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tv   Power Lunch  CNBC  February 17, 2016 1:00pm-3:01pm EST

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convinced? are you starting to feel better about where the market is or no? >> i did just what that guy did in jpmorgan. i've been selling a lot of calls into it here. >> that's the story for us. look at the s&p, out of correction territory. "power lunch" picks up the story. hello and welcome to "power lunch." we are brian, michelle and tyler. melissa lee is off today. and as always we got a jam packed two hours ahead for your money on your radar. the debate over privacy versus security. apple rebuking a court order to unlock an iphone used by one of the san bernardino terrorists. we're also closely watching the markets, stocks trying for a third straight day of gains, that is not something that has happened all year long. and we are less than one hour away from some potentially market moving news for the fed. the minutes of the final fed meeting in january are out at 2:00 p.m. eastern. we'll get the news and reaction.
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but let us kick things off with a check on your money. right now, stocks near session highs, the dow is up fairly sizably now, nasdaq and the s&p up as well. crude oil perhaps helping, crude oil up more than 6%, and, tyler, if we gain more than 1% on the s&p 500 today, it will be first three-day streak of 1% or more gains for the s&p since all the way back in october of 2011. put that in your market pipe and smoke it, my friend. >> three 1% gains in a row has not happened since 2011. >> october 4th, 2011, that was when taylor swift was a 6-year-old up and coming musician. >> 1989. yeah, no. she won album of the year. good album. >> she looked good. >> she was good. let's move on to another person, always looks good, and brings us smart information, wall street legend jack vogel of the vanguard group. welcome. good to have you with us. >> good to be with you always. >> jack, i think i know better than to ask you whether the
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market has hit a bottom or not because i think i can expect your answer. but talk to me about whether -- we -- fretting, has it hit a bottom, do you ever care whether the market hit a short-term bottom or not? >> i really don't care in terms of personal investment strategy or investment strategy. i'd recommend to others. the only thing that worries me about the markets is they do so many things that are kind of crazy, tyler, and i always worry in the back of my mind about crowd psychology, all of a sudden thinking something is so much worse than it really is. and we're all kind of -- not we all, but many investors are leaning here and all seem to want to go over the cliff and into the water together. and so that worries me. hasn't happened now. it probably happened in one of my three bear markets at the bottom. and i've been through three of them as well as 30 corrections, counting those three. so i know a little bit of what it is about. and the basic idea is don't
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panic, and don't worry about calling the bottom. >> you said the last time you were here precisely that, don't just do something, stand there. there are those numbers, those studies that look at investing history over 20 years and they show that if you miss the ten best days in the market, the best 20, the best 40, your returns go from 50% to 5% or something like that. the power of being in and staying in. >> well, it is also the -- that's exactly correct. but the other thing, everybody should be thinking about is, okay, i'm panic stricken, i'm scared to death and i'm going to get out, but who is going to tell you when to get back in. being right once in this business is essentially worthless, tyler, you got to be right twice. and i think that's beyond the capacity of very intelligent economists, very -- often unintelligent market forecasters and emotional individuals. we just don't know how to do it. that's why we have said once and twice and three times, and a
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thousand times, tyler, stay the course. and that's been the best -- that's been the winning strategy. clearly over my 65 years almost, tyler in this business. and i presume it will continue to be. no guarantees, of course, we live in a risky world. and stocks are not cheap at all. probably fully priced a little bit. so we just have to take that into account and hope that the growth of american business will finally bail us out. >> jack, it is michelle here. what advice do you have when it comes to asset allocation at this point. there are so many products where you can cheaply buy into energy or treasuries or different parts of the market that have been very beat up. i mean, i know asset allocation is individual to every individual. how do you sleep at night depending where your money is. is there a general guideline that you can offer in terms of how you should divide it all up between stocks and bonds and different things like that? >> well, first, let's start with the broad allocation, and really
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the only two asset classes are stocks and bonds. and i think everybody should start thinking about a 60%, 40% stock bond ratio. and if you're younger, a lot higher. if you're older, particularly a lot older, somewhat lower, and if you have, you know, we only -- we don't all live forever, and you want to make sure you got something there at the end of the trail, and a lot of cases for families they want to leave some money to their kids, well, i do hope the oldsters among us don't leave money for their kids and starve themselves along the way. they're entitled to their own retirement and a good and fair one. >> what about the sleep at night factor though. if you're someone who is risk averse, maybe young but hate seeing the gyrations of the market, is it okay to be, you know, 60% only or 50% only stocks? >> well -- >> or some psychology -- the psychologist here and talk us through that and say, you know, don't let those fears get to you. >> somebody said to me a few years ago what keeps you awake
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at night, asking in a broad context. i said nothing. what is really so important that you shouldn't get a good night's sleep. now, if you -- it reminds me of baron rothschild old comment, if you're scared or frightened or think you ought to do something, sell to the sleeping point. but i think people should try and get the emotions out of this, look, very, very long-term and long-term stocks are going to do better than bonds almost inevitably. >> brian sullivan, sir, how you doing? whole idea of vanguards' creation was that if the market returns are average, you could actually make or lose a lot of money based on the cost of investing. that if you have a low cost model like vanguard does, that you can actually well quote outperform everybody else because you saved the money in fees. well, yesterday, we had a venture capitalist on the show, talking about all kinds of stuff, but backing a company called betterman, a
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self-directed robo adviser type firm and he actually suggested that vanguard was a high expense ratio company. listen to his sound bite and respond if you can. here he is. >> if you look at what betterment is doing to fees, and to financial asset management companies, it is incredible. they are crushing down the fees. they're able to create a portfolio for you at 15 basis points, fidelity, vanguard, any other mutual fund at 80 to 90 basis points. >> i thought you were cheaper than 80 to 90 basis points. >> there may be somebody who has the gall to charge 80 or 90 basis points but not vanguard. our own robo service is 30 basis points. and you also get a personal adviser for that. you can talk to somebody on the phone. betterment does not do that. you talk about betterment, it is a curious coincidence i had an
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interview with john stein, the founder of betterment yesterday afternoon and they used the vanguard funds so the vanguard funds are cheap, but the asset allocation service, add on to that, is whatever you want to pay for it. i think betterment is doing fine doing 15 extra basis points with our 5 basis point funds and i think vanguard remains to be seen. i believe the extra personal service that vanguard gives for another 15 basis points will prove helpful, maybe not to all, but investors that need a -- >> they use your funds, they use vanguard's funds. >> we're their biggest -- >> did they say 50 or 15? >> 15. 1-5. that's what betterment charges. >> that's what betterment charges, 15. >> on top of -- >> on top of whatever the fund charges. >> on top of our 5. >> sounds like he didn't know what he's investing in? >> let's give venke a break and just suggest he was perhaps just throwing companies through the
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that were on top of his head, whatever. but it is clear that when he came to vanguard, it was not correct, right? maybe threw it out there accidentally, but they're using you so they must therefore be more expensive than your lowest cost option, otherwise they're running it what they call a cash flow deficit. >> well, these people throw these numbers around, i don't know where they come from, but if there say way to take a cheap shot at vanguard, take the cheap shot. but at least get the darn numbers right. it is going to be very difficult to beat our value proposition and john stein knows that. >> i want to ask a couple of very quick questions. what do you think of target date funds? good, bad, indifferent? >> i think they're good for some people and not so good for others. may be a little bit oversimplified, and i'm not convinced you need to have a significant international allocation. and they all do whether it is vanguard's or t. rowe price or fidelity or schwab.
