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tv   Squawk on the Street  CNBC  February 16, 2016 9:00am-11:01am EST

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this occurred before pfizer bought wyeth. i'm speaking very quickly because the show is almost over. >> 15, 14 -- >> thank you for being here. >> i'm here tomorrow, too. we'll see you guys today on power lunch. >> 1:00 to 3:00 eastern. >> right. >> join us tomorrow. right now time for "squawk on the street." ♪ good tuesday morning. welcome to "squawk on the street," i'm carl quintanilla with sara eisen, simon hobbs, david faber at the new york stock exchange. cramer is off. futures higher after the best day of the month so far for the major indices on friday. big week ahead with i flags dnf data. china is open after the holiday. europe largely unchanged after draghi says the ecb won't hesitate to act in a crisis. oil is a big story, russia and saudis agree to this production
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freeze. our road map begins with global volatility continuing. jim mcgoggin. >> and apollo and adt are in a deal. >> and the death of supreme court justice ascalia has creatd a firestorm. first up, stock futures jumping sharply. saudi arabia, russia, qatar and venezuela agreeing to freeze output at january levels provide that other major exporters follow suit. crude prices rose off their highs of the morning. some analysts expected an agreement to cut production. that's not exactly what we're talking about now iran on the tape is saying, maybe, we still
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want our piece. >> that's going to be the question, iran and iraq as well who is also ramping up production to get money, it's an expensive fight it has on its hands with isis. that's the big caveat that oil producers will agree. before this announcement, brent crude was up as much as 5%. it's still higher. the bulls would say, at least we're getting diplomacy. this is the first coordinated move that the major producers are doing since the pain began, since the 70% slide. >> on the face of it, it's meaningless. it's no move at all it says we will stay where we are at these record levels if you can get iran and iraq to agree tomorrow. you look at the saudi oil minister, he's saying this is a framework potentially to move forward in the future. saudi and iran, geo politically are at loggerheads with each other. the idea they won't allow iran to come back in and supply what
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they want to supply, they can't to keep everybody at the levels they're at now. >> saudi and russia have been at odds over issues like syria. >> but there's no cut on this announcement. >> freezing production at record levels. >> russia, in fact, sold more oil last year than it ever has. >> it's at a record now. >> they need to because of their budget. as do so many of these countries. including saudi arabia. >> oil is priced in dollars, their costs is in the ruble. the ruble has plunged. it's tight, but not as tight as it might be. >> more broadly as we said, busy week. today quite a bit of fed speak. the philadelphia fed president and the new minneapolis fed president will speak at 10:30. ros rosengrin later on tonight. we'll get housing starts, cpi, ppi this week and the fed
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minutes, which may be the highlight of the week coming tomorrow. >> fed minutes combined with the inflation data on friday, certainly the fed will take center stage. six fed speakers on the docket for this week. for more on the markets and how you should set up for a week like this, the principal of global investors joins us, jim mcgoggin. clearly friday was a bounce. today it looks like that positive follow-through is continuing. do you see this as sort of a bounce from a bear market or actually a turnaround in the direction of stocks? >> i think that clearly things have gotten a lot worse in the last two months with the indebtedness level in emerging markets, the plentiful commodities and the slowdown tensions in europe. i think those problems, however, are overreflect-reflected in th market. the market probably overdid the negativity. this is a fairly natural bounce
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back. i'm skeptical of the oil story. i agree this deal won't hold, and that there really isn't a cartel in oil anymore. i think the oil trade is dangerous. but i would buy u.s. equities on setbacks and focus on domestic earnings. it's the world outlook that got worse. >> yeah. we just got the release from bank of america of a fund manager survey that they did. the big headline is highest cash levels since 2001. 5.6% in cash, investors going for capital preservation into cash utilities, bonds and telecom. does that make you nervous or a sign that the sentiment is getting way too negative and it's been overdone? >> in the u.s. the sentiment is way too negotiate sieve. internationally there's more reason to be negative. i think there is clearly a risk of contagion from the weakness in oil, the weakness in metals. commodity lending. banks have been foolish enough to lend to commodity producers,
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they may have welcoml compromis. i think u.s. banks are highly capitalized that should leave the u.s. market in less trouble. it's a troubled global background. one has to be quite concerned. if i look at many equity markets, such as the european and japanese markets, they're a buy on strength, the u.s. is -- sorry, they're a sell on strength, the u.s. is a buy on setbacks. >> remind us what the levels of assets under management you have there, jim. i remember two things of you always. the huge aum that you have, and the fact that you are usually positive on the equity market here. >> yeah. 370 billion or so. >> right. >> at last count, simon. yeah. i think the fundamentals of u.s.
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equities look really okay. 16 times earnings is not bad given rates lower for longer. basically a low-yield environment. that's why for u.s. equities i have basically a positive tone. and, you know, stay up to weight with your long-term plan. >> there was an article in the journal over the weekend that spoke about how fund managers were guiding down expectations for their clients and saying, hey, it's going to be pretty mediocre five years, all in. then i look at -- on friday, the staff at cnbc called around and got the targets the major 21 houses have for the s&p by year end. they're still talking around 2160 for the end of the year, which is a gain of 15%, 16% from here that would seem to be -- albeit after heavy losses for a month and a half, that would seem to be a decent return for 2016. >> yes, simon, that would be better than decent.
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i think that may be a little high. you know, it's -- even a bit less than that makes it worth buying on setbacks. i would focus on the u.s. domestic economy. if i was to hold cash, it would be much more against the global background. >> jim, we do have gold off of about $25, goldman this week is suggesting shorting the precious metal on the idea that this erosion in policy confidence has been overdone. do you agree? >> i would be pretty cautious on gold. yeah, i do think it has been a bit overdone by the market. you know, for all the natural reasons for nervousness, particularly around the banking system. last week early on was the weekend when contagion, when problems in the banking system was in everyone's mind. that's what really drove the
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markets down globally. i do think that's been overdone. if you look at gold, gold really trades as the interest rates. when people thought rates were going up, gold was weak. when negative interest rates got ahold in the last two, three weeks, you have seen a tick upwards in gold. i think that was probably overdone. i think you are entering into a period where maybe there's no inflation but rates are low and positive. if that's the case, that's not a good background for gold. >> jim, just quickly on this theme of policy, do you think the uncertainty over the election and the rise of anti-establishment candidates like donald trump and bermnie sanders are feeding into the markets, related to that barron's piece over the weekend? >> yeah. i think that -- i think that the market has been kind of ignoring the election until very
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recently. and, you know, it's still fairly early on. there's been only two stages of the whole primary process. it's very uncertain what happens. if you look at the bookmakers, they think the winner will be mrs. clinton, who the markets would view favorably, a sensible policymaker. but there is the potential of a sanders versus trump general election, the markets would find that very unsettling with some of the policy comments made by those avowed popu lilists so it depends on how the nominations fall out. no doubt the markets will pay more attention to the presidential election looking forward. >> jim, thank you. >> thank you, sara. well a big deal to tell you about, leverage buyout in addition. adt is soaring, that's the stock of the electronics security
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affirm after agreeing to be acquired by apollo global management. a little more than 7 billion, that's without adding in debt. once the deal closes, apollo will merge adt with its own protection one home security company. adt shares up 52%. it's a 56% premium. interestingly, apollo contributing 4.5 billion in equity to the deal. a very large equity check being written by apollo, and some of its investors as well who appear to be contributing directly into the deal itself. and, of course, apollo contributing from its large funds that it raises for these deals. koch industries taking a roll here. they're helping to finance the deal, and there will be financing of different debt, and new debt. 1.55 billion new first lien term loan and 3.14 billion in new
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second lien financing. and some others that will remain outstanding. but we have not seen that much new entrants from private equity over the course of what was an extraordinary boom in 2015, led by strategic investors that being the companies themselves that were typically able to pay higher prices than private equity was willing do so, in part because there were synergies available to strategic buyers that are not typically available to private equity. though in this case, they do already own home security business, far smaller than adt. some people may remember adt itself was a part of tyco many years ago, having been broken apart when ed breen ran that company. he's now running dupont, and breaking that one apart as it merges with dow. >> not quite the same way. >> a 40-day go shop which is typical in these deals now when they do a private equity deal that may include management being a part of the potential
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company as it is acquired. we'll see if anybody shows up. given that premium, doesn't seem particularly likely. >> they were a back up here in april of last year. that's reversed the losses. >> when you go back, you can see they're right near what is the 52-week high. the all-time high was higher than that. there was always concern that the cable companies could do this same thing and take business from adt. the latest on the firestorm engulfing washington following the death of justice scalia. and let's look at where we are on futures. coming back from a good day on friday. the biggest gain we had for the month of february. looks like we'll be able to make headwind on that. ♪ they say that in life, we shouldn't sweat the small stuff.
