tv Power Lunch CNBC February 24, 2016 1:00pm-3:01pm EST
so as you approach those levels, it becomes a fait accompli and people put on trades or take off trades they otherwise wouldn't because they think they're beating someone else to the punch. >> crude is positive. north of 32. >> give it 30 minutes. >> "power lunch" starts right now. josh brown speaks french. who knew. welcome to "power lunch." i'm michelle caruso-cabrera. >> french words. >> welcome to "power lunch." i'm michelle caruso-cabrera, tyler mathisen, melissa lee here. we have ceo exclusives ahead in the next two hours. first stocks under pressure, recovering much of the earlier losses, however. the dow, the s&p and the nasdaq all in negative territory. the dow is down 118 points, 16,313. but it was at 16,165. the s&p is lower by 13 points to
1908, was at 1890. nasdaq lower by 24 points, 4,479, was at 4,425. coming off the lows as oil recovered earlier losses. right now, crude higher by 25 cents, 32.12 for the april contract and brent for the april contract is higher by more than a buck. 34.31. staying with energy, historic day for the sector. jackie deangelis is live in cameron, louisiana, with what is an historic moment for the united states energy sector. jackie? >> that's exactly right. good afternoon to you guys. listen, it is funny because not long ago we were talking about natural gas and importing it because we didn't have enough products here in the united states. but because of fracking, we have unlocked all this product in the shale, now we're talking about exporting it. and that's what is happening at this facility here today. cheniere is the first to do it. the ship behind me has been in the works, we have been loading it and prepping it to launch it
off today. it has got about 3.6 trillion btu of nat gas on it and will set sail for brazil. this is the first time we're ever exporting nat gas in the lower 48 united states. now, exporting is really an interesting game when you think about it. it is changing not just what is happening for the individual companies, but the industry as well. it puts u.s. product out there on a global stage and because we have accumulated such supply, in fact a lot of it even this year, it gives us more of a stage to be competitive. what is amazing about the process is we learned today is you take the vapor, the gas itself, turn it into liquid, load it on to the ship and it is interesting because as we have been sitting here we have been watching the level of the ship slowly dig deeper into the water as it becomes more full. now, cheniere is really revolutionizing the game here. they're about two years ahead of the competition. they're changing the way long-term contracts are structured. and that's really key. that's first mover advantage here. it is also really timely
discussion to have because as we're sort of in the energy revolution, not just talking about exporting the gas now, we're talking about exporting crude oil because of the supply glut we're facing and what this will do to the industry. so it is sort of a second phase here of what is happening in the united states as we unlock this massive supply of energy, guys. >> jackie deangelis, thank you. stay tuned. brian sullivan has a power lunch exclusive, cheniere's interim ceo neal shear. that's ahead in the next half hour. let's stick with energy here and look at the sharp reversal we saw in oil. and all this happening just as the european markets closed a brutal session. take a look at the losses there. the ftse, dakotas, cac under pressure there. to the nynex to find out what happened. it seems like there is no coincidence this happened after the european close. feels like algo trading. >> very much so. but, again, i look at the way the market reacted to the
inventory report. and to me it was what was expected, and a neutral report to me has to be construed as bullish at these levels. i'm friendly to this market. i believe everything we heard, even from the saudi oil minister, seems pragmatic and reasonable for the market conditions. and you're going to see now a progressive, let's say, decreasing of these inventories everyone is worried about. people will be driving more, i'm positive to this market and i'm not surprised. >> intraday, you're saying we shouldn't have been down because the inventory report was in line and so basically we're back to the levels we should have been at. >> absolutely. i was a little surprised, a little surprised this morning and this is about where i expected this market to be. and i still consider this a market that is a buy on dips until further notice. >> buy on dips implies range bound. give me the range. >> right now i have to go about 31.50 to $34 near term. >> jeffrey, thanks a lot.
jeffrey grossman. tyler? >> news alert in the bond market now. yields have been sliding. five-year notes up for auction. let's get the action from rick santelli at the cme. >> indeed you're right. yields were falling, but about the last 90 minutes or so yields have been rising and that wasn't lost on this auction. the auction grade for demand at 1:00 eastern straight up i gave a b, as in boy. let's go through it. 34 billion five year notes, yield at auction, whisker under 117. 1.169. and that really is pretty good because the offer side of the one issue market was 117 1/2. here is the rub. in the nine minute s before the auction ended a few moments ago, the yields moved from 112 to 117 in the one issue market. like the rest of the market. so i did take that into consideration a bit. 2.44 bid to cover, pretty close to ten auction average. 67.3 indirect, little better than the 60% ten auction average. but we were there, did that,
done that, july of last year, we had a higher rate. and 10% on directs was also solid, but within the last three auctions, we hit that mark as well. solid above average auction. tomorrow will complete 88 billion in supply with 28 billion seven-year notes. michelle, tyler and the gang, back to you. >> you're in the bond pits. what do you make of the move in the british pound over the last couple of days, just getting hammered day after day over fears of whether the uk is going to leave the european union? >> it is absolutely remarkable to me, but i think the one thung thing i walk away with is how much the uk is being penalized for the notion there is a chance they could walk away from what many look at as a club that is not doing very well. it is very interesting dynamics. to be under 140 is truly historic by every metric. >> makes me want to go to london. >> really. >> thanks, rick santelli. >> all right. it is an interesting day
stacking up here. brian sullivan, in houston, at the big conference. oil remains the focus today, down lower, now back in positive territory. probably still is. let's look at where oil sits if we might. as the stock market has modest losses at this hour, off the lows of the session. the s&p 500 down about 10 points. there is crude up 35 cents or 1% on the day after opening a little bit lower and trading down early in the session. we're going to take a quick break. no, to brian now. i beg your pardon. brian, pick it up. >> thanks, tyler. things are happening so fast, we don't have time for a break here. let's get to our featured guest here on "power lunch," greg ebel of spectra energy, operates a number of pipelines, one of them is 9,000 miles long, somehow. i don't know how that's possible in america, but you say it's true. greg, welcome to the program. >> good to be here. thank you very much. >> okay. the pipeline -- your stock has done well. some of the pipeline stocks have not done well.