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i don't know if you need that, but if you want to go and make your similar -- you can do that same kind of a target date function by reducing your equities as time goes on. that might involve tax events and things like that. so i think they are a good product for the right people who really just want to get into a -- >> quick final question. you say start with a sort of 60 stock, 40 bond split. you can do that with a good balanced fund and just have one fund if you get a good fund, or you can do it with three funds and all market index fund and all market bond fund, and maybe some cash, right? you don't need a lot of funds. >> we have -- i started a fund called vanguard balance index fund in 1992, i think it was. it had a lot of seasoning, 16 years now, or i guess that's -- yes, 14 years now. and it has done fine. it is 60/40. it is no magic. it is u.s. portfolio.
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and corporate -- u.s. bond market and u.s. stock market. and it works fine. >> i ask basically because i think it is -- it is endemic in what we do. endemic in the financial services business by the way to overcomplicate things. i think -- i talk to myself too, i have too many funds. i don't need that many and you can do what you just described and that is make it very simple, stupid. jack bogle, founder of the vanguard group who is neither simple nor stupid. >> all those funds have fees. >> you can really do that with -- you can get that 60/40 split with the fund he proposed there. or two individual funds that you might like better that are simple, low cost, index funds, buy and hold, get the 60/40 split, total market exposure, and you don't have a portfolio of 15 funds. >> can we also just say, i think
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it is proper service just to say even if you buy one of these freedom funds or target date funds, just know what's in them. >> exactly. >> just take a look at their holdings and say, okay, my number one holding is x and my number two holding is y. if we talk about them on cnbc, you say, oh, crap, that's a number three holding in my target date fund. you'll know and be able to call your adviser or figure it out. >> oftentimes, a lot of funds have the same stuff in them, even though they have different names and different missions. >> that's right. >> end up with apple and everything. >> you end up with a lot of overlap. that's a fantastic point. in those target date funds, some are more aggressive than others. >> right. >> you got to know what's in them. >> to michelle's point, can i suggest a term, we're good at making up words here, overlapple. it may be overlapple. >> got it. the word of the day is overlapple. >> seema mody.
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>> groupon nearing session lows falling 10% after a two-day rally and 40% single session gain yesterday sparked by alibaba's disclosure of a stake in the company. shares also saw a boost last friday on better than expected fourth quarter earnings. keep in mind over the last 12 months, groupon stock is down more than 50%, but, again, shares still about 60% higher, just in the last week. michelle? >> thank you, seema. here's what's on the menu for the rest of the hour. coming up, big battle over privacy and security. should apple help the fbi hack into one of the san bernardino killer's iphones. everyone from washington to wall street to silicon valley talking today. we'll debate it ahead. and also ahead, newly minted fed president neel kashkari calling on the banks. one fed president says that's way too extreme. and investors are bingeing on food stocks on today's rally. three names hitting all time highs. yummy. when "power lunch" returns. [plumber] i need to be where the pipes are.
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so i use quickbooks and run my entire business from the cloud. i keep an eye on sales and expenses from anywhere. even down here in the dark i can still see we're having a great month. and celebrate accordingly. i run on quickbooks.that's how i own it.
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it is absolutely understandable there are people who want to have their conversations and their messages encrypted and to end encryption. they're not breaking the law. and they just want to keep their
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messages private. that's totally understandable and want to do it in good faith. it is also true in modern america and the modern world, some people want to take advantage of the evolving technologies that can be encrypted and kill us and bring our buildings down. >> that was u.s. attorney for the southern district of new york preet bhahara setting up the next topic. this is no longer an abstract question. it is real life. the fbi is pressuring apple to give up information about the phone of one of the terrorists in the san bernadirdino killing sprees. here is a letter from tim cook where apple is opposing a federal judge's order to help the fbi unlock the iphone used by one of the san bernardino shooters. he wrote, up to this point we have done everything that is both within our power and within the law to help them, referring to the fbi. now the u.s. government asked us for something we simply do not have and something we consider too dangerous to create.
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they have asked us to build a back door to the iphone, specifically the fbi wants us to make a new version of the iphone operating system circumventing several important security features and installing it on an iphone recovered during the investigation. does tim cook have it right or not? robert brant and james dempsey, executive director of the berkeley center for law and technology at uc berkeley's law school. aaron, i'll start with you. does tim cook have a leg to stand on? do you think he's right to oppose what they're asking him? >> it is a broad public policy debate across the united states and around the world. the ramifications for undermining the fundamentals of encryption and various software programs has significant ramifications beyond just isolation -- >> such as? >> if apple puts back doors into their own products, what is going to close off foreign
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markets and individuals who would say we do not want the u.s. government to have access to our private communications. they're going to buy other products, non-u.s.-based product, will affect the ability for banks to secure communications, individuals to secure communications and opens up pan dodora's box. >> competitive disadvantage on one front and civil liberties issues as well. james, what do you think about what aaron said and also if the u.s. government can demand this, then what if the chinese government demands it in a similar situation? and then what does apple do? >> well, you know, on the one hand, apple should be applauded for its strong defense of user privacy. the head of the nsa himself frequently says that encryption is foundational to our economy. it is foundational to governments, to individuals and to businesses. but i think in this particular case, if you ask me what the law
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is, as i understand what is going on here, apple does have the ability to modify this phone. in other words, it has already built the technology with the capability to modify the phone in order to allow the government to extract the evidence. and once that capability is there, i don't -- i'm not sure that anybody can really say with a warrant at the face of a judicial warrant -- >> he says that -- he asked us to create something that we don't have. >> what i say change the whole discussion. breaking news that just crossed ten seconds ago. the department of justice said they're asking apple for access to one phone. they are not asking for a back door to be created. the doj says they want access to one phone. >> and let's say in the letter, tim cook specifically says they would have you believe this is
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only for one phone, and he completely disputes that. >> does it matter if it is just one phone? >> yes -- >> i think it does matter. i think it matters. i would oppose a government effort to require apple to design all of the phones in advance to be accessible. that is a vulnerability that i think is intolerable from a commercial, economic, privacy, competitive global standpoint. but where this phone was designed in such a way that apple could modify the software, that it had the ability to go in and disable this auto erase function, then i think with a court order, i think probably on the law and on the policy the government may be right in this case that apple should not be able to say we will not do that. >> i want you to respond, first, tim cook's letter says very specifically, government suggests this tool could be used
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only once on one phone. that is simply not true. once created, the technique could be used over and over again. so he disputes that fact. let's make that clear. >> tim cook is accurate in that. an exploit is not a single use case. it is a broad used case. in this particular instance, mod fight the firm ware that underpins the ios software would become the universal potential exploit should it leak or become available. >> even if apple controlled it, they're not turning over those keys to the kingdom to the fbi, to russian security, to israeli security, to whom ever. >> even if apple places -- there is a potential for it to leak, potential for economic ramifications, privacy ramifications that would extend outward. apple according to their own public statement indicates they are working with the fbi, working with their engineers with the fbi. and in this particular instance -- >> where does the line get
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drawn? >> we might find out in the supreme court. >> we're going to find out. >> this is in the district court of los angeles, correct? apple -- let's say they don't do it, court enforces it, apple sues, they go to the appellate court, the ninth circuit -- is it not possible that this could go to the united states supreme court? >> absolutely. what i fear, though, one thing we have taken into account is what might congress do on this? i actually worry a little bit more that congress might be a little more blunt in its approach. there are obviously those in congress who would want to weaken all encryption across the boa board. i do think it is significant in this case you're only talking about the phone the government already has, where there is a judicial warrant, where the company already has or can build the capability to access or to