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the death of supreme court justice scalia adding a whole new dimension to the election in november. the court vacancy sparking a battle between the obama administration and republicans. john harwood joins us now.
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john, any indication on when the white house will nominate? >> soon. the president said in due time but he will not rush it. an obama appointment to the court would tip the balance at 4-4. the first is constitutional. president obama says he will exercise his responsibility under the constitution to appoint a justice to replace scalia. mitch mcconnell the senate republican leader says the senate will exercise its constitutional right to not move forward to consent by not affirming this justice. on the campaign trail, republicans appealing to their base in primaries are urging the senate republicans to hold fast, not confirm an obama appointee. hillary clinton for her part sent out a series of tweets last night saying it was disgraceful that republicans would not affirm a justice. she's appealing to her base. finally, it's going to take place on a human level once we get an actual nominee. you can expect the president to nominate somebody who will have
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the broadest possible appeal e forks sri srinivasan, or jane kelly, who is close to chuck grassley who supported her nomination. she was also approved on a unanimous vote. those kinds of appointments would put pressure on the republicans by making them appear unreasonable if they would not approve them going forward having approved them in the past. we'll have to see how this plays out over the course of the election year. >> john, if they do put somebody forward who is unanimously confirmed for a lower post within the judiciary, is it possible they could collect 14, 15 republican votes in the senate to get that through? is that a possibility? >> it's possible. it's not guaranteed, however. we've seen in the past people
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who have been confirmed unanimously in one set of circumstances, not move forward in others. republicans are going to try to make that happen. this is something extremely important to their base of cultural conservatives who think they've been losing at the court for some time. it will be hard for democrats to move republicans off their resistance but not impossible it will determine a lot how it plays out among swing voters. >> okay. >> john harwood in washington, thank you very much. as we enter the second half of the trading month, art cashin will join us with his perspective as we count down to the opening bill. and "sports illustrated" unveiling its swimsuit issue. we will meet two of the cover models live. the market coming off the best day of february so far on friday. hard. wow, that was random. random?
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♪ about eight minutes to the opening bell as we come back from a long weekend. art cashin, director of floor operations with ubs joins us here at post nine. good to see you this morning. >> good morning. >> we were talking about the action on friday. you said the bears got beaten badly. how bad? >> well, pretty badly. the problem was, as good as the action looked on friday, the new highs were at multi-month lows. it may not have been as broad as some of us perceived originally. >> now, we got this report of this agreement to freeze production to january levels.
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how important is that? >> well, if it were effective it would be very important. i have my doubts about it. but we'll see. the market will benefit from oil being up. that correlation continues to work. i think half of the gains we're seeing today are catch up from the holiday. the other half are about oil. so, keep your eye on crude if wti goes negative, i think you'll see some of the bids disappear. >> what about the chinese currency, we saw a big turnaround in that currency. >> that was a major surprise to many people including some of us who thought that they might be looking to deval yue it down th line. let's see how long it lasts. do they allow it to maintain this reasonably high level for a week or two? >> the peoples bank of china governor gave an interview, i don't think he had spoken for
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many months. if he's going to come out and reassure in this way. not necessarily on the dollar. not saying they'll maintain the dollar to the value, but to the new basket of currencies, that could potentially stem the capital flight. i don't know if chinese people believe him. >> you're right. he had not spoken in a while. they wanted to get into the sdr basket for a long time. now that they're in there, i'm sure they'll target that. that's a possibility that they will perhaps maintain the currency. but i think -- >> that would be a major negative remove from the market, wouldn't it? that's one of the four things we stress about. >> you'd have to see how the sdr basket begins to relate. i think there are some assumptions there, it's not frequently used quite yet. so, we'll have to wait and see. >> the note from jpmorgan's trading desk is the vortex of gloom is showing signs of
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fraying. where does that leave resistance? >> it leaves resistance higher up, obviously. i would say probably 15 points, 20 points above where we close. we should be reasonably good. >> art, thank you very much. >> one last point, a shortened exploration week that a sense of hyper volatility. stay -- keep your seat belt on. >> the opening bell five minutes away. i've been called a control freak...
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you're watching "squawk on the street," live from the financial capital of the world. the opening bell in about 90 seconds on this tuesday as we all come back from a long weekend to a busy few days. fed minutes tomorrow. got inflation data this week. housing starts, along with earnings from the like of it mobil t-mobile. >> so far earnings season has
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been unable to stem the red. many people thought that if earnings were good, yes, they're down but not as far down as some would have feared that that would turn the markets around. that hasn't happened. one of the bigger announcements is jamie dimon announcing that he would be buying back more of his stock. we'll look at the open to see if the financials continue to rally. there's also a discussion about whether or not the european central bank would buy nonperforming loans in europe which would help the markets hugely. draghi said no, he won't. there's still a discussion about whether they could do that bundled together as abs. europe actually had a great day yesterday in the absence of the u.s. trade. >> thanks in part to some of its banks. if you look at the general narrative now on the markets, there's a lot of major uncertainties hanging over the markets which are looking better. whether it's the rising chinese currency, calmed fears about the european banking system, the
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draghi comments, earnings may be a bit better and this potential deal over oil. let's get to the opening bell here. at the big board, it's h & r block celebrating the launch of a new brand called block advisers. one signal that it's tax season. at the nasdaq, hasbro celebrating the 60th birthday of play-doh. >> do people still use play-doh? >> yes, people do. they tend to be on the younger side, but i can tell you firsthand, it remains popular. a lot of the stuff to get to this morning. we have adt, but also look at group groupon. alibaba announcing a 5.6% stake which makes it the fourth largest shareholder in groupon. >> it lost 90% of its value since it ipo'd about four years ago. it surged on friday after strong earnings, 29%.