what are investors missing? when they invest in your company versus an oil company, because what we're seeing largely is all stocks being sold or all stocks being bought. >> right. i think there is a couple of things. first of all, who do you serve? 75 or 80% of our customers are demand pool. utilities, power plants, et cetera. if all you serve is on the supply side, producers, we know producers are going through a difficult side. if you're a supplier driven pipeline, that's a tough place to be in. 75 or 80% of our growth is also associated with demand users. so as you know, two ends of a pipe. supply side and prices are low, that's tough. if you're at the user side, and prices are low, that generates demand and that creates more demand for our -- >> is that why we've seen in the pipeline group, we have seen companies, yours have done well over the last couple of months, other companies are down 30 or 40%. >> right. >> why are some pipeline stocks being smacked? >> some stocks aren't really pipeline stocks, they have mixed in commodity based businesses and then promised returns on
those that are going to be volatile. very difficult to pay a decent dividend if you have volatile earnings. spectra energy has 90% of its revenue that comes from fees as owe -- to move the product, just like u.p.s. or other parcel companies, regardless of what the product is. we get paid to move the product, not for the product. some companies who have said their pipeline companies actually get paid for the product, and that's tough when the product is moving around like oil or gas. >> that's what the pipeline ceos will say as the bullish case for their companies. and their industry. we're not an oil driller, we are not directly exposed to the price of a commodity. granted that's true. but, greg, you are exposed to companies who are exposed. >> sure. >> if your customers have financial problems, won't they look to renegotiate contract -- >> pretty tough to do that. two things. depends where your pipes go. we go where the lights are. new york city, boston, new jersey, whatever the situation may be.
if there are lights there, even the customers that are producing the product want to make sure their product gets to those markets, right? if your pipeline doesn't go where the lights are, it is like why am i paying you to take me halfway home if you understand what i'm saying. >> are customers coming to you and trying to renegotiate? >> they're not. we go into places like new york city. so when you go into new york city and go into boston where gas is among the most expensive natural gas prices in the world, they're in those locations, even when prices are down in the field, the prices are still strong on those places. so if you go where the lights are, if most of your customers are demand pool customers, you're in a good spot. that spectra energy and spectra energy partners. if you don't go where the lights are, you're going to have a real challenge. that being said, sure, we have some of our customers that are in some degree of distress and you also make sure that you want good investment grade customers and you have collateral from those who don't actually meet investment grade and we're able to achieve that. >> what if gas stays at these prices. do you anticipate someone could
come to you down the road and say i can't afford to pay it? >> it could but there is not a history of that. even in bankruptcy, the natural gas pipelines have continued to do well with their contracts because they go where the lights are. again, if you're not where the lights are, i think you'll have a challenge. if you are where the lights are, you'll continue to do well. >> our big story today is cheniere. this liquefied natural gas, the first exports going to asia, giant ships, lots of stuff going on there. is that going to fundamentally change the natural gas market? it is not your world, but you're a natural gas guy. >> sure, we serve natural gas -- lng import facilities and export facilities. what it is probably going to do is make gas more global than it is. it is regional even in north america, but we ship more and more natural gas to asia and europe and other places, the price will get more global. not sure if that's positive or negative yet. >> will that impact prices here
in america? will natural gas prices firm up because we're going to start to freeze some of this stuff and send it overseas? >> i think you're already seeing that a little bit. it is more aligned with oil and it will stay more aligned with oil. when the price of oil is 100 bucks, that's good for lng exporters. when it is 30 bucks, that's a tougher argument to make. >> a lot of jobs -- last question, a lot of jobs have been lost in the oil and gas business. will the export of any refined product or oil or gas, lng, help you guys, the pipeline industry, build out, spend money and create jobs? >> it is already doing that. even though you're right, we have seen lots of jobs lost, mainly on the upstream side, you see along the gulf coast of mexico the build of new petrochemical plants leading for the need of pipelines and good jobs in those regions. it will. but it is a tough time in the market now. >> i want to leave it on a little bit of a optimistic note with jobs. so painful. maybe the pipeline industry will
come back and save some of the jobs. >> we're still building. >> greg ebel, a real pleasure. thank you for joining us. we'll see you soon. take care. "power lunch" going to take a short break. a lot going on. more big guests coming up from this conference including the u.s. secretary of energy, ernest moniz will join us and the ceo of cheniere and pioneer. you're oil, gas or energy, we're the place to be.
welcome back to "power lunch." i'm melissa lee. the russell 2000, the first of the major averages to turn positive as crude gains accelerates. the russell was down as much as 1.5% at the low of the day. meantime, wti crude is up by about .6%. >> stan fisher weighing in earlier today. >> we're still looking at it. we haven't got this figured out exactly and fortunately we're a little way away from there. >> a little way away from there. rick rieder is cio at black rock, put out a new blog on the problems with negative interest rates. he's no fan. he's a fan of cnbc. he keeps coming back. rick rieder, welcome back.