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disable this one additional feature, this auto erase feature on this one phone. i think we need to start thinking about how do we build protects around that to address the kinds of concerns that aaron is raising to make sure that it is limited, to make sure that the economic security implications of it are controlled and constrained. >> so some fundamental issues here we haven't really discussed. if we talk about hardware and software, average software program has roughly 20 to 40 bugs per thousand lines of code. your average massive software program operating system, that equates to millions of bugs across an entire line of code. we're talking about deliberatery introducing vulnerabilities into code that secures our financial markets, communications, banking, our children's security and their schools, our -- and our health records and whole bunch of other things and we're hoping that hackers, nonstate actors around the world, terrorists and other states won't find these vulnerabilities. this is a significant risk. it is one that has to -- that
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should rise through the court system and it probably will end up in the supreme court. it should not be legislated lightly and should be taken into consideration across a full spectrum of potential ramifications. >> speak to people who would say my child could die if they don't have more aggressive techniques. talk to us about the trade-off between freedom and security. >> phone with communication that pointed to next target, next school in the next town. >> it is very convenient to think that intelligence and law enforcement works like 24, jack bauer movie, but that's now how it works. it works as the putting together of pieces of a large puzzle across multiple agencies working together and communicating and putting together a diverse information set to try and solve complex problems. i've worked with the fbi. i've worked with dhs and others. and they -- and they acknowledge that there are multiple avenues to approach this from. not only that, based on our own
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analysis of terrorist communications, we know that only about 10 to 25% of them secure their communications at any regular interval and even those who do secure the communications make an enormous number of -- >> can i sum rise what i think you're saying, the ability to prevent attacks by having this information is way overstated. >> yes, it is overstated. it is not -- this is not the silver bullet that the fbi or others are looking for. the fbi -- the cia and others -- >> let me jump in if i could. >> aaron is obviously making some legitimate points. i think it is true that encryption is become more pervasive and we want it to become more pervasive. i feel strongly that companies should build unbreakable encryption into their devices as a default. but i'm saying at the same time that if there is a capability by a company, in an individual
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case, with a warrant, to circumvent that technology, i don't see how a company can say no, we will not cooperate in this investigation. now, on both sides of the issue there are lots of sort of hypos, it is an ugly issue. the government will be shut out from some information in some cases. they have oceans of information available to them. >> apple is not the only one where this issue has come up. john chen, the ceo of blackberry wrote back on december 15th of last year that agencies should be able to poke around phones, but this is a quote, it is also true corporations must reject attempts by federal agencies to overstep, blackberry refused to place back doors in its devices and software, we have never allowed government access to our servers. and never will. so this is not just apple. this is obviously a higher
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profile case because of the immense loss of life and the situation around it, james. but blackberry has come out -- this is now -- it is clear something that -- hate to go back to the legal side of it, the courts are going to have to rule on this, this is going back to almost the fourth amendment where what access do i have to your house, what access do i have to tap your phone. aaron, you're in the military, correct? >> i'm a civilian. >> civilian working for the military. if i wrote a letter home from belgium in 1944, good chance the government was opening my letter, reading it, marking some stuff off because they didn't want anyone to get a hold of a letter to know maybe where i was. >> i'm not sure that's completely parallel to the current situation. and the other thing -- >> in what way? how so? what do you mean by that? >> opening up a gi's letter during world war ii is different than this situation. >> i'm talking about the -- i'm talking about the evolution of privacy rights. >> okay, but once you're in the military, you don't have privacy.
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that's -- we're not talking about terrorist -- >> privacy rights are -- that's not true, the fourth amendment covers military personnel. >> one other fact -- >> i'm not sure we established the facts. we talk about it is going to go dort the courts but we don't any what the facts are. james says it can be one phone. speak to aaron's point that it is actually a software technique and that it is not just one phone, once that technique -- that ability to exploit exists. >> well, apple has done a good job and they should be applauded for security sake. they have done a good job both on the hardware and software side of improving the security of their devices. and they have been industry leaders in that regard. although you're correct, it is an issue that reaches way beyond apple. so it is both a -- there are hardware protections that apple has imposed and software protections. my understanding of the facts is that in this case, apple has
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retained an ability to circumvent their own protections. and they're saying we will not share or use that knowledge to the government's benefit in this case. again, i totally support their right to build strong unbreakable products that even they cannot break, that's foundational, that is absolutely foundational. >> they say they do have the ability to do it or can devise it or the government is trying to compel them to devise it. my question, you know more about this, aaron, than i do. why can't the government independently figure out how to crack the phone. >> so quite frankly the government could independently figure it out should they have enough time and resources to do this. my understanding of the exploit -- that is proposed is different than the notion of turning off this particular feature. my understanding is that it is a significantly different technical exploit needed that would help and assist with
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opening the pass code locks associated with it. more importantly, though, this -- this -- >> two other guys, we're running out of time. this has been a great conversation. a couple of things. number one, i come back to the legal side because the court is -- first off, i have a law degree, i get all legaled up, the court is saying you have to do this. apple saying no, we don't. it is a legal dispute. somebody somewhere will decide this at some point. number two, here's the other question, aaron. i don't know how -- if you were given an iphone by west point, we were given iphones at work. we have devices, i hope i'm not revealing too much, apps on our phone that track what we do and we give up our right. why didn't the government here, this say government-issued phone, why didn't it have some sort of protection for this? >> that would be a state policy issue. california state -- >> hello, state of california, why are they so far behind corporate america? my work here i guarantee you can tell you anything i'm doing on
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the phone, they know, all on the up and up. >> even if they had done that, even if we ask apple and other corporations to open it up, we're missing an entire -- the majority of the market is not the apple and googles of the world. there is hundreds, thousands of independent developers around the world, leveraging cryptoographic programs in these particular products. the courts can mandate that our companies can do this and turn over and create exploits for these issues, but this only puts a small drop in the ocean of potential problems that will evolve. we're assuming our adversary is a stagnant barbaric adversary that will not change. we know from everything we collected, from everything we have seen, that our adversary changes and evolves. al qaeda developed their own encryption applications when they discovered the u.s. government was reading messages and now we know is is developing their own as well. we legislate or legalize one particular aspect of it, but it doesn't fundamentally solve the
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problem that we're trying to solve. >> this 20 minute discussion was a moot point? cable. that's how it works. >> it is the first opening volley in what is going to be a long running debate. this is one case, one type of technology, one manufacturer. you're correct, this is going to arise again and again and again. what i like about the court system is it tends to go case by case because it is very, very hard to think of a one size fits all solution to this problem. >> and would it be amazing if it ends up in the supreme court and there is only eight justices. >> oh, wow. >> further muddling the story. >> james, great discussion. thank you so much. aaron, you too. would love to have you back, talk more about this. >> thanks, guys. >> thank you. up next, back to the markets. your money as stocks try to post the first three-day winning streak of the year. as brian pointed out, 1%er for the s&p, first three days of 1%
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move since 2011. what are the pros doing right now? we got $20 billion worth of investment advice coming your way. and none of it is mine. "power lunch" will be right back. ♪ [ 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. ♪
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welcome back to "power lunch." rick santelli here, live on the floor of the cme group. risk on, risk off, seems to be a bit of a risk off. excuse me, risk on. why? nobody really knows. was if mario draghi, the
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three-day weekend, china was coming back and we overpunched the market? you can see this process coming through in the charts. february start of the ten-year. we reversed right along with higher stocks. we have higher rates. not only there. let's look at the hyg. in the neighborhood of the lowest levels since the summer of 2009. look at february 1st start, moving in the other direction. year to date, we stopped gold, which was on a tear as well. if you look at march 2002 of what is going on with the crb index, it isn't moving up, but year to date, it looks like there may be a double bottom. all this is important to pay attention to and ponder because "power lunch" will return after the break.