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the groupon momentum continues. another one i'm watching is the big mover in the premarket, hormel. it makes skippy peanut butter, mostly known for its meat brands like spam. this is a stack that does not go down. that flight continues with a 5.5% gain in the opening market. it raised guidance for the year. it recorded better profit numbers. it's doing better thanks to lower input costs thanks to lower commodity prices and getting over the hump of bird flu. this is a stock that was up more than 50% last year, it split its stock. it's one of those consumer staples and defensive names that people can continue to flock to, even with worries about meat and the health benefits or the detriments of that. >> flock to. yes, i like that. with that avian flu -- that crushed enormous amounts of stocks of chickens and the likes. >> they're getting around it. >> they are.
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i wanted to mention community health. the stock is losing a quarter of its value, this after it has been down sharply through much of the year. a hospital operator. reported earnings, yeah, yesterday. so that can kind of show you what they were thinking. maybe we'll get that one by. didn't really work. admissions were down 3.6% from a year earlier. 3.4% on a same facility basis. that is not what people who follow the company will been anticipating. community lost money for the quarter. again, something that was not anticipated. in fact, analysts out there had been looking for 95 cents a share. the loss was 28 cents a share for the quarter. the stock is down, you see, losing about a quarter of its overall value. a few weeks ago, glenn view management, which owns a large percentage of shares, managed to put a couple people on the board. a bit too late to impact what's
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been going on management-wise. there's a downgrade at jeffries this morning. i only note it because they took their price target from 83 to 18. you get a sense to how they changed. they add to their view the fact that trusting management will be challenging in light of recent missteps. that may be the case for many investors. it is having an impact on the broader hospital group, if you will. hca is also down, the largest operator out there. >> want to mention the banks which are doing well at the open. bank of america, morgan stanley, citi all up about 3%, 3.5%. we spoke about the good performance from the good financials on friday led by jpmorgan after jamie dimon said he would buy back more of his own stock, a year's salary there. there's a whole discussion about what is going on in europe and a suggestion from some banks that maybe you could have the bank of italy move in on its own
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volition, independent of the european central bank and do something with nonperforming loans within europe or italy. and then a discussion about whether some of these could be bundled up in a way that they could come under the ecb's existing qe meeting. that meeting march 10th to look at that. that could ease some of the general. in general, major banks in europe are lower. a question of whether or not you've overdone the fears of recession in this country. if you believe you have overdone those fears of recession, you start creeping back from that market expectation of zero rate rises from fed this year which is what we had in the middle of this last week to where goldmans is. they belief there will be three rate rises. goldman's will suggest that you should short gold on the basis that some of the pessimism has been overdone. they obviously feel that the situation here and around thes rest of the world is not as bad as many people feared.
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>> freeport-mcmoran a leader in oil and gas, has been moving up because gold has been bouncing. they announced the sale of 13% of a mine that they own in the arizo arizona/new mexico boder areard and they're getting a million dollars for it. trying to reduce a $20 million debt load there. carl icahn is on the board. they have committed to that. your friend, mr. moffett has been out for a while now. >> i respect a good geologist. >> i know you do up almost 12% on the debt reduction, this 13% stake which would seem to val ute mine at a high number. >> what about some of these hedge funds getting into energy
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shares. david tepper buying some of the mines. energy transfer partners, he has a stake in kinder morgan. looks like appalossa has 12% of its u.s. public equity stakes in energy. >> freeport one of those names. >> freeport's gains for the month now coming in on 35% month to date. as we said last week, some of these long-beaten energy names are getting some interest. >> as we said, they benefited from the mining side of the business, certainly on cold and copper. a year ago a lot of guys moved in to energy thinking there had been a bottom. private equity tried to make some investments as well. there was some chasing going on there. it didn't work out well, as we know. we'll see whether this time they are closer to a bottom. >> there was a report over the weekend saying a third of the oil producers in this country are at higher risk of slipping into bankruptcy this year, citing some debt problems, the
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fact they'll have trouble servicing their debt. they're looking at 500 public companies. they said the companies at risk have more than $150 billion in debt. some more doom and gloom. >> i think that was worldwide survey. it was very much about liquidity. some of the hedges they have on oil in order to raise cash, that's how bad the situation is. as i said, it's a liquidity concern. >> the banks are reviewing those lines regularly. and the liquidity available to them becomes less and less. >> the "new york times" says 60 have gone under already. >> i know. a lot of smaller names that we may not be familiar with. >> they also said 95% of oil firms can be profitable or produce crude for less than $15 a barrel, which i thought sounded very load. that was a bit of a silver lining. >> i wanted to mention shares of qualcomm, jana, the fairly large activist fund that a year ago
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owned a significant position in qualcomm. last april i was joined by barry rosenstein for an interview where they discussed that position. 29 million shares at the time. they were wanting a review to split the business, which they did, and chose not to do. qualcomm shares over the year have been nothing short of a disaster in many ways. they're up 3% now, but jana not a large share holder. had been the fifth largest shareholder, now down to 9.2 million shares. they're not going to figure prominently in the future of that company. taking their losses and going home. >> though bernstein today upgrading qualcomm to outperform. finally, did you see yahoo. made a couple of headlines today. dow is up 145, led by home depot and goldman.
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bob pisani is on the floor. >> the gains have held up pretty well. i want to put up a chart of the s&p, carl. since thursday, the bottom on thursday, we were at 1812, 1813, we heard allegedly from the uae oil ministers saying they were trying to work on a deal on production. the market turned around since then. we're talking 70 points, 1812, 1813, that's a remarkable move in 2 1/2 days. and we could have gone down earlier this morning as oil dropped. the market didn't really drop even though oil came down. financials are leading. they were among the most beaten up groups. consumer discretionary, utilities which were the market leader are the market laggard. you can't have utilities going up if other sectors are going up as well. it doesn't work that way. overseas, china rallied on some fairly decent economic news. japan's nikkei went from 15,000 to 16,000 in two trading sessions, quite a move up. fractionally up in the last one here. europe has been mixed.
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i'll tell you about the banks. deutsche bank down 5% about an hour and a half ago. israelied back. almost went positive. it's a bit down now in the last few minutes. societe generale turning around as well. the talk of the three things bothering the markets, there's been a lot of talk about it. concerns on oil, you have this announcement of the russian/saudi production freeze. concerns in china about weak growth and currency devaluation. they announce record loans in january. and the pboc governor over there defended the renminbi saying there would be no sudden devaluation. that has helped the markets. over in europe, the concern about bad loans, concerns that the ecb may be buying bad loans. draghi said he would not threat
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t hesitate to move. look at the effect on stocks. freeport, iron ore has bounced 7%. copper up 5% in the last two or three days. freeport was, what, you tell me, freeport was $4.60 on thursday. it's now $6.00. do the moth ath on that. financials have turned around. citi was 34.50 or so on thursday. it's now approaching $39. that's up almost 12%. so, big turnarounds in some of the big names there. we asked our friends at kenshow how good are the markets at predicting a recession? we asked them, they noted seven times the market has dropped more than 10% when gdp growth is positive. that's the condition. only one in seven times, in 1990, was there actually a recession that owe kurd.