>> appreciate it. >> what perplexes me in part about negative interest rates, apart from the mind bending logic of it is the question, can you or can anyone cite an example where negative interest rates have been used and have produced the desired results? namely an increase in bank lending and an increase in overall economic output? >> so i would say, you know, i would say no is the answer to that. however, it is hard to prove when you implement a negative interest rate what the counterfacts would have been, what would have happened if you didn't. you create so many logistical problems. when you drop interest rates to such severely low levels, you're taking money from savers and handing it to borrowers. you saw that -- we dropped interest rates in 2009, 2010, and you had to do that to create some satisfaction for the system and to delever the economy. moving to a negative interest
rate, it creates all sorts of logistics problems, all sorts of -- by the way, the wrong part of the yield curve. companies don't borrow over the overnight funding rate. >> they borrow long. >> correct. the difference between qe and negative interest rates is qe gets at the long end of the curve, gets that liquidity in the system. we think that's a different dynamic than negative -- >> you pointed out a couple of problems with negative interest rates or unintended consequences of them or the nonconsequences of them. is the problem in the system that there isn't money to lend or that banks aren't incented enough to lend or is the problem on the other side, that there isn't the demand for loans out there? >> so as you touched on the right point, the problem today is that the demand -- the demand isn't at the level because companies aren't seeing -- because consumers aren't seeing the point where you want to increase leverage in the system. you came off a tough period, and when companies look at their potential return on invested
capital, it is not high enough relative to what the cost of debt would be. so we would argue there is a demand function at play today. things like fiscal policy, things like effective research and development grants, et cetera, that gets that demand function, but we would argue that just pressing into a negative rate zone doesn't actually instigate any increase in demand. >> rick, i think back to when the japanese went to negative interest rates very recently, astounded the world and didn't get the outcome they wanted. the yen surged more and more as each day goes by, the critics of the central banks of the world are looking at that moment as a seminole moment saying there is massive problem here, this isn't working. is central banking in crisis now? >> so, by the way, i thought that was an incredibly important moment. i wouldn't argue in crisis. i think it was an important point in time. i think policymakers are thinking about what the implekss are, what the mal effects are when you press policy to such extreme levels.
i have to believe that the ecb is thinking about it, do we do more qe, bank assets or covered bonds and get some of the discussion away from just a pure -- let's keep pressing interest rates lower. i wouldn't say it is crisis. but i do think it is a good conversation i have today about what is the right policy. >> what happens to europe then? what happens to the ecb when they start pushing it. there was a study that was released i think today finding that 45% of the bonds out there are not qualified to be purchased by the ecb for various reasons and so they might be pushed to buy bank bonds. aren't we just transferring the risk in the system from the private sector to the central bank? >> yeah, i would say there is a series of ways to do that. i think that what the ecb is doing is expanding their basket and doing more in terms of municipalities, in terms of covered bonds, doing more in terms of corporate. there are ways to do it that are effectively where you're not taking that much risk on to the
ecb's balance sheet, senior debt, covered debt, but that is a more effective -- that's much more effective mechanism than just dropping the interest rate to severely low levels or negative levels and hoping the transmission follows. >> rick rieder, thank you very much. sorry we couldn't see you in person. happy to have you on the phone from black rock. james bullard will guest host "squawk box" tomorrow at 7:00 a.m. his portion of it. stocks under pressure again, but recovering from the early losses. the dow is lower by 119 points. the s&p by 13. the nasdaq by 16 points. the biggest dow drags, ge, boeing, caterpillar. you can see they're all off by 2% or -- caterpillar 2%, ge and boeing more than 2%. "power lunch" is back in two minutes.
shares of tjx bucking the down day. raising its dividend 24% to 26 cents a share. chesapeake energy soaring more than 20%, the biggest gainer in the s&p 500. the natural gas producer expecting lower capital spending for 2016 and says it will sell more assets worth between 500 million and $1 billion. and first solar, the second biggest gainer in the s&p 500, the stock soaring almost 13% here on the back of its earnings beat last night. a check on the bond market on the back of the five-year auction at the top of the hour. let's go back to rick santelli
at the cme. >> an intraday of five years and this is the old guy, mind you, real glif ly gives you the whol story. the sell-off afforded many to buy it at a much better level. now, we'll continue to monitor, but an important level nonetheless. let's go back to the beginning of 2015. see all the left side and right side around the yield of 114? truly significant. same dynamic in ten-year, open it up to beginning of 15, in the mid to low 160s, very important support level. and the last chart, by popular demand, 20-year chart of the pound versus the dollar, it continues to amaze me in the wee hours of the morning, this thing was below 139. you see on the 20-year chart, evenly a couple of handles from changing history in terps of the valuation, but ultimately the vote as to whether to be --
remain a member of the 28 countries banding together known as the european union, maybe they're getting this one wrong, time will tell. michelle, back to you. >> thanks so much, rick santelli. we'll be watching that for sure. triple digit down day for the dow. volatility and fear creating opportunities for long-term investors. we're going to show you where. shares of cheniere energy, they are soaring more than 10% today. now up 11.5%. historic day for the liquefied natural gas producer and interim ceo will join us for a "power lunch" exclusive to tell us what it all means for his company. stick around. thank you. imagine if the things you bought every day... ...earned you miles to get to the places you really want to go. with the united mileageplus explorer card, you'll get a free checked bag, two united club passes, priority boarding, and 30,000 bonus miles.