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i'm sharon epperson. here is your cnbc news update at this hour. at least 18 people were killed and 45 others wounded in the turkish capital of ankara. when a vehicle laden with
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explosives detonated as military buses passed close to turkey's military headquarters. the turkish government says it was a terrorist attack. pope francis arriving in the northern mexican border city of ciudad juarez. the pontiff will deliver a speech on immigration. gop presidential front-runner donald trump holding a town hall meeting in south carolina, three days before the state's primary. he says he's the only candidate who was willing to save social security benefits without raising the retirement age. red flyer is partnering with tesla to create the first kids ride along tesla that runs on lithium batteries. it can cruise up to six miles per hour and features working headlights, forward and reverse capabilities and even a sound system. it will retail for $499. and that's the cnbc news update at this hour. back to you, tyler.
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>> i think i could afford that one, sharon. thank you very much. stocks are rallying with the dow and s&p 500 on track for three straight updays, something it has not happened since december. where do you find value? with us is ernesto ramos, head of equities at bmo global asset management. welcome. kevin, let me begin by asking you since you're sitting right next to me, you have a somewhat more defensive posture, i think, than ernesto in terms of the stocks here recommending right now. reits, utilities, some energy outside of the oil patch. what does that say about your view of where we are in the economy, where we are in the market? >> i think 2016 will be the year of great volatility with starts and stops with the stock market. if i look back historically at sectors or asset classes that perform well in that type of environment, in addition to
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those sectors that perform well, you look at places like reits, look at places like utilities, and i think the leaders thus far in 2016 have been those sectors and why should it be any different. if you look going forward, if the fed raise rates two, three, four -- and you have a ten year treasury yield in 1.7, 1.8%, a utility yielding 4.5% isn't attractive in that environment. i think investors need to be defensive but also optimistic in terms of other areas of growth potential. >> ernesto, i don't mean to paint you as a wild eyed gunslinger here because the stock you like are what i would call quality growth names, growth -- maybe growth at a right price. give me some examples of what you like now and why. >> well, we have a couple of names that we want to talk about, google being one of them and acute being the other. but the way we got there is very
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simply we started to notice back in the middle of last year that riskier stocks were getting very, very cheap compared to the kinds of stocks that kevin was just mentioning. and this location got very, very pronounced in the first couple of weeks of this year, with the dramatic market collapse that we saw. so right now we're showing you're much better off positioning yourself in a higher risk undervalue type names because when this reverts and it will, these are the names that will leave the market. we could see a continuation of very high quality, very high momentum stocks continuing to lead the market, but the odds are in favor of a reversion to higher risk and undervalue situations. and google, for example, growing revenues at 23%, trading at 20 times, is a good example, acute is another stock where the revenues are growing and the lgg segment, 40% year on year,
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demonstrating 20 times earnings, not dirt cheap, but for the type of universe we're dealing with, t growth universe, not a bad stock at all. ernesto, thank you very much. we're short on time. ernesto with bmo and kevin. thank you for being with us. go to powerlunch.cnbc.com right now to see what else ernesto likes. 20 minutes or so from market moving news. we'll have it for you. and full analysis. before that, the power pitch that could change the life of every new parent. are you in? or out? we're going to be right back. [plumber] i need to be where the pipes are.
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so i use quickbooks and run my entire business from the cloud. i keep an eye on sales and expenses from anywhere. even down here in the dark i can still see we're having a great month. and celebrate accordingly. i run on quickbooks.that's how i own it.
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all across the state the economy is growing,arts today. with creative new business incentives, the lowest taxes in decades, and university partnerships, attracting the talent and companies of tomorrow. like in utica, where a new kind of workforce is being trained. and in albany, the nanotechnology capital of the world. let us help grow your company's tomorrow, today at business.ny.gov so what else is new? humm..she's doing good. she needs more care though. she wants to stay in her house. i don't know even where to start with that. first, let's take a look at your financial plan and see what we can do. ok, so we've got... we'll listen. we'll talk. we'll plan. baird. time for the power pitch, where one entrepreneur gets 60 seconds to convince a panel of experts that her startup is the next big thing. >> i'm jane chen, co-founder and
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ceo of embrace innovations. we aim to improve the health and well-being of babies all over the world. our newest product line is little lotus, a collection of swaddles, sleeping bags and blankets that use a nasa inspired technology to help keep your baby at the perfect temperature. this is important because sudden infant death syndrome has been linked to babies overheating. in addition, parents tell us their babies are sleeping better in the little lotus products. the product has unique features including a bottom zipper that allows for an easy diaper change and the print you see is inspired by an art work called touch our future, which contains the hand traces of moms and babies from all over the world. on top of that, for every little lotus product purchased, a baby will be helped in a developing country by the embrace infant warmer, a low cost baby incubator my team and i developed eight years ago at stanford, which has now helped to save over 150,000 babies. our goal is to reach a million babies with the help of little lotus.
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>> welcome to today's power pitch. i'm melissa lee. you saw jane's pitch. let's meet the panel, alicia syrett of the new york angels, she advises and invests in over two dozen startups. with us is early stage investor andrea turner moffitt, co-founder of plumb alley investments investing in women entrepreneurs and gender diverse teens. and dr. dianne hes, board certified pediatrician, named top doctor by new york magazine, also the mother of two. so jane is in the hot seat. alicia, you're up first. >> i like learning about the product and the mission. and also loved the technology behind it. but i have to give you a solid b. >> sure. >> you didn't talk about pricing. you also didn't talk about how you're reaching consumers or the team behind it. so talk to me about your sales and marketing strategy. how are you getting the word out to potential consumers. >> the product is currently sold on our website only. the way we're getting the word out to consumers is through a mix of mommy bloggers who we
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partnered with a number of bloggers who are helping us to get out the word out, we also have an ambassador program where we're recruiting mothers who love the product. in addition to that, we have a corporate partners program, so companies like thought about
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including a way to capture data on temperatures. so can you talk about how you could, you know, capture that data and feed that into your broader mission which is really global health for children around the world. >> with little lotus, we have already started prototyping products that have a temperature sensor, and a mixelometer.
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you can monitor your baby anytime via your phone. for our product in developing countries, that has eye whole different set of implications. with things like oxygen, pulse, et cetera, we're hoping to use artificial intelligence and big data to over time create predictive diagnostics for infants that have major diseases. >> okay. so we heard what jane had to say. now we want to know if the panel is in or out. alicia? >> so it is a relatively pricey product. and that may be a turnoff to price conscious consumers which reduces their market. but with that said, i think you have a great team, they have great backers, there is a really yo unique technology behind it and they're on their way to filling their mission so i'll go in. >> i'm a big believer in business models that combine innovation, purpose and profitability. and the differentiators of the one on one model, the zipper and technology, are compelling.
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for that reason, i'm in. >> dr. hes? >> i'm concerned about sensors and accelerometers, we don't recommend babies to go home with apnea monitors because they increase parental anxiety and they don't prevent sids or anything like that so i'm out. >> two ins and one out. jane, what is your reaction? >> thank you for the feedback. very helpful. and we, you know, have a long ways to go but we're excited about moving this forward. >> our thanks to jane of embrace innovations and to our panelists, alicia, andrea and dr. dyan hes. that's today's power pitch. >> are you in or out on little lotus? tweet us here using t the #powerpitch. for more power pitch, visit powerlunch.cnbc.com. this is "power lunch." we're counting you down to the fed minutes, super important considering what is going on in the markets now. little more than six minutes away. don't move. this bale of hay almost derailed the ranch.