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the s&p is higher 100% of the time six months later all seven times this happened. the average gain has been 21%, excluding 2008. the bottom line is the markets are not good at predicting a recession. there is the evidence for that. s&p is holding up, up about 20 points. guys, back to you. >> during that time we were falling because of greece or whatever else europe was throwing at us. bob, thank you very much. let's send it over to bertha for an update on the nasdaq. >> the surge here at the nasdaq led by big cap tech. chips are strong. there's a risk on appetite with biotechs as well leading the way higher. apple, of course, among the bigge biggest lifts in terms of point impact to the upside. with apple and a number of these big cap tech names, there's an asian theme. apple this week will launch apple pay in china. that's the fifth market. still a lot of stiff competition there. that certainly is a major expansion.
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you look at some of the momentum names, they're getting a bit of love in this risk-on environment. apple, amazon also extending its payment system into india, acquiring an india payment firm. amazon one of the big lifts as well in terms of point impact. groupon, you mentioned earlier, getting an investment from alibaba which has bought nearly 33 million shares. alibaba has bought shares in a number of other e-commerce sites as well, like but that certainly is giving groupon a lift today. chinese stocks overall as asia reopens fully after the lunar holiday today, are leading the way higher. back to you guys. >> bertha, thank you. on to oil prices that big announcement overnight, jackie deangelis has that. >> prices see-sawing a bit. hugging the flat line, under $30 a barrel. $31.50 intraday was the high what do we make of the headlines that the russians, saudi arabia
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and other opec members have agreed to an output freeze? we don't make much of it. at the end of the day the big producers are at or near record production levels. this may be a step in the right direction, but we have not heard anything from the iranians or the iraqis here. they're sort of the swing producers within opec now. the saudi arabians are not going to lose market share and allow those two countries to take a little bit of ground away from them. an output freeze may be a good thing for the time being. still probably not going to help the fact that we've got an oil glut in the marketplace. we've been hearing for month that's saudis and opec members would be willing to talk to everybody to coordinate an effort here. also absent are the u.s. players. we are flat lining, 9 million barrels of production a day. despite the fact that 28 more oil rigs came offline last week. this is a headline to think about. it's sending us into positive and negative territory, not a
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game changer in the long run unless we hear something more significant. carl? >> jackie deangelis at the nymex, thanks. when we come back, the road ahead for oil stocks and whether the worst is over for the biggest names in that sector. and later, we'll talk live with two of the "sports illustrated" swimsuit edition cover models. we're back in a minute. opportunities aren't always obvious. sometimes they just drop in. cme group can help you navigate risks and capture opportunities. we enable you to reach global markets and drive forward with broader possibilities. cme group: how the world advances. weyoung company around but if we want to keep the soda pop flowing we need fresh ideas! >>got it. we slow, we die. >>what about cashing out? no! i'm trying to build something here.
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♪ gains in oil earlier in the session have dissipated. that's on news that russia, saudi arabia, qatar and venezuela agreed to freeze output at their existing record levels, provided everyone else can do a deal with iran and iraq tomorrow. paul sanke joins us from wolf research. good morning. >> hi. >> this seems almost meaningless as they cast it at the moment because presumably tomorrow iran will say we're not going freeze at levels we're at, they're just
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coming back into the market. but in your note you say this is in play for the future now? >> yeah, because we have an agreement between the saudis and russia, they're not friends, but the fact that they're agreeing is a positive. we started with a good opec meeting in december where they agreed what the current levels of production are. now they added russia, but there's still the big one which is iran and iraq, who we see as one new oil superpower. iran and southern iraq is the shiite block. that's the one we're waiting for. >> do you think they could meaningful cut oil further down the line? >> it's totally dependent on iran if iran decides they're ready and have enough market share, we could get to a situation where you solve the oil situation quickly. >> how much could they come back online? they're in the early days with that. >> they signed a couple days in europe, priced in euro, which is a big deal. they added about 300,000 barrels
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a day at a headline level. they used to sell a lot to india. we're waiting to hear what they do with india and the chinese. we think they'll add 600,000, 700,000 barrels a day. >> even this preliminary agreement, the saudi oil minister did say should stabilize the oil market. will it? >> well, we don't think the oil market is as oversupplied as data suggests, but we see it a million barrels a day oversupply. that's seasonal. by mid year this would be kind of a balanced market. the problem is we still have another half year of a million barrels a day too much oil at a point where inventories are already full. it remains a market under significant pressure. >> if one of your clients came to you and said should i cover my oil here, what would i say to them? >> could be scary, because you could wake up on a tuesday morning and find out saudi has
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an agreement with russia. i think that we would be -- if you look at the long cycle, we're clearly at the bottom of the cycle. our view is relatively positive still. basically because the big thing, which is demand, reacted to low prices. if demand had not reacted, i wouldn't say how low oil can stay. the fact that we had better demand at low prices tells me this will rationalize, and on a three-year view you should not be short. >> trying to imagine the scenario under which iran says we have enough market share. that doesn't sound likely. >> you know, if unicorns exist -- no, i think -- everything they've said is that we got to take back our level of production to pre-sanction levels, which is a million barrels a day higher than today. i don't know why given their relations with the saudis they would say, okay, you win. >> what's the view on oil stocks now? >> oil stocks are in all sorts of trouble. sub $30 a barrel. bankruptcy is the theme in our
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analysis. we're talking about who is going bankrupt who will survive. that's the only stocks we recommend are the ones that we think can make it through this. which would be what? >> pioneer, heavily hedged for this year. anything with balance sheet are the bigger names we cover. we like oxi. almost everything else is in significant trouble, even exxonmobil at these prices. >> in trouble what does that mean? >> for exxon, it's a credit rating question. for smaller guys, bk, chapter 11. this is how bad it is. we've seen a lot of dividend cuts starting to come through. you expect that to continue? >> our analogy at these prices, you have a landslide of the whole industry slipping down the slope. exxon's cracking at the top of the hill, stuff is just going straight into the water. we almost daily expect to see chapter 11 bankruptcies now. >> paul, great to see you. >> thank you. >> paul sankey joining us there.
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when we return, could the market be forming a credible bottom? michael santoli will break it down.
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here's question, should investors believe in the bounce?
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our senior markets commentator michael santoli has a look at what the signals are saying. good morning. >> good morning. >> you did say this morning that fear is rally fuel. there's a lot in the tank. >> yes. there's plenty out there. you can measure it in many different ways. individual investors, business investors have been nervous because the market has given them reason for that. a lot of the sentiment cues are lined up to say we should have a better than average rally off this when luke at how deeply bearish people have gotten and some of the other stretch technical indicators. fund flows. investors have fleed equity funds. 10 of 11 weeks, even around the '09 lows you didn't see that. last week you had pretty good evidence that you had a buying panic in safe havens like gold, and treasuries. all those things being said, i think there's a high burden of proof this year on rallies. in other words, you had a number of these 2%, 3%, 4% pops, they were unimpressive, didn't last
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long, and to be candid they looked like bear market bounces. we have to see if right now we have a better shot at something more lasting. >> last year the story was get a 90/10 down day, you can bet you'll make money over the coming weeks. what's a good rule now. >> there's not a great one. you know, on friday a lot of people quibbled that it was not a 90% update. we didn't have 90% of the volume in advancing stocks. i think i like that. i like people looking for reasons to feel as if the rallies are fake or mechanical. that being said, we got down to this 1800-ish level a couple times in the s&p 500. you bounced off it. is that a good thing? we got to that level for the first time in december of 2013. so it's well over two years. one thing that changes this dynamic is that we've been doing this for six months. we had the correction in august. here we are almost six months later and still knocking around that zone. >> mike, thank you very much. >> you got it. when we come back, breaking news on housing. dow is up 96 points. the future belongs to the fast.
