august it was time to flip to what we call a bear chaotic regime, not to be confused with a -- what everyone thinks of as a bear market down 20%. this is the type of environment we happen to be in. and on point. >> negative and volatile. very quickly, i want to get to some of your picks here. is the needle on that gauge moving back towards something more favorable or not? >> not even a little bit. sometimes the -- sometimes the model will be a little bit uncertain, it has been very certain that we're remaining in a bear chaotic regime. >> three of your picks. with macy's, a very interesting
scenario, beat up, but you cite the possibility of real estate transformation there as some of the store board value i believe pointed that out in a disarticulation of the real estate holdings. >> correct. whenever you look at contrarian picks like this, you're trying to find places where the consensus is either overdone or overbought, oversold, everyone knows the negatives clearly. what could go right is the question. i think in macy's, they're getting serious about cost controls, starting to bottom out, we think, in some of the same store sale negative numbers and then you got this call option with the value of the real estate, which by some estimates is worth as much as the company is. so we think everything is expected to go wrong there. all you need is a little breath of fresh air and could get a decent pop. >> could have picked a lot of banks as contrarian plays this
week, this month, this year. why bank of america? >> it is a bit of a proxy for the large diversified businesses and how do you sound bite a large, you know, sort of very complex company like this in a minute. but the bottom line is, you know, all the large banks were bid up last year because they thought they were going to get relief from the federal reserve and with -- from zero interest rates. breathing some life into their interest margin, allowing them to see the economy expand and loan more and see revenue growth, by the way, the same thing janet yellen saw, the same thing the federal reserve decided to do, that has now been completely wrung out since august 15 or so when we went it a bear chaotic regime. bank of america is down 33%, market down 10. we think that's overdone, there is really no positive outlook at the moment, interest rates have come down tremendously. oil leading that. if we get a little bit of
positive, reaction, in any of these markets, we think we could see a nice mean reversion trade back up 20% or so on bank of america pretty easily. >> thank you very much. have a great weekend. >> thank you. you too. >> thank you. a bear chaotic regime. >> doesn't that sound good? >> frightening. >> caught my eye. i love that. >> how are traders positioning themselves as we head into president's day weekend? trading nation is on deck when "power lunch" returns. d financial superstars pitch you investment opportunities. i've got a fantastic deal for you- gold! with the right pool of investors, there's a lot of money to be made. but first, investors must ask the right questions and use the smartcheck challenge to make the right decisions. you're not even registered; i'm done with you! i can...i can... savvy investors check their financial pro's background by visiting smartcheck.gov
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all right, stocks are bouncing today. what does this mean going forward? if anything, it is just one day. let's ask the trading nation team, however. we got todd gordon on the technicals and stacy gilbert ahead of derivatives strategy susquehanna focusing on the options. i don't want to focus on one big down day or one up day. one day. does today's action change the way you view the market whatsoever? >> no, so overall the market still is positioning for increased volatility.
if we look at what is being set up, moves of 1.5% in either direction are expected to happen basically twice a week. so we're within the realms of what is expected. what we're seeing in terms of sentiment, there are some trades out there with investors positioning for maybe a continued upside pop here in the shorter term. but overall, i think the one thing that is really important to keep in mind is we haven't seen true capitulation in the market where everybody is very, you know, not price sensitive, dumping all of the positions, you see capitulation and that's where i think you'll start to see the upward movements much better than what we're currently seeing here. it is just short-term pops we're seeing people positioned for. >> todd gordon, technically, i'll ask you the same question, does the market evolve or change or become more positive because of today? >> no, i believe it is a short term phenomenon. i agree with what stacy said, except for the part about ca pach la capitulation. also you'll notice yesterday,
technology did not confirm, so with the combination of gold, technology improved stabilizing. we have a short-term bounce. i think that bounce will be defeated and we'll head toward lower levels. just to give you a context of how much lower we can go, i like to compare the ongoing correction to the one from 2011 and from low -- high to low, excuse me, a 21% decline. a lot of times markets will repeat themselves. currently in the decline, we are at about 13% on the way down. if we are to reach a full 21% correction, that puts us down to about 1670. i think that's what the target bounce is defeated. >> todd and stacy, a pleasure. thank you, have a great weekend. don't leave yet, we have to tape the online stuff when the show is over. speaking of the online stuff, go to tradingnation.cnbc.com. a lot of people don't know this. as soon as the show is over -- >> i put a cape on and run upstairs into a small windowless room and record some good stuff. >> and see it online. >> let's look at the stocks that
are leading the dow higher on this big rally day for the market. start with jpmorgan chase, up more than 8%. goldman sachs up 3.75%. caterpillar up 2.3%. more on the markets straight ahead as you watch cnbc, first in business worldwide. and now the latest from tradingnation.cnbc.com and a word from our sponsor. >> when it comes to earnings reports, most investors know it is not what a company earns, it is what it earns relative to sxeks ta expectations. sometimes there is cautious forward guidance. if you have a stock trading lower after an earnings report, you might want to ask yourself, is it just an overreaction or is the market trying to tell you something?