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welcome back to "power lunch." got big breaking news in moments
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with a federal reserve, that's going to be crossing in about 15 seconds here. let's find out where we stand in the stock market prior to the release of the fed minutes. the dow is up 230 points. the ten year yield at 1.83%. let's get to hampton pearson with the fed minutes. >> the minutes from the end of january meeting, you had the members basically discussing the target path for the future fed fund types. many members judge the uncertainty and would need to be closely monitor and members generally agreed there was not enough information for members to assess that risk in terms of looking if the economy was strong enough to warrant perhaps a future rate hike. the participants basically concluded that while the labor market itself was strong and the developments there had been positive, spending and manufacturing data had been disappointing. and the slumping commodity prices and weakening foreign economies had the potential to
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restrain domestic economic activity. looking at the market downturn at the time, some of the participants said if the developments were to persist, it would be equivalent to further firming of monetary policy. also a number of participants expressed continuing concerns about the drag on u.s. economy from the great er than sclekexp slow down in china. and that balance of risk outlook. looking at the economy overall, yes, the u.s. economy itself has strong fundamentals, especially the labor market, inflation, however, still below the 2% target expectations that consumer spending will pick up from the fourth quarter. the bottom line over and over again throughout these minutes is the discussion and the concern of the participants about the global risk to markets. that was behind the decision among other things not to assess the balance of risk at the end
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of the january meeting. back to you. >> hampton pearson, thank you very much. let us bring in pimco. we got the ten year yield where it was before and the dow up 222 points. bob, i'll begin with you. it sounds like the fed is basically suggesting that things are a little bit difficult around the world, but they don't know how difficult. had a basic but fair assessment? >> yeah, they're difficult enough that they didn't act and late january and i think they won't act in march. there is a lot of emphasis there on global developments and instability. so i think they're on hold for a while. but i don't think there is anything new this information. i don't -- i don't think there is anything there to afebt tfec stock market today. i hope not. >> we like to believe here on financial tv that there say lot of news out there, but unfortunately these minutes kind of suggest what i think the market knew, that there is a lot
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of global rattling going on in china and in europe. and the fed is monitoring that situation. but take us inside the fed, bob, how much should or will china or deutsche bank or whatever impact what the united states federal reserve does? >> well, one difference between their deliberations and yours probably is they're really interested in what the impact on the u.s. economy, the real economy is going to be, where as those of us who watch cnbc all day are also interested in what it is going to do to the stock market. let me remind you that they used to release these minutes a day or two after the following meeting. so there was nothing there for anybody to look at. then they changed it in the spirit of more transparency to release it three weeks after, which gives you another thing to destabilize markets that they
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didn't have before. >> maybe not as transparent as they thought. i also thought one of the things they said was if the market activity keeps up, it is almost doing the tightening for them, right, which would suggest they don't have to keep pushing the pedal down when it comes to -- >> they have made reference to tightening a financial conditions as being the equivalent of a rate hike. when credit spreads widen and stocks go down, they're looking at financial conditions. these minutes were for the meeting back in january, we had chairman yellen on capitol hill. i don't think she's changed our mind very much. the minutes don't change her mind, don't think they'll hike in march, but yellen and the fed want the optionality to hike this year. >> also, the stronger dollar is also tightening. >> exactly. that was another -- that's another thing. part of the financial conditions. does this then, bob, suggest to you fewer rather than more interest rate hikes in 2014 or
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the same? >> well, that four hike thing came before all this turmoil in the markets. we shouldn't -- we shouldn't hold them to that and say that it is wrong, of course it is wrong and wouldn't be four if they were doing it today. i suspect there may be two. >> i think four hikes was always more of an aspiration than a prediction. we're not going to get four hikes this year. but importantly a week or two ago, the gloom and doom crowd were saying, we won't get any hikes the rest of this year. i think it is way too soon to tell n particul tell. if you look at the fundamental data, not just the markets, the picture may look a lot different in june than it does in february. >> how important is heightened inflation to what they do, richard? it is just not there. it may be there and i'm just not seeing it, but -- >> that's an excellent point and to the fed's credit in january, they shifted their emphasis away from forecasting inflation to
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watchful monitoring looking at actual and realize inflation. i think that will be a key part of the liftoff for the fed the next couple of years. forecasting a rise in inflation to 2% on their preferred measure pce, well below that. >> bob, instead of analyzing what the fed may or may not think because everybody is pointing here looks like they didn't say a whole lot, take us into what you think is going to happen, will china slow down whether it is a 5% gdp or 7% or 2%, whatever it is, impact mom and pop and small business and corporate america here to the point where the fed has got to remain on hold. does china matter that much to our fundamental economy? >> china would matter a lot to our fundamental economy if it were destabilized. but i don't expect that. the big worry was they were going to have a significant yuan devaluation. and the pboc raised the value of the yuan and sort of promised they would not have a
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devaluation. they want the yuan to be respected as a reserve currency and they're not going to do something dramatic in the area of devaluation. and i know they have weak banks and all that sort of thing, but they are a communist country and they can paper over their difficulties a lot better than we could. i don't expect china to be a huge negative, though every now and then we may get some stock market gyrations. >> can we move on to the conversation started by neel kashkari of the minneapolis fed where he said he looks at the banking system and many will come up with some recommendations. he seems to have some already, though, to break up the big banks because they're still problematic and systemic risk, break them up or regulate them to the point of utilities. so that way they don't present any kind of financial -- i thought we were already doing that, feel like they trade like utilities. what do you think? >> i think you're 100% right.
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it was a bit hard to figure out where he was going because you're right, as a result of dodd frank, as a result of -- >> he helped create -- we moved down very much of the road that he was suggesting when it comes to breaking up banks as i understand it, the fed itself doesn't have that authority. that will require the justice department or an act of congress. a little bit hard and also i don't think his district has any big systemically important banks either. >> he seemed to suggest they have a real expertise in this. >> they have a community bank district. easy for them. i will remind you my successor, richard fisher, took that position a year or so ago as well. i don't agree with it. i think it is unilateral disarmament for us to break up our big banks if we're going to be the world's leading economy, we need to have some very large sophisticated global banks. >> what risk is seen, bob, that
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we're not? >> well, it appears he just thinks that these banks are sizable, and if something did happen, that one of them might fail, it would have repercussions. but i would remind people that banks became more sizable because they helped out the government and the financial crisis. >> they bought other -- they swallowed up -- >> he did -- >> jpmorgan. >> he did acknowledge that. we interviewed him this morning on "squawk box." i asked him why are they bigger now, he said because the government made them. >> bank of america took merrill lynch and countrywide. >> he doesn't say break up the banks. he says break up the banks or regulate them like utilities. you can have so much capital. i feel like we're already there. >> getting there, absolutely. >> so -- but that's not good enough. i guess the other thing, you had -- you get all this capital,
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make it so expensive and then bring along negative interest rates and now you made it difficult for them to make money. i don't know if you put those two together it works in any way. >> so, again, we'll see what proposals they come up with. but an interesting foray into central banking for neel. >> bob? what do you think? >> i agree. you're headed in that direction already and have moved a long way in that direction. i don't think banks think they're unregulated. >> don't they have living wills that are supposed to assist at a time of high stress? didn't we allegedly solve that problem with that? >> i never have seen one of them, but it is an interesting concept. >> very personal document, bob. >> here is a checklist of what you should do if we're failing. >> kashkari said he doesn't think it will happen in the worst case scenario. it is pointless. we would bail them out again.
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are you skeptical? he's not a fed person, right? he reason for governor of california, didn't he? >> as a republican. >> former co-worker? >> yeah. >> pimco for several years. i know him from that capacity. anyway, i won't get into -- trying to reverse engineer his motives, but i thought it was a surprising proposal. >> i'll reverse engineer his motives. this seems look a very kind of -- if you have futures, your sights set on some kind of political position, this is a very popular thing to do right now, don't you think? >> okay. plausible analysis. >> and also it was his first speech as i understand it as president of the minneapolis bank. that was designed to make a big splash. >> are those speeches routinely cleared by the which ichair?