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good tuesday morning. welcome back to "squawk on the street," i'm carl quintanilla with sara eisen, simon hobbs, david faber at the new york stock exchange. markets trying to hold on to gains to the tune of about 110 points. watching oil closely. now some breaking news on home builder sentiment. let's get to diana olick in washington. >> home builder sentiment took hit in february, down 3 points to 58. january was revised up by 1 point. the street was looking for 60. 50 is the line between positive and negative on this index, we're still in the positive. builders are citing high cost for land and labor. we know the labor problem is getting worse as construction ramps up, lots of job openings. when you look at the indexes three components, there's more to it than that, like weaker demand from buyers, current sales conditions fell three points to 65. buyer traffic dropped off five points, that's the only one in negative territory. sales expectations over the next six months did eke out a one-point gain to 65.
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you would think it would move higher give than we are right at the start of the spring/summer housing season which is traditionally the strongest season. there was no mention of weather in the report. i do expect we'll hear a lot of that when we get the january housing starts tomorrow morning at 8:30 a.m. back to you. >> thank you very much, diana. down at the new york stock exchange, up 110 points on the dow. stocks moving higher today. you are coming off what was a really decent day on friday as well. rich, if we are able to get stability here for a few days and the selling appears less relentless, do you think that could change expectations for the year? >> everything is data dependent. as oil goes, so goes the equity. sam stovall, our equity strategist mentioned there's a 66% positive correlation between the direction of oil prices and
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direction of equities. we see today a move in energy translated to a positive move in stocks. >> it's got to be more than that, though, hasn't it? you know, those are not -- that's only one of the nightmares that stalks us. >> also, just the valuation. the fact we've been driven down so low, 9% on the s&p year to date. earnings have sort of stabilized. a month ago at this time we were looking for a negative 0.1% showing on the s&p 500 for the fourth quarter, now we're positive 1.6% ex energy for the fourth quarter. in aggregate, we are not going to see a positive year over year quarterly performance for earnings until the third quarter of 2016. the fact is we're seeing some improvement. >> has your pessimism about the economy abated? >> no. we have nominal growth that's under 3%, q4 over q4. and in that kind of world you will not grow corporate profits
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much. people are focused on the labor market which is a backward looking indicator. companies hire people, it's hard to find people, as they did that, the bottom dropped out, especially in manufacturing. i'm concerned that we will continue to slow. >> how do you explain what we saw friday, the stronger retail sales number and a 4.9% unemployment rate? >> the retail sales number, the last three months are up 3% annualized, whether you look at the control number on friday or the headline. that's not a particularly good number, especially given how low energy costs are. >> it's not delining. >> and how much job growth we've had. >> it's not declinindeclining, . >> no, but there are plenty of downturns where the consumer is positive. we don't need the consumer to be negative for the economy go into recession or for equities to fall 30%. >> we had some argue to see a true recession you have to see the -- >> that's patently wrong. >> is the economy not two-thirds
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consumer? >> if you have a deep downturn in like in '08 and '09, but the 2001 recession, consumer spending was positive. 1990, '91 remained positive. the notion that the consumer has to be negative is a falsehood. >> you're worried about the pull back. last week, we heard about that as a possibility from cisco. which reported a great quarter. >> sure. >> but on the call, chuck robbins said we started to see a little concern amongst some of our clients in terms of new orders. >> david, i'm not saying there's a recession. i think the probability is higher than people believe. i'm worried about when you have an economy growing as feebly as it s as long as in the business cycle as it has been, and it's driven by one sector, meaning the consumer, we are more prone or apartment to get hid by negative shock. whatever that is remains to be
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seen. whether that's china, further dollar appreciation. we are at that point in the cycle where one has to be nervous and defensive. >> rich, people listen to joe and he makes his case well. he's an eloquent man. how do we weight that against what goldman is saying, they're saying now is the time to short gold. we think there will be three interest rate rises from fed this year. what is happening in europe is systemic, and david kostin saying the markets could rise 12% 13% from here. that's a strong case they make. >> the pessimist and the bears combine a multiple group of statistics that can augment their case, but if you look at m&a activity, while it's down year over year, the pattern has been robust. today we had the biggest private equity acquisition in terms of $10 billion plus acquisition by apollo global buying adt. now, again, we look at the economy mostly service driven economy. the fact that the industrial sector, manufacturing sector may
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be hit by the current down trend in oil prices, i think that would be short-lived. at one point this could be a recovery at the back end of 2016, perhaps 2017. >> joe, the question i have, given your sort of doomy scenario for the u.s. economy s it already baked into the stock market? >> no. >> for so many weeks we were looking at the stock market saying it's way too pessimistic. >> i don't think it is. if you look at high yield credit spreads they typically led in each of the last three downturns, we're at levels in the past where we had recession. when you look at market price signals, whether it's sensitive materials prices, high yield spreads, whether it's the sectors within equities, broadly speaking, consumer, discretionary, financials, or the slope of the yield curve, every market is basically telling you there's a growth market. every single market. that's why if we're looking for data and we're data dependent, whatever that means, the problem is by the time the data confirm
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it, the equity has already bottomed. >> rich, on that note, where is the opportunity? a lot of people are excited to see the market fall if they're sitting on cash and the bank of america survey suggests that big fund managers are sitting on cash in excess of 5%. where is the opportunity here? where will it be in your view? >> referencing my colleague, sam stovall, he made favorable comments regarding the information technology sector and some aspects of financials, but just looking at earnings growth, go back the start of the earnings season, i think seven out of ten sektde esekts sector expects negative growth now it's five. >> rich peterson and joe lavorne joining us. >> thank you, simon. well, rich mentioned the adt
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deal. and he does track m&a. it is certainly one of the largest we've seen in quite some time in terms of private equity. it is sending shares of adt up sharply. apollo agreeing to acquire that company for $42 a share in cash. assuming debt and issuing new debt. interestingly, also helping to fund the transaction by issuing $750 million in a preferred security to koch industries, to their investment arm, and new financing coming in. most impressive, if you want to consider it that, is the $4.5 billion equity check they're writing, apollo, as part of the deal. there was a time when we saw leverage ratios far higher than on this deal. adt getting around the 52-week high in the stock, not the all-time high but the 52-week high. they had a number of not particularly strong quarters since being spun off from tyco a few years back. overall concern about whether cable companies and the like would actually start to take
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market share in terms of their able to offer home security products off the cable system that was connected into the home. it's proved stickier than that. apollo will combine it with a smaller effort it already has in home security and creating what it hopes will certainly be one of the dominated pnt providers that product in one of the larger lbos that we've seen in a long time. not a precursor to more of that kind of activity which has been absent -- largely absent during that incredible m&a boom we saw over the last year and a half, two years. this year, sara, it looks like it will be slower when it comes to m&a. looking at the broader markets, gains are fading. the dow is up 73. it was up more than 170 at the high. up next, asian stock markets ended the day in the green. should investors brace for more volatility there? and tomorrow, jim cramer
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chinese markets gaining more than 4% today. the yuan hitting the strongest level this year against the u.s. dollar yesterday.