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voila. remotes, come out from the cushions, you are back. the x1 voice remote is here. welcome back to "power lunch." i'm melissa lee. let's check the markets. the dow is down by 114 points. all three major averages we should point out are off the session lows at this point in the session. nasdaq is down 15. the s&p 500 was down 20 points lower from where it sits now, but it is down now by .7%. small caps are in positive territory. we talked about the turn around in crude.
look at where wti is trading now. it is higher by .8%. now let's get to sue herera. >> here is what is happening at this hour. president obama meeting with jordan's king abdullah in the oval office. afterwards he said he was cautious about raising expectations regarding a cease-fire in syria. >> if over the next several weeblgs s weeks we see some lessening of violence, that provides us a basis to build a longer term cease-fire both in the north and the south. >> and anti-hedge fund protest in new york city. members of the hedge clippers demonstrating outside a major investment summit hosted by interest capital at the waldorf astoria hotel in new york city. they're calling for higher taxes on the wealthy. amazon pulled hoverboards from its website. its decision comes days after the consumer product safety commission deemed all hoverboards unsafe.
earlier target and toys "r" us removed hoverboards from the website. phil knight is donating $400 million to stanford university to help create the largest fully endowed scholarship in the world. the san jose mercury news reports the program, which will be unveiled today, will be larger in scope than the rhodes scholarships at oxford. incredibly generous gift. that's your cnbc news update this hour. back to you. >> thank you so much, sue. gold prices are closing right now. along with the entire metals complex. right now, gold higher by $17, gain of more than 1%, 12.40 per houn ounce. gold is a safety trade here as we talk more and more about negative interest rates around the world. as for the rest of the metals complex, silver is higher by 6 cents, copper is lower. palladium off by more than 12 and platinum slightly higher. >> stocks are off the lows of the session, but we still have a triple digit loss for the dow.
is it a buying opportunity? some say yes. joining us burt white, chief investment officer of lpl financial. welcome. i've been familiar with the brandy wine funds from foster freeze's day there. i know you like value, but i'm struck by the deepness of the value and some of the recommendations you have here. let's start with valiant, off 58% over the past year, the center of all kinds of alarming headlines, let me put it that way. where do you see the value and why do you think now is the time to jump in? >> so i think valiant is a potential double here. and the intriguing thing to me is people are analyzing the headlines, and not the business. there was an analyst that came out early this week with an initiation report. if you read that initiation report, you would learn nothing about what valiant actually does. you would not have learned they have 30 products that are $100 million or greater in sales. you would have seen no
discussion of bausch and loam, the sarah view business. there are a lot of things that they do. this is a company that is at a single digit pe, real free cash flow, real products, and people are focusing on a small percentage of the business as if that's the entire thing. >> what about the clouds surrounding it and they seem pretty dark. >> the clouds don't really matter. the clouds really don't matter. >> financial statements -- financial restatements don't matter? when you're valuing a business and the company is saying they have to restate their earnings, isn't that -- doesn't that affect your analysis of what that business is? >> so-so far they have announced they're going to move ten cents from one year to the next. here is the thing we did at brandywine, he said what if we eliminate all of the sales, what happens? it doesn't materially impact the value of the business at the prices you're paying today f . u
if you lower the prices on all of the drugs, still get a single digit pe. we looked at other frauds. no medicare and medicaid business here. what were the fines paid? hundreds of millions of dollars, they don't destroy the business. the value we see in valeant is exceptional from 250 to 75 or 80. up today, but it is a very cheap stock. the business is not impaired. maybe 7% of the business that has clouds and people are acting as if the entire business has clouds. >> i know you appreciate the fact that we have to ask some tough questions. let me turn to burt white. your view is somewhat more nuanced i would say. i know you like value. what financial guy says i hate value? but you're taking a more cautious stance here in terms of how you advise people to position their portfolios. maybe at the low end of their tolerance range for equities. >> absolutely.
if you look since 1950, 90% of the biggest up and down days, most volatile days happen below the 200 day moving average. it is where we are now. it is very volatile terrain. we think because of that, the market is in a tight decision box. it is going to be bouncing around a little bit here. and we think because of that volatility investors need to be careful, not to be too overexposed. we don't think this market will get away to the upside or dwr n downside. so being careful and mindful of risk exposure and taking the opportunity as the market moves to the low end of the decision box, around 18.50 or so to think about adding extra risk if it certainly suits your portfolio. the big thing we're watching here is the fed. there is a big disconnect between the market and the fed. and the market is looking for the fed to signal they're going to be on pause for a while. but the fed really is pretty resistant to volatility. they don't care so much about volatility. we do in the market. we do as investors. but the fed doesn't. as they start to see inflation begin to show some green chutes,
you could see a real concern here where maybe the r word isn't as much of a big deal, but the i word is something a lot more concerning. >> the i word? >> inflation? >> inflation. >> wow. i think they would be relieved, actually. what if they don't get nervous, and they don't back off on raising rates? are you nervous about the market then? >> a little bit. if you have a shaky market and fed raising rates because they're concerned about wage growth beginning to move higher, we're continuing to get good prices from home, if you continue to see those things happen, you can easily see this disconnect between the fed and the market, and that's something that could really be something that the market is going to have to rationalize. they're looking for some stability, anywhere they can get it. not finding it from the commodities complex, would love to get it from central banks and they would feel better about it. if they don't, we could have a little battle here, more volatility. >> burt, thank you. patrick, thank you as well. i should point out, patrick's
other choices, santander consumer, big deep play in value there, down 55% over the past year. citigroup down 28% over the past year. go to powerlunch.cnbc.com to see burt's strategy for global markets. crude oil turned positive after being down more than 4% at one point this day. much more on oil prices and their impact on the industry from the big energy summit in houston when "power lunch" returns. ♪ ♪ ♪ for your retirement, you want to celebrate the little things,