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>> no. >> really? >> his speeches -- he can give any kind of speech he wants to. >> what do you think they're saying to him today? >> i think they're shaking their head but haven't said a word to it. >> i want to agree with bob. i had three e-mails, more than three, three e-mails saying this was a trial balloon from chairman yellen. i had no firsthand knowledge, but i would be shocked if this is -- i think he's out on his own. >> you think they're shaking their heads and saying, i wish you hadn't said that? >> yeah, yeah, they are. >> okay. neel gets a -- >> way to start big. >> from the panel. >> all right. >> thanks, guys. >> thank you. >> thank you very much. good discussion. >> let's tell you what's on the menu for the rest of this hour with the market rally. the s&p 500 is on the brink of doing something it hasn't done in more than four years. brian told us what it was last hour. see if you can remember. oil up big as the iranian oil
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minister says his country may support a ceiling on oil production. is an opec production freeze in the making? we'll debate that. and is the irs using a law originally intended to target terrorists to put small businesses in the cross hairs? those stories and more straight ahead on "power lunch." i've been called a control freak... i like to think of myself as more of a control... enthusiast. mmm, a perfect 177-degrees. and that's why this road warrior rents from national. i can bypass the counter and go straight to my car. and i don't have to talk to any humans, unless i want to. and i don't. and national lets me choose any car in the aisle. control. it's so, what's the word?... sexy. go national. go like a pro. e*trade is all about seizing opportunity. and i'd like to... cut. so i'm gonna take this opportunity to direct. thank you, we'll call you. evening, film noir, smoke, atmosphere...
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man 1: he just got fired. man 2: why? man 1: network breach. man 2: since when do they fire ceos for computer problems? man 1: they got in through a vendor. man 1: do you know how many vendors have access to our systems? man 2: no. man 1: hundreds, if you don't count the freelancers. man 2: should i be worried? man 1: you are the ceo. it's not just security. it's defense. bae systems. welcome back to "power lunch" everybody. i'm tyler mathisen.
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kinder morgan among the new investments made by berkshire hathaway. they own 26.5 million shares as of december 31. this according to an sec filing. the financial services company comerica producing its previously reported 2015 fiscal year end fourth quarter results because of irregularities with a $26 million loan. you see the stock marginally lower. oil and natural gas exploration concho resources replaces firm creek tinder. after yesterday's announcement by some opec players, agreeing to freeze output levels, the outlook on global energy has turned to iran's response. are they going to agree or not? crude oil has been trading higher by 12%. where do we go from here? halima croft is at rbc capital markets in studio. and mahal madon joins us from
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london. what did iran say? are they going to go along? >> they said sounds good, likes the idea of opec, nonopec cooperation. they didn't agree to freeze it all. they're, like, we'll think about it. talk to you soon. >> we're waiting for them to bring out a lot of production. they have said, the prediction was as much as half a million barrels extra now they can return. where are they now? >> we think they probably brought back 280,000, 300,000 by moving through floating storage. what we think they can cap out at 500,000 normalwise, but won't be able to do a million. they're pretty close to what they can bring back. >> genius move by saudi arabia. >> totally. >> sticking it to iran. pretending to care about the oil market but trying to do this. >> the saudis are freezing at 0 10.2. they're saying you go back to your presanction levels and that's good. >> sounds like we don't get any
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kind of agreement until perhaps the iranians get closer to what their max capacity could be at this point. is that a good assessment or how do you see the situation? >> the iranians could get a concession they can ramp up production to the 500 barrels per day. we think that will come at a later stage in -- towards the end of the year because there are technical and marketing challenges that will prevent a very rapid ramp up. the biggest loser from a potential freeze would be iran. the others are producing a maximum capacity and everybody is upgrading numbers ahead of a potential freeze. the iranians have the biggest to lose now. but it is a big political game and going forward, what will be important to watch is the baselines. if there is an agreement on baselines, then we could be moving towards a cut, a coordinated cut further out in the year. >> what is your betting on that? put the odds on that and whether or not that happens?
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>> i'm sorry, you repeat -- >> what do you think the odds are that that actually happen h? >> a cut could come toward the end of the year when the market starts to rebalance. the rebalance is happening. price is low because the market is still oversupplied. but the story is the nonopec production, which is starting to level off, which is starting to come off and that will start to impact prices toward the end of the year. the saudi policy has always been they cut when they kim pact the market. and toward december or later on in the year, perhaps even september, if we do see signs of a cut of a production freeze, it is actually making an impact, the science for that won't be before april or may. but if we see signs of that, then anywhere between september and december, a saudi cut and certainly coordinated cut will make a bigger impact on the market, and prices, we see prices at around $60 toward the end of the year in the last quarter of the year. any kind of cut like that would bring prices even higher.
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>> you to see the saudis going along with an arrangement where the iranians might get to play a little catch-up before they freeze. >> i think a june cut is on the table. i think what was very important is a statement yesterday that the freeze was almost a first step and they were considering additional measures as needed. that's a stark contrast to everything the saudis have been saying for the last year. kept saying we're good, we got plenty of runway, and for the saudis to walk back from that and say, all options are potentially on the table, i think that puts a june cut potentially out there. >> do you think they agreed to the freeze because they couldn't agree to a cut? >> i think they agreed to a freeze because they want to take a couple of variables under consideration. they want to see what the trajectory of nonopec production, and how much can iran bring back before they consider cutting production. they want to influence the market, put a little pressure on the iranians to play ball, but i think there is information gathering and i think once they have those variables, june potentially -- >> production cuts are incredibly rare.
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>> well, they have -- >> we throw it out there, like it is a thing, leave the last real cut was 1999 or 1998. >> people do cheat, but go back to '08, '09. that's such a difference now. they came out -- the announcement was 4 million. they took millions of barrels off the market and the market recovered. the question is now if you go to june, do you only need to take 5 5, 6, 7. we see 50 bit end of the year, but -- >> higher from here. >> if you have opec move in june, i think that is what puts the accelerator on prices. >> double almost. >> that is the risk to that? how could your forecast be wrong at this point? >> it is probably premature in june. the march programs are already in motion, so if the first reported data we will see will
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come in april, unless prices stay at 30, and that will prompt action around june, it is probably -- it is likely to come at a later stage towards the end of the year. i think the interesting thing we're seeing now also is politics being much more present in saudi arabia's oil policy. there is a bigger deal they would like to strike with the iranians that is not just about the oil production, that is also about syria and yemen. that still seems quite difficult and the whole talk of a freeze, the whole plan for this freeze still seems very, very weak. but the thing to watch for it, at this point, is the baselines now. nobody is talking about concrete figures and everybody is pumping up figures but that could be a first step, we're still a little bit far from that. >> but to your point, we got to go, in 2008, a global financial collapse. like, oh, my gosh, emergency action, '98, things are better, more analogous to today. this is about too much oil. but if china were to take a -- >> move -- >> a downturn -- >> also -- >> if china makes a down move,
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we could see opec get more aggressive. >> look at the internals for saudi arabia. s&p downgraded saudi arabia today again. it also becomes a question about how are they managing the economic fallout from low prices in saudi arabia and preservation is most important for that leadership. >> politics are so important there. halima and mahal, thank you, ladies. as oil moves up today, the overall market is moving up as well. stocks doing pretty well. the dow is now positive for the month of february. that's a pretty big deal considering we got off to the -- uptown funk, who would have thunk. just making sure i knew what you said there. it was the worst start to a year, tyler, ever, for the dow. now we're out of correction. we are up for the month of february. and we have got our stat of the day now for you, which is this. if we gain more than 1% on the
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s&p 500 today, it will be the first three days in a row of 1% gains for the s&p since october 4th, 2011. the first back to back to back 1% gains since october 2011. that will be on the quiz. >> at the end of school today. >> more on the markets. >> stay with "power lunch" straight ahead. welcome to opportunity's knocking, where self-proclaimed 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. welcome back. there were reports this morning from sky news, one source, i think women's world daily had it last week, that amazon may be looking to get into its own branded fashion clothing line. when i saw that headline, i thought, okay, this is interesting because amazon has done pretty much everything well, would you agree with that, except for the phone. >> the phone. which nobody remembers. >> flop. there you go. so my thought was, if this is accurate, fashion line, capital intensive, they're opening up bookstores, physical bookstores, capital intensive, is it possible that amazon could go a little too far? >> little too far, pushing it a little too far. >> outside their core competency.