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joining us is china expert john rutledge, chief investment strategist joining us from out west. good to see you again. >> good morning. great to be here. >> i was struck by this story in the times over the weekend about people strapping cash to their bodies in china and trying to get it out of country. sounds like you think capital flight is the story to watch? >> absolutely. this is not a story about china slowing, though that's happening. it's a story about first westerners pulling money out of china, that was the rising rate, fed, hedge fund story. now it's the internal chinese moving money out. in part it's because the government reacted in such a repressive way to the stock market drop last spring. and, you know, putting speculators in jail is not a good way to support the markets long-term. now hong kong is the off-shore market for the renminbi, now you can see a market price to compare against the official one.
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the up in the renminbi is artificial and caused by the peoples bank of china. this is not a real -- it's not a sustainable move. so i think right now getting out of dodge is the biggest thing on the minds of rich guys in china. >> then you have the added wrinkle of their policies are so new, right? in some cases such an experiment that whether it's a trading halt or capital controls, we really don't have a good sense of what the next move might be. >> no. and unfortunately they don't internally either. the big rout in january started one week before the six-month ban on selling imposed last spring was due to expire. that selling ban along with other restrictions really gave investors in china a signal that this government is different from the last one. so this is about a government that fears for internal stability that is trying to clamp down. the mindset on the current government is central control,
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command and control. it's quite a different government than the previous one. and that has really surprised people. basically back sliding on democratic reforms and free market reforms. both of which surprise people and are saying, hey, let's put some money in a safer place. whether it's a condo in vancouver, a ranch in australia, something in new york or san francisco, they want to get out of town. >> back to the real economy, john. also got some disappointing trade numbers out of china double digit declines in imparts a imports and exports. do they have the tools to deal with that, especially when imports should be growing, not declining 19%. >> the import number was a big surprise. normally the way you -- the way you sneak cash out of the country is you overinvoice imports, which means you import something that costs $1, and you pay $2 for it to your other company abroad, and that way you park the money overseas.
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so the fact that imports fell says that the chinese consumer is puckering up following the stock market drop. much faster than whatever this capital fight is doing to that import number. the export number falling is not surprising. moving money out means shipping something to hong kong and under-invoicing it. regarding tools, the biggest tool they used recently is flooding the market with cash before the national holiday. this week they're sopping up about $100 billion a day with open market operations. we'll see whether that spikes the interest rates again like it did last fall. >> john, of course the most important question is potential spillover effects. if a worst case happens in china, how much of the rest of the world is affected and why? >> i think that what we're seeing is sometimes capital flight actually brings money into you if you're the other
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place. so, canada is having no trouble attracting capital right now. neither is the u.s. but a genuine slow down in china that effects the commodity markets and energy markets longer term, even more than we've seen would be a problem. interestingly we've been able to see the oil market firm up here. now we've got saudi and russia saying things, iraq saying they'll cooperate. we may be seeing a firming there in the energy crisis. if we did, and if china doesn't weaken further, we should see okay commodity markets. in china it's not just the slowing, it's a change in the mix. more consumer spending, less capital spending. the government has most control over capital spending. if they needed to, they could build a few more subways or a few more highways. the consumer is what i'm worried about now because consumer income is growing 8%, 10% year that supported this economy in the last two years if that
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slowed down, then would have a serious problem. >> yeah, it's a big ship to turn. john, always good to get your take on it. we'll talk to you soon. john rutledge joining us. >> thank you. coming up, sharp gains earlier in oil have been erased, but saudi and russia are talking, albeit without iran so far. where next for oil? more when "squawk on the street" returns. . 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 you need in one place and lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim. td ameritrade.
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oil has erased earlier gains, it's trading lower by 1%. jackie deangelis has the story. >> good morning. we're trading around $29 right now and struggling here after a little bit of a pop higher on those headlines that the russians and the saudi arabians have agreed to an output freeze. to get more context and insight on where oil prices are going and what the headlines mean, we're bringing in jeff grossman. the headline this morning initially sending us higher. now we're lower. people saying this probably won't have much of an impact. >> won't have a huge amount of impact. we have a market that's under tremendous pressure. the overall perception is
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they're getting their act together and pairing back on production. it's a sign for the upside of the market. >> without iraq and iran agreeing to this output freeze at all, the saudi arabians are probably going to be hesitant to cut production in the future, right? >> these are not the days of teddy roosevelt and william taft when we had oil monopolies. these are global markets. there are many players here. each will be fighting for market share. that's a perfect example, iran and iraq are wild cards. >> all things aside, you agree we're in a situation where we are in a supply glut, nothing on the demand side to indicate that will balance? >> absolutely. trends change, now everyone is freer with gasoline, a bit more on the thermostats. so the overall trend may be for consumption. that will take a while to hit the market. i think the overall trend would be for more usage. >> what about on the u.s. side? we're seeing the numbers stabilize a bit, flat line, but
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not going down as fast as people thought. >> that's correct. i don't know how to look at that on a long-term basis right now. so, again, i will sit back and see how that comes in. i have a feeling we'll see a movement in those numbers sooner rather than later. >> on friday, oil had its best one-day move in seven years, a 12% pop in price. we're lower again today. how do you trade the volatility? >> very carefully. again, this market is just absorbing some of that move that we took on friday. again, that was extreme move, usually markets do not go in a straight line. settling back here and digesting these numbers makes perfect sense. >> the dollar had a move to the down side, trading around 96 at this point. some people are expecting the dollar to decrease from here, get weaker. that would be supportive of prices? >> absolutely. a weaker dollar is supportive of prices. again, we'll see how much that carries now. we have come off a few basis points here. now we'll see where we come in
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the next couple of weeks as far as the dollar. that will impact on the price for sure. >> jeff grossman, thank you very much. carl, back over to you. >> jackie, thank you very much. straight ahead, financials still the worst performing sector this year, down 14%. what should you be doing with those stocks? more on that after the break. this just got interesting. why pause to take a pill? or stop to find a bathroom? cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex do not take cialis if you take nitrates for chest pain, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. do not drink alcohol in excess. side effects may include headache, upset stomach, delayed backache or muscle ache. to avoid long-term injury, get medical help right away for an erection lasting more than four hours. if you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction,
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i'm sharon epperson. iraqi officials say three americans who were abducted in baghdad last month have been freed. they say they are in good health and there have been -- they have been handed over to the u.s. embassy. they were freed by the iraqi intelligence service. top u.s. officials will travel to havana today to restore airline service between the u.s. and cuba for the first time in more than 50 years. the transportation department expects to decide in the summer which airlines will fly from which u.s. cities to havana. two suspects made their first appearance at a military court after conducting a bangkok bombing last year. and north korea is airing video of kim jong-un and his wife watching a cob certificate to celebrate the north's recent rocket launch. the concert was held february 13th for those involved in the launch. and that's our cnbc news update. back to you. >> looks like a lot of fun.