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usaa. we know what it means to serve. get an auto insurance quote and see why 92% of our members plan to stay for life. welcome back to "power lunch." here are this hour's power points. stocks are down, but well off the session lows. the three major averages are now down only about half a percent. and small caps actually in positive territory. telecom, energy and materials leading the way. industrials and financials are still the biggest drags. some of the big winners, chesapeake energy leading the s&p 500. varis analytics leads the nasdaq 100 and united technology leads
the dow. let's bring in dom chu, getting miked up. >> let's talk about what is happening overall with the u.s. automakers. they're one of the lagging industry groups overall so far today. shares of ford, gm, fiat, chrysler, down. in the fourth quarter wrap-up, credit suisse analysts say it is a quote/unquote poor time to own auto stocks as u.s. volumes have peaked. are we at peak autos? morgan stanley making calls on autos today, saying the domestic industry is exposed to risks of a cyclical downturn in major markets. ford, gm, chrysler, down double digits so far this year. it speaks more to the idea that are we at this level of peak autos and have we seen kind of like that downturn really move along? >> it also speaks to how late the analysts have been in recognizing that peak -- that automakers were held going into that period, and that they have been a terrible trade over the past year. >> right. and for everything that we have
talked about last year, with regard to the record number or close to record number of auto sales and everything else, it hasn't translated -- >> and stock price. >> correct. it was -- it hasn't translated into future gains for those particular models. you wonder if that is priced in. whether or not these analysts got it right or not, i'm not smart enough to make that call. however, we do know the stock prices have not been reacting well, given what has been happening with these high volumes of autos, lower gasoline prices and everything else we have been seeing. >> dom, thank you. >> let's head down to brian in houston. >> all right, melissa, thank you very much. coming up after the break, not one, but two interviews you cannot afford to miss. first up, we're going to be speaking with the ceo of cheniere energy. that massive ship you've been seeing, lng exports to asia, a huge story and neal shear is going to be your guest first on cnbc. and then directly after that, u.s. secretary of energy ernest
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welcome back to "power lunch." two big interviews coming up for you. let's go straight to louisiana, because it is a big day. joining us is neal shear, the ceo of cheniere energy. and there is a massive ship filled with liquefied natural gas right behind him, which is ready to depart, really aside from a -- i don't want to steal the secretary of energy's thund, i'll let him say it, this is the first large scale export of lng. it is a big day. what does it mean for cheniere and cheniere investors who have been very patient? >> it is a very important event for cheniere, something we have been waiting for and obviously been under construction for a number of years. our investors are obviously very excited to seat first cargo, first commissioning cargo go out. cheniere is a unique company in this space. we'll be the first ones to deliver lng. people should energy we're 80% contracted on seven trains.
we have development grade counterparts, that have signed 20 year contracts to deliver lng from these facilities that we're sitting in today. >> and what you just mentioned about the counterparts, neal, that's had i'm bewhat i've been from investors, they may be investment grade now, but how concern ready you about the financial strength of your counterparties and your contracts with them? >> yeah, listen, people talked about our counterparties. there are two things you to talk about in credit, willingness to pay and ability to pay. all our counterparties have the ability to pay. who am i to speculate over the willingness to pay. these are secure contracts, not like other contracts in the lng market. we have the rule of law here in the u.s. that protects us. so while i hear other people's concerns, myself i'm not really concerned about it because we know that every one of these counterparts are capable of paying their obligations.
>> and what are you hearing from customers about future demand? >> you know, at the moment, demand is a little bit slack, but you build projects like this, not worried about the next 36 months, worried about 20 years. i'm very positive that the year 2020 and beyond that the demand for lng will continue to increase. and that's what we're here to do. seven trains, we have customers, we have capacity to build at least 11 more trains on the two sites. and we're looking forward to doing that. >> what is the massive surplus of natural gas, united states mean for the export of liquefied natural gas, when do you see the market coming into some kind of balance, neal? >> that's also a very interesting question. and when we look at markets today, clearly we had record storage in 2015. we could have record storage yet again in 2016, the u.s. has an
abundance of natural gas. so my immediate concern about impacting the price market in the united states really, really isn't there. above us, we have significant supply at $3 price level. so i don't think that we need to be worried about gas supply here in the u.s. at reasonable prices for a very, very long time. >> you anticipate free cash flow positives, sometime next year or fiscal 2018. are you still counting on that and what will that mean for your investors? how will you return capital back to them? >> that's a very interesting discussion that we're going to have on the board. we have opportunities in front of us that are great projects. at the same time, investors may want some cash back. our cash flow at the full rate is 7 trades, i think it has the ability to satisfy further investment and cheniere facilities and satisfying our needs for additional cash flow. that's a discussion we need to have with the board. and that's a discussion that several years in advance.
so i'm not going to count my chickens before they hatch, we'll have that robust discussion. but we'll be in a good position at the time we have that. >> are you still counting on free cash flow to be hatched? >> pardon me, brian? i couldn't hear that. >> are you still counting on the hatching of free cash flow? can we still anticipate that? >> what was that word again? >> all right, i'm trying to see if we get neal back. can you hear me? >> yes, i can hear you. we have some wind in my ear, so i hear free cash flow, but i hear another word. >> okay. no problem. i get it. i'm in houston. it was windy. i totally understand, neal. do you still anticipate being free cash flow positive in a couple of years? >> yes, we do. cheniere is a fabulous shape and
i continue to repeat we have 20-year signed contracts, 87% of these facilities are contracted. we're not like other companies in the energy patch, and people should really think of us and that is 20% contracted, seven trains, and the ability to export almost four bcf a day that are back by contracts. >> last question, your predecessor, charif souki, forced out by carl icahn in part. how does that change the makeup of the board? how does that change the makeup of cheniere energy strategy going forward if at all? >> our strategy really hasn't changed. it really doesn't matter who is sitting in front of the camera with you today. the market really dictates expansion plans. when the market is open for long-term contracts, and we can get those contracts, we'll go out and sign them. the market is available to everybody at the same time. we're actively outmarketing train eight.