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>> which is everything, i guess, except for phones. >> we talked about the whole -- the original premise was asset light and now there is more and more. >> if they get in the clothing line, they sell clothing now, they sell clothing now, if i like what i see on their line, i'm on amazon, i want a sweatshirt, a hoodie, whatever it is, i like it, i'll buy it from them. >> is there a harder business than clothing? >> than women's clothing? i don't think so. remember the discussion yesterday about the skinny jeans. being a retailer is hard. women are fickle. >> this is just sky news, women's wear daily had it last week, the same bad source, don't know if it is accurate. if it is also -- >> unless there is some concept that sort of co-locates clothing the way anthropology has clothing and housewares and things like that, clothing and cafe and whatever -- >> broader question we ask about
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companies. do you stick with what you do or try to branch out because at any point your current business model may get cut by a new one. we ask this about google. it is search, search, search, nothing but search, revenue search, there is the car, throwing the spaghetti at the wall about everything. some say that's a great idea. >> if you sell wall cleaner, the spaghetti to the wall theory is excellent. this will work, it is merely a threat to the brand, if you do not give us the brands, we're going to do our own version. maybe janes is right, in the retail business. >> our guest yesterday. >> 30-year retail executive. maybe it is amazon being like, give us deals or we'll sell it ourself. >> all right. in the meantime, nice rally on our hands. the dow jones industrial average is 271 points, gain of 1 it is 6
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1.6%. the russell 2000 higher by 17 points or 1.73%. >> maybe that stock market rally helped a little bit like oil because they have been largely moving in tandem and big move in oil. to jackie d. for your oil close. >> look s like we're going to close over $30 a barrel here, 6% move to the upside. interesting trading range, 28.75 to the downside and 3113 to the upside. you see it is still very volatile when it comes to oil prices. we had the comments from the iranian oil minister reported by state press in iran that iran will support cooperation between o opec and nonopec. it is saying it would support this cooperation, but it is not saying that it is going to cut production. that's why these prices, you know, are so volatile of late. this range of 27 to 32, traders
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telling me we need to break out in one direction for them to be convinced that we're going to have some momentum here. otherwise, just expect these kinds of moves within that band at this point. >> i'll pick it up, jackie, thank you. the five big stock calls that need to be on your radar. street talk coming up when "power lunch" returns.
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welcome back to "power lunch." the markets on a big upswing today. the dow up more than 200 points. all the major indexes up over 1.5%. the dow up 1.6%. nasdaq up about 100 points or 2.25%. the dow, the dow, it is positive now for the month of february. something many people would not have thought just six days ago. let's get to sharon epperson for a cnbc news update. >> here's what's happening at this hour. secretary of state john kerry says the u.s. expects to have very serious talks with china after reports beijing deployed an advanced surface to air
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missile system in the south china sea. a pennsylvania judge has rejected a claim from bill cosby's lawyers that his case be sent directly to the state's supreme court for an appeal. that means the case will now move to a preliminary hearing in march. at the hearing, the prosecution will preview their evidence hoping to convince a judge there is enough to proceed to a full trial. gop presidential candidate marco rubio holding a town hall meeting in mount pleasant, south carolina, stressing the importance of electing a president who is a true conservative. and who has a record to back it up. he also talked about raising the social security retirement age to 68. and hershey has a new kiss for easter. it is about to roll out carrot cake flavored kisses to be sold exclusively at walmart. a nine ounce bag will cost you about 3 bucks. that's the cnbc news update at this hour. back to you, brian.
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>> all right, sharon epperson, thank you very much. well, it is time now for trading nation. and today let's look at bonds, specifically u.s. government treasury bonds. if the market rebound continues, we had three days of runs, whatever, if we do, will the ten year yield rise back above 2%? larry mcdonald, ari wald, do you believe 2% is around the corner? >> well, the key, brian, to trading bonds is measuring sentiment and crowded trades and in the fourth quarter of last year, wall street lectured us about the great divergence. and that was that the united states economy, would somehow be on an island by itself, and that the japanese economy and the european economies would weaken, the global economy would weaken, but the u.s. would be okay. that's now been the great convergence and on thursday of last week, we had one of the greatest moments of capitulation on the buy side, people getting long bonds, drove the u.s. ten year down to 1.53 from 2.83%
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back in september. and that was a great capitulation, a lot of short covering and now we rallied back up to 1.83%. our work shows that so much capitulation took place last week, so much buying, that we're likely to drift back up near 2% in the short-term, but then after that, there will be a lot of global pressures dragging yields back down over the next couple of months. >> okay. that's a good fundamental analysis from larry. take us to the technicals here, where do you see the yield going up or down based on the charts? >> near term we think that 2% level is very important. we think the near term backup continues, but i think your cap there, first wide 2% is important. that was the floor. now we think it is going to act as a ceiling. i consider this as well. treasury yields in the 30-year
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downtrend, eight-year downtrend and two-year downtrend, so it hasn't paid to expect meaningful backup in treasury yields so we think the trend is lower as well. and when you consider that 2% can be considered a relatively high level versus the ultra low interest rates in japan and germany, overall we think long gated treasuries remain anke ev anchored by global growth concerns. >> ari and larry, good discussion on the u.s. treasury. we appreciate it. thank you very much. for more trading nation, head to our website, tradingnation.cnbc.com. >> every day we bring you the top analyst calls that are moving the market. call it street talk. it is straight ahead on "power lunch." ear wat you've watching cnbc, first on business worldwide. and now the latest from trading nation and a word from our sponsor. >> fundamental analysis is often described as looking at real corporate data in order to determine the value of an
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the snazzy graphic says time for street talk. five names we think you need to know about every day. stock number one, surgical care affiliates. scai. the company is running downhill, a good thing, they reiterated buy, raised their price target, called the last quarter superb and the company has robust organic trends. the target goes to 50 from 48. that's about 20% upside on surgical care. >> not having an impact on the stock though. second call, rack space, steeple downgrades from a hold to a buy. a weaker than projected 2016 revenue forecast despite the company profits of 24 cents per share. revenue was also slightly below forecast. that stock is higher 1.5%.