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thank you very much. watching financials today, still the worst performing sector of the year. citigroup, bank of america up about 2%. joining us is jim senegal. do you think the financials are bottoming here. >> it's hard to say if they're bottoming but they are cheap at this point. we've seen over the last couple of months investors seem to have gone from looking forward to rates going back to normal to really fearful of a long-term deflationary japanese type environment. and the banks have just gotten really cheap on any measure, whether it's book value, price attorneys, they're looking good here to us. >> unless you think we're going into recession. >> yeah. that's exactly right. i think this year, it's hard to say. could six months from now be tougher than now? could capital markets, businesses have a tougher time? yes. looking out further than that,
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prospects are very good for the u.s. banks. much different situation from 2009. i think the memories there are still fresh in investors minds. >> there are some people sxward what's happening internationally. of those names which offer the best value? >> we like citigroup and bank of america right now. it seems like investors have moved from more defensive positions, wells fargo, jpmorgan, higher quality banks, not quite as cheap. citigroup and bank of america look attractive. one thing people forget is both of those banks are levered to the u.s. housing market. roughly 10% of expenses at each of them related to housing assets. we expect a dramatic improvement in housing over the next couple of years. we think that's great for the banks, great for the consumer, great for interest rates. >> what if oil doesn't stabilize here, jim? how exposed are they? do you think investors have a clear understanding of the link
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between energy and the big banks? >> i don't think that's the case. i think fears are overblown. when you look at oil exposure, energy exposure, it's in the range of $25 billion at each of the major banks. these are banks with 100, $150 billion in equity. it's hard to see losses, even in a worst case, getting to the point where they could damage the bank's solvency. people are look at energy as much like housing, but it's completely different. the exposures are much smaller, the secondary effects of a collapsing energy market are nowhere near as big as the effects of a collapsing housing market. >> the other fear is the federal reserve not tightening interest rates as was expected do this year. if they do not, is that already baked in in terms of the profit picture of the big banks? >> i think you're right. i think that's the biggest risk facing banks. we're looking at a global deflationary environment right now. china was driving a lot of growth.
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that slowed down. europe is perhaps falling into recession again. the u.s. is the only market holding up reasonably well. but i think you're right in saying a lot of that is priced in. if you look at current earnings, what they're making in a low rate environment, the price attorneys multiple is not bad. reducing expenses and the prospect of higher rates going forward makes the banks a good buy. >> you know, jim, at some point the business cycle will turn down. if you looked at it over the course of the cycle, would you still buy the bank now or would you say if i got a longer term horizon of five years they'll be much cheaper arguably two years down the line? >> that's a great question. it's a good reason for not going all in at this point. it's possible the turn in the cycle is imminent. the one area we've seen really aggressive behavior by the banks is on the corporate side, cni loans. if those start to turn as it
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seems to be happening with energy, could be the start of a downturn in earnings. you could see a scenario where rates stay low for the next year, credit starts to turn, and capital market businesses obviously would take a hit. you know, it's hard to know how the banks would react, it's worth giving some room to average down. >> jim, neel kashkari says we should give serious consideration of breaking up large banks into smaller, less important entities and turn large banks into public utilities by forcing them to hold so much capital that they virtually can't fail. where does policy risk fit in all of this? >> i believe it's a risk. i would say the risk of a bank being broken up at this point is not that high. that sort of thing would hurt any business alliance where there's synergies between businesses. a lot of people would say that's a positive. banks would get higher multiples, hold less capital and they would be more profitable. as far as banks as utilities,
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we've gone a long way in that direction already. if you look at returns on equity, the banks are not going to be able to earn the returns on equity they have seen in the past. even a fair return on equity, a utility utility r.o.e. of 10%, the banks look attractive. >> thanks for joining us. jim sinegal joining us. the death of supreme court justice scalia adding a new issue to the election year. the obama administration and senate republicans battling over that vacancy. john harwood is in d.c. with the latest. >> carl, this is a charged appointment process because antonin scalia was the fifth conservative vote on the court. now that he's gone, it's a 4-4 tie this will tip the balance. it's taking place on three different levels. once is constitutional. president obama says he will exercise his responsibility under the constitution to nominate someone to the court. the senate, of course, has the obligation to advise and
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consent. and mitch mcconnell says he will use his constitutional authority not to act, to delay and wait until the next president. republican presidential candidates who debated over the weekend, they are pushing mcconnell to hold firm on this. they're saying while they appeal to their base, that no liberal justice should be confirmed by this united states senate. on the other side democrats are saying, no, the senate should go ahead. hillary clinton said it's disgraceful not to do so. the other level is the human level. you have justice scalia gone. someone else will be put forward as a nominee. and that will make it potentially difficult for the senate to say we're not going to think about that person. one possibility is sri srinivasan, on the d.c. appeals court. confirmed unanimously by this senate a couple years ago. then you also have jane kelly, who was an iowan, who was backed strongly by senate judiciary chairman chuck grassley of iowa
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also confirmed unanimously by the senate. that's another possibility. and an influential blogger on the supreme court has suggested a third possibility, loretta lynch, just confirmed by the senate to be the attorney general, recently vetted. that could be also a route for the president to have a quick choice and one that would be more difficult for the senate to say no to. >> we'll see where that leaves us, john. starbucks ceo, howard schultz, never one to shy away from social issues, weighing in on the state of american politics. the company releasing a video of a recent company meeting this is shultz addressing a room full of starbucks employees. >> i don't look up and see in washington the last 10, 15 years a lot of people who have been elected who were walking in the shoes of the american people. and then during this specific presidential cycle, i think it's turned into something that none of us have ever seen before. which i would label as almost a
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circus of yelling, of bombastic attacks, of a lack of respect, a lack of dignity. and we are talking about the highest office in the land and the most powerful person in the world. there is a level of discourse that should be respectful. we should look at those people and say those are the people we would like our children to model behavior after. >> he went on to say he thinks higher voter turnout will help the political process. for a while he was encouraged to run. wrote an op-ed about why he was not going to do that. >> you wonder why he's talk about it again now that's the disparity here. with business leaders, and folks in the economy on one side, worried about who is leading, but donald trump is still 20 points ahead in the south carolina primaries. the people get what the people want. it's partly a byproduct of the -- i'm a foreigner, but it's a byproduct of the primary
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process and the anger that people feel within the parties. donald trump is able to cut through with the way he uses television. >> it's interesting to see it goes into economic populism, beyond just regular politics. >> maybe bloomberg will run. >> maybe. it's something we can talk about. up next, we have u.s. secretary of commerce penny pritzker weighing in on the state of the global economy. how u.s. businesses are affected by asia. "squawk on the street" will be right back. can a business have a mind?
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a subconscious. a knack for predicting the future. reflexes faster than the speed of thought. can a business have a spirit? can a business have a soul? can a business be...alive?