and we have some confidence that we'll be able to possibly conclude that in 2016, but no later than 2017. that will be another exciting project that we have to look forward to. >> neal shear, ceo of cheniere energy, very exciting day in louisiana. windy and exciting day as well. good omen for sailers. thank you very much. we'll watch that ship go out and speak to you on cnbc i hope. take care. >> thank you very much. 158,000 cubic meters of lng on the asian vision right behind me. >> thank you very much. let's follow that up with the u.s. secretary of energy, ernest moniz. secretary, thank you for waiting. thank you for being patient. listening to the interview, it is interesting when you sat down before air, you said, brian this is not the first export of liquefied natural gas, but you said it sort of with a gleam in your eye. what do you mean? >> technically there was a very, very small volume in what is called an iso container that
went from florida to the caribbean. but -- >> a cooler. >> in effect. but this is the first real lng tanker to go out. it is a big deal. as you know. we are now perhaps at the ten-year mark of what has been a real natural gas revolution in this country. prices driven low. gas now the biggest supplier, biggest fuel for electricity. overtaking coal. revival of manufacturing. and now getting into the export market, and probably in a few years, being among the very biggest exporters of natural gas in the world. >> this was supposed to be an import terminal that they had to reconfigure a decade over a decade and now an export terminal. what is this going to do to the natural gas market in the united states? >> well, first of all, i want to emphasize you're right that as recently as 2005, senior members of the hydro carbon industry were talking about the need for
imports, that has really changed dramatically. we have done a department of energy, we are required to do before we license export of natural gas to nonfree trade agreement countries, we're required to do a national interest determination. part of that determination is to look at the impact on domestic markets, in fact, we have a study out right now for public comment that evaluates the impact up to 20 million cubic feet per day. that's way beyond what we're talking about today with cheniere. and the impact on domestic prices is viewed to be less than 1%. while having other major benefits for the economy in terms of the export and in terms of zblojobs. >> you sound bullish on natural gas and bullish on the export of those things. how do we square that with an administration that has been tough on pipelines. if we can't get the gas to the
export terminal, how do we export it? >> we have a very, very well developed pipeline infrastructure for natural gas in this country. in fact, i would say that the repeatity of how natural gas changed the scene in the united states was possible only because of the existing infrastructure, both pipes and market infrastructures. that's what allowed this to happen so fast. so we have a very, very good infrastructure. there are a few bottlenecks in the country, especially in the northeast, but that's not where the production is. that's a question of supply. >> would you support new pipelines? >> i certainly support bringing the gas that we need, particularly from the marcellus shale in pennsylvania, but there are projects right now going forward that will substantially increase the capacity of the existing infrastructure and take
gas to new england. >> oil doesn't drive power generation. it drives cars for the most part. but there is a lot of investment in capital involved in oil that has been wiped out, natural gas is a big power player. how is what is happening in oil and natural gas going to impact the long-term outlook for solar, wind, hydro, and other renewables? >> first of all, brian, let me make a one comment about the connection between oil and gas in the international markets. while in the united states, the oil price and the gas price are not really tightly linked, but in other countries, where historically lng has been indexed to oil prices, has seen a dramatic fall in natural gas prices, in asia, and in europe, along with the oil prices, that affects the global gas export market for today. that is an issue that will impact how we develop in the
united states. now, your question in terms of -- >> renewables? how does it impact solar farm. if i want to make a billion dollar investment in a new wind farm or solar farm, the price of natural gas, does it make it less economic for me and less likely for me to do that? >> so far in the electricity sector, the low natural gas prices have principally impacted coal and nuclear. in coal, there was a market driven shift. it wasn't so long ago where coal was half of our power production. >> still close. not that far off. it has come down. a little high. >> it is now 32, 33%. >> is that still one third of our electricity generation. >> but gas was 20% and now it is slightly above coal. so this is a big -- the energy business does not move with the movement dexterity typically. this is a big shift in a short time. secondly, nuclear plants have been impacted. particularly in the midwest.
smaller plants with the competition with gas. on renewables, one should remember that we still have, first of all, a robustly growing sector. partly because of things like state renewable portfolio standards, but another thing is the cost reductions of renewables have been dramatic and they are competing very, very well in many markets. >> they have gotten smarter as well. ernest moniz, u.s. secretary of energy, thank you for spending time with us. we appreciate that. >> pleasure. >> have a good conference. we're going to take a short break. we're not done. we have the ceo of the company that some say might be the smartest oil player in the market, pioneer natural resources, their balance sheet looks good compared to a lot of players. we'll ask the ceo scott sheffield how they have done and where they see the price of oil going.
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seems to be dissipating and now back in negative territory as we speak. 3186 a barrel. look at the sector weakness. we're seeing weakness in particular in the industrials as well as the financials. interesting because even though we bounced off the lows for the broader indices, the financials are sitting close to session lows right now. let's bring in david seeburg, head of trading with cowan and company for more on this. it is interesting. seems like a technically driven trade today. we have the european close. we have crude bounce higher. then the markets followed higher too. in this market environment, what are you trading? >> well, i mean, look, our desk has been extremely quiet today. we have watched obviously oil coming in this morning, considerably lower. the gasoline numbers, the drawdown in inventory suggesting some demand. you saw crack spreads rally. oil begins to rally, taking the market higher, in conjunction with the european market close. we start to see a little bit of a bid from that perspective.