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>> another company that people are concerned about, the commodity of their main product. the stock was a $50 stock a year and a half ago, now 18 buck stock today. from computers to chicken. tyson foods stop call 3 after a presentation at the cagney conference in florida, stevens upgrading it to overweight from equal weight. tyson's earnings growth profits stability, balance sheet and product portfolio increasingly mirroring more traditional consumer packaged food companies. so the stock should mirror those companies as well. they boost the target to 75 from 68. about 20% upside on tyson. >> they need to. 62, it had a great move while the rest of the market is not so good. next stock, devin energy. ubs reiterating sale opinion, lowering the target, lowering oil prices forced devin to slash the quarterly dividend by 75%,
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cut 20% of its staff, oil producer came in seven cents above estimates. nobody cares, though. revenue missed by a substantial margin. >> we have been to houston, dallas, calgary, i've never been to oklahoma city. >> really? it is great. >> i tell you what, chesapeake energy, devin energy, sandridge, deferred to bond payment today, continental resources, all in oklahoma city, a lot of layoffs there, you know, tough times for the okc, maybe need to get there. tough time, stock down 5.5%. finally, your smaller cap under the radar name, maradi therapeutics. jeffrey starting coverage with a buy rating on the stock. the cancer approach is right on target. they say the shares are undervalued against the opportunities around their long-term cancer treatment trials. the analyst does note that both candidates they talk about in the early stage, but there is strong rational in the approach,
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they expect more data this year to confirm the optimism. they have a $33 target on mrtx, more than 50% upside on a $22 stock. your under the radar name of the day. >> it looks like a lot of the biotech stocks this year. >> just super volatile and we can blame the fed. i'm kidding. >> tyler. >> thank you, folks. someone out there is making a big bet on twitter. more on that when "power lunch" returns. ♪ every auto insurance policy has a number. but not every insurance company understands the life behind it. ♪ those who have served our nation have earned the very best service in return.
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jon najarian is here. somebody is making a big bet on twitter. it is due for a pop? >> the same person made a bad bet about a month ago on twitter. >> you know who this person is? >> i don't. but they bought an awful lot of calls, they bought 1.1 million of these share equivalent of these calls in twitter that were due to expire in march. now, what they have done is sold that position out, but rolled down in june. in other words, now they're betting that twitter moves up between 21 and $26 a share by june, previously they were looking for it to move 24-29 by march. so it is a substantial bet.
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it is a lot of money on the table. and obviously jack dorsey is probably pretty pleased about it. >> are they protecting what was going wrong for them? is that what they're doing? >> perhaps. i guess the question is it good money after bad? they lost a significant amount of money. they probably lost about a million dollars on this trade. the first time out. >> they still have their conviction. >> gone right back into it with another million dollars and say i think i'll be right this time. if they are, they'll make $4.5 million on the bet, being right. >> how often you to see this kind of trading in -- >> all the time. >> in twitter? >> not necessarily in twitter. we see it all the time, where somebody especially if they're right, michelle, rolls in and does another one the next month to take advantage of the same sort of intel or information that they have got. in this case, it is somebody who has been wrong but maybe timing is just off, i think the stock will be north of 26 -- >> by hold a short position. >> not an insignificant bet.
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it is a big bet, especially -- >> too big to be a hedge only? does it have to be a position unto itself? >> i this i so. in particular because these strikes that they're strikes they're trading, 21 through 26 strikes, that's much above where twitter is trading right now at approximately 1760. they're betting big on the up side. this would not be a typical hedge, which is something else that you see every once in a while. if doesn't kick in until twitter rallies. >> i wonder if they're thinking that all this talk about whether or not private equity was going to step in and buy. >> and they want to get it more time for that private equity person to step up and write the check. >> does this tell you, as if we needed to be told, that twitter is a speculative stock? >> yes, it is a speculative play. it's going to be a play ground
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for a lot of big players, depending on how things shake out. let's not make too much of it, but a third day in the row of potential 1%, that would be the first time that would happen since 2011. >> it tells me the risk-on trade is working, and people are willing to put capital in it. they're willing to jump into the stock market, even though it's burned so many people this year with these very quick 2% rally, and then 3% declines. this one is the first we have seen of an extended rally, and people are still with that mind-set willing to throw new capital in, and chase it. >> jon, thank you very much. >> thank you. coming up, smaller businesses that deal mostly in cash have known for years they can expect extra attention for the irs. two small business owners are pushing back. indicate rogers has the story. >> that's right, large cash transactions have a dairy farmer
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and convenience storeowner in an ongoing battle with the i.r.s. more after the break on "power lunch." 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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kate rogers has more on the story. >> the little guy, maryland dairy farmer have no idea that large cash deposits could be a problem until they found out the hard way, which the i.r.s. seized $63,000 in 2012. >> we didn't do anything wrong. we were deposits cash in the bank. if i wanted to hide it, i would have put it in a can, not in a bank. you know, the government comes in and takes your money, the cash deposits came under i.r.s., baas they were broken into large sums, they say at the is suggestion of a teller t it's meant to targets money launderers and terrorists that break up their sums to avoid recording laws. sowers maintain they had no idea and they were bringing in cash
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from farmers markets. and i.r.s. agents accused the palestinian immigrant of skirting reporting laws. he had more than $150,000 taken and denies the charges. >> they say i have to sign a paper. i say, listen, you know, my english is, you know, is not right. they said, no, no the young boy, he read it for me, like he read the newspaper. you need to sign it or we go to your wife and have her sign it. >> after public outcry they changed their policies for future cases, restricting seizures to those suspected of criminal activities, but both businesses are fighting to get their cash back today, thanks to the nonprofit institution for justice. letters were sent, and they decline to comment on specific cases to cnbc for the story.
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this is one of thor situations where you think about mission creep. you understand the original intention of the law. it's a good one, you want to fight terrorists, money launderers, and then you wonder, do they start doing it for other reasons? >> that's how they caught speaker hastert? >> exactly. >> nothing to do with terrorism or -- >> exactly. >> we showed that congress got involved last years and some of the business owners testified they had ask the treasury to return the money, these pet ticks were filed, it's kind of like a pardon, but if they do that, that would open up the i.r.s. to many more cases where they may have to do it over and over again. >> what's -- we often talk about the death of cash, cash is dead. you know there's more cash in circulation there's something like 1.2 trillion in bills. a lot of it is overseas, cash is dead, but there's more cash than
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ever. raking in $12,000 on a weekend farmers market? >> they took his money, the money he brought into separate -- >> it was a pattern of deposits. >> i get that. so it allows them to come in and seize year account without necessarily charging you with criminal activity. >> ten grand, ten grand. >> less than ten grand, but knowingly structuring, that you're doing it to avoid the reporting laws. >> so that money is frozen or gone? >> he settled for half. the government still has around $30,000 of his money. >> but they never proved he was involved in terrorism or in drugs or money laundering. >> but was involved in structuring. >> he says unknowingly, the bank teller tell if you deposit this, you have to fill out paperwork. it's easier if you break it into smaller sums. you can hear for himself -- he would have put it in a can if he was trying to hide it.
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>> and fundamentally the same thing with mr. koran? >> the attorneys' points are that the doj and i.r.s. seemed to know they were wrong, today's law would not apply, because you basically have to tie them to criminal activity. so if it was today's law they should return the money, they're hoping the guys will get repaid. >> the tax code is 74,000 pages long and counting. that is an actual number, america. 74,000 pages. >> good story. >> hug an accountant. the rally is still going on, knead dab is higher by about 88 points. when we look at the numbers of the dow, 28 members of the dow, the dow industrial average is higher, a gain of 1.5%, s&p by 1.5% and nasdaq higher by more than 2%. it's pretty broad-based at this point. let's be negative.
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why not? mcdonald's and pfizer. >> mcdonald's had a nice run, but chevron, bank and boeing which has been troubled. an hour to go. thanks for watching "power lunch." >> "closing bell" starts right now. \s hi, everybody. welcome to "closing bell." i'm kelly evans. >> and i'm bill griffeth. a third day of gains for the stock market. pretty good gains, as a matter of fact. now, if we close higher today, this would be the first time this year we have seen a three-day gain for the markets. now, this one really gets my attention. if we were to close up by more than 1% on the s&p today, it would be the third consecutive day where the s&p has had a 1% gain. do you know we have not seen that in -- >> i'm guessing several years. >> since october of

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