welcome back to "power lunch." stocks are holding the rally as we head into the final hour of trade. dow jones industrial average is up 287 points. it's a gain of 1.8%. 15,948. up next, we're looking for big opportunities in some of the smaller banks. we see the regional bank index. down for the week but higher today by 4.5%.
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the earnings call and credit suisse conference, it seems things turn on a dime. have you seen anything change in the economy or in your business that would lead to such declines? >> no, i really have not. made a point before and after christmas to make that very point. the fundamentals of the business and economy as we see it, have not changed and overall our pipeline of loan request and deposit inflows, traffic in the branch there's no indication of any really big change because it hasn't been a big change. certainly there have been some world events that have caused a lot of discussion in the media but an awful lot of it is really connected to the day to day real economy. >> are you talking about what's going on in europe? >> yeah, i'm talking about europe and china and all of
those news items cause a lot of discussion and a lot of hype. >> in the united states, in terms of net interest margins for investors who take a more domestic view of the sector are looking at this and what has changed since christmas. is the notion that the federal say in the sidelines for longer than previously anticipated so that yield curve will be flatter. now on the table there's negative interest rates. what does that do to your business if we forecast an invert the yield curve here? >> well, there was a conclusion by the public in general that the fed was locked in stone to raise rates four times this year. if you talk to chair yellen, she will tell you that was never predetermined, always based on data. we thought then and think now that the fed was still raise rates 1 to two times this year. it is still strong, we think
you'll see a couple of rate rises, not four, maybe one or two. what's happening in europe and otherwise may make sense over there. i'm not sure. it makes absolutely no sense over here. there's no rational scenario that would say that would cause the fed to drive interest rates to a negative level and to be honest even if they drove interest rates, it wouldn't have an effect on banking system. the fact is interest rates are already low on the deposit side. if interest rates went negative technically, they have to pay us to keep deposits with us. >> you're not going to do that, are you? >> no, that's not going to happen. that's not going to happen. so in the long side negative interest rates would imply that we would pay a client to borrow money which folks are not going to do. what will really happen in that
scenario, zero interest paid on deposits and put floors on loans and loan interest rates and would have some downward effect on our margin but not be dramatic though. >> two quick questions, i would assume you would like interest rates a little higher. but you've been a practicety active inquirer of others do you see that trend continuing given market conditions and the stock price of your company which has come down a good bit? will you still in the market? >> we have 20 seconds, not to put you on spot. >> we probably wouldn't be pretty active in the acquisition market with price as low as it is. i don't really want to use our currency today but we think that's moment teary and think it will go back up. over the long time but not in the short term. >> thanks for joining us. we appreciate your viewpoint. kelly king. >> we would have to if we were going to loan at negative interest rates, we would pay people -- no, doesn't make any
sense, right? >> but it makes sense for europe, kelly said, there you go. we make sense for europe but hopefully made sense for you as well. >> made sense out of europe. >> "closing bell" picks up coverage of this friday rally right now. don't move. >> welcome to "closing bell", i'm kelly evans. >> and what do we call this rally? we're all sitting around trying to figure out. >> we know the flash crash happened. >> what's opposite of a flash crash? >> flash dash, oil is up 11%, twitter up 7%. >> tweet us with your thoughts. commodity soaring on production cut hopes, emphasis on the word hopes. sending strong economic data, help sent stocks rallying today. the broader market isti