look, it is generally a really lackluster day. i think a lot of people in the financial names, you know, they have really used it as a trading vehicle. we talked about it on fast the other night. >> jpmorgan -- >> absolutely spooked a little bit in the last day and a half or so, you see selling. they talk about them renting trades for upside and basically getting out as quick as they can, when they fear any sort of, like, offset or downside risk. so i think, look, we're in a range now. we talk about 1950 being a level you start to sell and maybe it is 1850ish, 1875, where we probably see a little bit of support. but we're really range bound now. >> is there any catalyst you can envision that would cause the stock market to take a big leg up other than oil? >> well, i mean, look, you know, one catalyst that comes to mind would be m & a. we talked about the topline growth for the companies. these ceos need to go on a limb,
figure out -- >> why would m&a be a driver when it is going to be driven by a search for growth. that's -- the companies are at the end of their ropes in terps terms of growing their business. >> they got a bolt on product, create synergy, cut costs, and find a way to bolt on to a topline growth scenario where they drive earnings. there is really -- especially in scenarios where you're seeing some industries slowing down a little bit, figuring out a way for cost synergy is an important thing to figure out a way to drive that, that -- those earnings in order to keep things moving in the right direction. i think the companies are struggling to find, you know -- to drive earnings here and to find that revenue sort of grow. >> defensive mergers, not offensive. >> defensive, correct, absolutely. no question about it. look, and, i mean, the energy
sector in general, we talked about it a lot, what needs to happen to instill confidence level in this market is you need to see companies, the names completely struggling from a financial perspective, you need to see them go under. you need to see those borrowing bases retracted and see companies go and assets get sold and things start to sort of shake out i litta little bit. who is going to stay longer or jump in head first and get longer? >> winning trade has been retail. outperforming year to date. are you a buyer of that trade? we got great results from tjx. >> yeah. look at -- look at jwn, that was an example, we highlighted that name on fast with you, melissa. that's a name that was set up well. they came out and purged the inventories, guidance was terrible, the stock, you know, opened lower and ramped higher. we saw more money flow into the names that really kind of, like,
had awful guidance, you know, like threw it all out on the table, cleared the decks for a sort of, you know, re-set in the bar for that -- for the retail sector as a whole. so, yeah, money is definitely starting to flow into some names, especially the ones, again, that re-set their bar. >> thank you. as melissa and david were talking about, financials once again under pressure. the banking etf is low, one of the weakest of the market, off by 1% and worse trading session for the european banks. how worried should we be about the banking system, particularly in europe? joining us to discuss is ken buckfire of miller buckfire, dominant player in the restructuring business, with primary financial adviser to the city of detroit. good to have you here. >> nice to be back. thank you. >> i want to talk about banking. first, highlight something that you said to me in the past, which i think is significant,
debt is the silent killer of growth. what do you mean by that? >> it is really an sxexemplar o what f. scott fitzgerald said, a modest amount of debt is positive, cheap capital. but too much of it, at some point it becomes unmanageable and people that have too much debt become very risk averse. they worry about being able to repay their borrowers, debtors on schedule, and if they can't, the cost of the debt is infinite because they lose everything as we just said before. these companies, which have too much debt, need to get mark to mark, asset needs to be sold, people that own the assets lose them and pay back the creditors. if you're borrowing that money, you str you have to be careful how you spend the money. >> feels like what is happening across the entire european
continent at this point. >> very much an example of this, yes. >> european banks look awful. the trade is awful. the credit default swaps are starting to rise. is european banking in crisis now? >> i think they have been in crisis and it is, again, a slow evolving crisis. since 2009. the washout of overlevered borrowers never occurred. the reduction of interest rates allowed people to extend out their maturities lower interest rates, service debt with lower costs, but never really dealt with fundamental problem. they have too much debt. now the banks have rising level of nonperforming loans, overall profitability is under pressure because instead of having a steeply sloped yield curve, you have a flat yield curve, making no money on their deposit. and there is no loan growth. so they have no profitability drivers on the loan side and under increasing pressure because their basic assets are declining. >> why does this end? sounds awful. is it possible we're seeing nationalizations of some banks over in europe? >> i don't think you'll see that in every case, i think what
you'll see is a much more refined example of nationalization where the banks will be told, move your nonperforming assets into a bad bank structure, and take your losses now. and the central banks, especially the domestic central banks, will find a way to recapitalize the banks through the kind of bailouts we saw in the united states with aig. rather than taking over the bank, they gave them credit at a particular cost. and a lot of them keep operating. >> we should underline that was horrific for the shareholders and would be very bad for the shareholders here. >> yes, the banks and financial systems will survive. which is, of course, the mission of the central banks. >> but they will be completely uninvestable. if people were deterred by the fact that credit suisse and deutsche bank are down 15% over the last 12 months, they should be deterred by the fact that even in your scenario, it would mean they're not profit growers, not -- sort of a utility of the state ath that point. >> if you have no economic
growth and no demand for loans, then the cost of funds, no matter -- even if it is negative didn't help because there is no one to borrow from you. the loan back you have is worse, because the companies can't grow. >> maybe this is a dumb question, but in europe, who is in more distress? the borrowers, who borrowed too much, were able to refinance at lower rates, or the lenders? >> they both are, it is like an unhappy marriage. you have borrowers that can't grow and banks that can't sell or expect to get repaid but they're trapped. and trapped by a system where there is no mark to mark of the assets, no acceleration of the conversion to a less leveraged company environment, so there is no growth. the companies can't invest to acquire both. >> the loans which would have been nonperforming at 6 or 7 or 8% or whatever they are equally nonperforming at 2. >> yes. >> there is no cash flow back them up.