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welcome back to "squawk on the street." markets are trading higher thanks to a rally in some of this year's most beaten up sectors. consumer discretionary, healthcare, tech and financials up around 1% or more. lifting the discretionary sector, signet jewelers. so far this year consumer discretionary is the second worst performing sector after finals. consumer discretionary a part of today's market narrative. >> dom, thank. global leaders from southeast asia and allied countries are meeting with president obama today. they're talking trade, the economy, china's military aspirations and much more. from the asean conference in california is penny pritzker, u.s. secretary of commerce. good to see you again. >> thanks for having me. >> i'm curious what the
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president is telling some of these leaders on tpp, the major asian trade pact, which is critical in his administration, but faces an uphill climb when it comes to getting passage from congress. >> well, the summit that we have going here is really interesting. as you know, the president, since he came into office, has been focused on increasing our relations throughout asia. and so there's been lots of discussion of many topics. tpp being just one of them. tpp being a framework for cooperation. so, one of the things the president announced yesterday at the summit was we're going to be doing sort of trade engagement with the countries throughout asean that are not part of tpp, so they can better understand how they could meet the standards, the high standards of the tpp agreement. each of the countries is talking about how they're going to get the various laws and
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ratification necessary for tpp to come into operation. nobody is worried about it. everybody knows how beneficial it will be to the united states as well as to each of the countries as part of the tpp agreemen agreement. >> the disputed islands in the south china sea are part of the conversation. china is not a part of asean. how much is it factoring into conversations today and yesterday? >> china is not the topic of conversation on the economic side what we've been talking about is there's a real concern because the global slowdown as to how can countries grow their small and medium sized enterprises. so the real focus of the conversation yesterday from an economic standpoint was innovation and entrepreneurship and how these countries can set the conditions to grow innovation and entrepreneurship. and their need for strong rule of law. their need to increase their
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research and development. the need for intellectual property protections. as one leader said, we need to have a culture that accepts failure. in order to have innovation t has to be okay to fail. they also are interested in what kind of conditions or policies they should be passing to attract more venture capital. the president invited three global u.s. ceos to come in and talk with the leaders. the ceos from ibm, sysco and microsoft. and they really talked about the kind of policies that are necessary in order to have an environment where there's both economic growth and where the digital economy can be growing in each of the ten countries. and this was all connected back to a strong digital platform and potential economy as one that allows small and medium sized enterprises to grow. what was so exciting about this, this is really commercial
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diplomacy at work. this is where american businesses standing side by side with the american government can work with other countries on policies that if adopted can lead to greater global growth both for the asean countries and the united states economy. it was a very constructive conversation. >> on that note, i wonder if you're hearing concern expressed on the part of some of our allies and trade partners about what's happening on the campaign trail. senator bernie sanders saying america's trade policies have been disastrous. he has not voted for any of them. on the other side donald trump calling for potentially 45% tariffs on imported goods from china. are they worried about our trade policies? >> the leaders did not express concern about campaign rhetoric. what they did express that was really interesting is a real respect for the president for having had a steady hand on our economy that is -- and what they
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see is that we've had job growth for the last 71 months, we've had wage growth of over 2.5% in the last year. that our unemployment is down to 4.9%. and they wanted to understand what can they be doing to have the same kind of steady economic picture and opportunity for their own people. >> so, is trump wrong when he says that china and japan and mexico are stealing u.s. jobs? >> i think that trade -- you know, mexico being, i think, our second largest trading partner, we build and create things together. it only strengthens the north american platform as a place to make things, which is really important part of our economic growth. so, i disagree with that position. and think that trade is absolutely imperative for the growth of the american economy and the growth for american
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jobs. >> and just generally, you have such a good handle on american business, what would you say is the confidence level right now for ceos, for big business towards investing and hiring in this global economic environment which has been pretty tough. >> well, you know, obviously global american companies are looking at a global slowdown. they're trying to adjust to that. but they're also seeing strong retail, strong housing growth, the consumer's in a good position. so we're looking at an economy that really has some aspects, say, oil and gas, which is both that sector's hurting from business standpoint but also creating a benefit for the consumer, or the strong dollar, which is a real vote of confidence by the world that the united states is a secure place to invest. whether that's having a negative
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effect on manufacturers who are exporting. so, you really have to think about our economy as the good news is it's very diverse. the challenges are we have some sectors of the economy that are facing head winds. >> all right. we'll leave it there. thank you for joining us from what looks like a sunny california. penny pritzker, u.s. secretary of commerce at the asean conference with president obama today. up next, fashion designer elie tahari talks to us about the changing word of fashion and how you stay relevant in an industry after 40 years. and later "sports illustrated" swimsuit cover models will join us live here at the new york stock exchange. it will be an interesting lunch for many traders.
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>> fashion week is in the middle of a transition. i spoke with the renowned designer and dana grayson about the changes and what this industry needs to do to keep up with consumer demand during a
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difficult period. have a listen. >> i think the fashion business has been running in the most old fashioned way and today with the internet and technology we have to change too. we show our show six months in advance and by the time it gets to the shore zara has already copies of it. so you can show other people. it's so fast now that by the time you design and you ship, the fashion changes. so we have to be more current and more doing things that the consumer want now. >> in other words, the fashion industry has been really behind the curve and is in need of disruption. >> right and i think it's fashion is one area. like i said we've seen it in home goods. you'll start to see it in beauty next. beauty is even further behind and it's all about building the tech stack of these brands like a technology company almost so
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that you can respond. >> when it comes to your read on the global consumer you have built a very big business. what are you seeing in terms of what they're spending on and how they're spending? how they're feeling? >> i think the consumer, when they're looking for fashion, they're looking for special pieces. in the past, they would buy where ever, classic clothes. as many as they want but the consumer is spending their money elsewhere. they're spending it on electronics. on house, on vacation, and less and less on clothing. >> how do you think about technology? do you incorporate it into your designs? into your products? into your showings? >> we invest in social media. we are investing in branding, in
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images online. our internet business is growing and growing more than brick and mortar. and it's a challenge now how to balance the two. >> i think the point that you made about imagery and how brands are actually connecting with their customers the way merchandise windows used to be decades ago. imagery is so important. whether it's the woman in the dressing room or the brand pumping out editorialized images at scales of tens to hundreds of images today. that's the change. it's like that automatic connection with consumers making them feel special but making them feel responded to and that they are a unique customer brand. that's what consumers want these days. >> so a lot of changes for the fashion industry all in the context of a discussion we were having about how department stores are suffering. how fast fashion retailers are sort of stealing the looks way ahead of time and americans
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aren't spending as much on apparel and these designers are starting to think about how to change that around. starting with the fashion shows we're going to see this week. >> they're going to make the garments and put them in the store and have the fashion shows at the same time. >> have the fashion shows be more current so people don't just rip them off and sell them first. it's one little step and something that the industry needs to do to try to change, freshen up and just do better because we've seen a lot of pain. >> we're currently up 89 points on the dow. we lost some traction. let's send it over for a look on what's coming up on squawk alley on this network. >> good morning. we have dennis crowley. the co-founder of four square that's going to join us and talk about the start up environment in tech. lots of turbulence so far. we're going to check in on the environment in china. a number of china stocks including alibaba up this morning and si swim suit cover models. two out of three are going to be
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here with us at the stock exchange. all that and more coming up on squawk alley. ♪ every auto insurance policy has a number. but not every insurance company understands the life behind it. ♪ those who have served our nation
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♪ welcome to squawk alley. joining us at post nine, dennis crowley. good to have you back. >> thanks for having me. >> we'll pack a lot into a shortened trading week. s&p up almost 15. bob is watching what's happening on the floor. >> still a rally but off


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