>> that's the problem. not a question of paying the interest on a loan today. it is can you repay. if you can't repay, you extend the maturity, which means the banks are stuck with the loans for a very long time. >> you say all this all so calmly. what you're describing is terrible crisis for the european banking system. if we see this unfold in europe, how safe are the american u.s. banks? could we see any kind of repeat of what we saw back here? as we all watch in the summer of 2011, as europe appeared to be falling apart, could we have any strife here with an american bank as a result of what is going on with european banks? >> you think i'm too clinical? i've seen it all before. i don't think so. the u.s. banks are frankly in far better position, much better capitalized, they have some of the same issues, but the major differences, our banks took their pain early, not only that, but you have more economic growth than you do in europe, they're healthier borrowers, the problems we're having now in the united states are really very
sector specific, emp being the most prominent one. >> exploration and -- >> even there, the banks have been very intelligent about how they led because they have been doing it for a long time. >> the banks understand oil and gas assets better than anybody. and that's why they're the first lean lender in almost every situation so might take a loss, but very modest, real pain will be felt by the bond investors. >> you're also an adviser to the creditors of puerto rico now. we were in puerto rico a couple of weeks ago and had on a lot of different people that you know. what is your take on whether or not the situation for puerto rico now, especially because later on today, we have on the chief financial officer for the city of philadelphia, facing a tremendous problem with their future liabilities. >> the problems of puerto rico are really tragic. and they didn't happen overnight. they have been coming for a very long time. our client actually is the least exposed to any of the problems because our clients are the bond holders of cofina, a securitized
vehicle, not a direct lender to the government of puerto rico itself. so we proposed a plan actually which would provide stubstantia relief to puerto rico. secured creditors in every other municipal or government restructuring have basically gotten paid back. but they have contributed significantly to the rehabilitation of the government. the problem in puerto rico is very complicated because it is not just about the $70 billion of funded debt, it is the $120 billion of total liability, and the fact that even if you wiped out all the public debt, 70 billion, you have too much debt. and that's a declining revenue environment. the real problem of puerto rico is they have disinvested infrastructure, disinvested the economy going on decades now. and the problem is not a balance sheet problem, it is a growth problem. and puerto rico in many ways exemplifies the problems of many other places. you can't focus your governmental spending only on satisfying creditors without
taking to account the needs of the citizens current and future of your state. >> like you said, debt, the silent killer of growth. >> thank you for joining us. >> thank you. >> i loved your performance in mrs. buckfire, by the way. great movie. >> no relation. >> no relation. oil making a huge about face in today's session. crude down more than 4% earlier in the day. now higher. up next, headed back out to brian sullivan live in houston for his sit-down with pioneer natural resources. man 1: i came as fast as i could. what's up?
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all right, welcome back to "power lunch." we're joined by the ceo of pioneer natural resources. scott sheffield. we'll get to that in a second. i want to know, as oil firmed up a little bit, stocks have firmed up a little bit. the nasdaq is not booming, but the nasdaq is at its high of the day. so there you go. scott sheffield joining us now, pioneer natural. scott, you're one of the companies that many of the analysts we talked to say have done it right, your balance sheet is strong, compared to so many that the weak balance sheets that are out there. i don't need to tell you how your competitor balance sheets work. talk of bankruptcy. do you see a waive of bankruptcies coming? >> great to see you again. it has taken five downturns for us to learn the lesson, have a strong balance sheet in the downturn. we have great assets, great balance sheet, zero debt today. and i do see probably over half
of the independents probably going into some type of chapter 11 or bankrupt if this thing lasts another one to two years. they have to. >> is that the timeline? some companies have able to hang on, able to engage in some creative financing, maybe delay some bond payments, cut dividends, about another 12 months before we really start to hit the fan, so to speak? >> yes, exactly. if you look at everybody's announcements, this is the -- people are shocked by the fact crude went to 26 recently. it is at 31, 32 today. the strip is 35. this year it is 39, $40. most people cannot survive at those prices. they built up too much debt during the uptick all the way through 2014 and going into 15. >> we said that on the show. do you think that 35 matters over 25 to most of these companys? oil goes to $37, does it matter? will it help? >> no.
>> it really needs to get back up to 50 or 60 have companies survive. i'm a firm believer, opec has taken a big risk of lower for longer, we're going to end up shocking the world sometime in 2020 with too high a price because people are expecting old shale to come back. but you can't when most companies are in bankruptcy. >> amy shocked everybody yesterday, i think, in that room, when he said don't expect a production cut, nobody trusts anybody, everybody will cheat, it was an audible murmur, made headlines, but do you believe him? >> i think if it goes lower, my bet is goes to 15 to $20, and the next few weeks to months, and opec will get together, they're smart enough financially to put together a cut. but it has got to go much lower for that to happen. >> so maybe that was a little bit of not grand ststanding but trying to needle his competitors to act? do you think there was
showmanship or brinksmanship in what niemi said yesterday? >> at the end of the day, the common ingredient between iran, iraq and saudi is financial. they have to have a higher oil price. they can't afford $15, $20 for several months, even up to a year. >> you know you said $15 to $20 just a moment ago. i'm processing that. do you think there is a chance that could happen? >> we look at wti at 25 or 22, 23, their basket is $3, $4 less. they would actually experience prices in the teens. >> you think we could have that here, wti contract trading that low? >> we could short-term. >> you think so. >> the operating costs most of the wells in the u.s., look at canada, around $15 to $20. that's probably pretty much where you'll have supplies shut in, in the u.s., in the north sea, and canada, and that's the response you'll get to shut in production and those key areas. >> if we go to -- i hate to say
this, we're in an oil conference here, someone will start throwing stuff at us, if webuck there for a couple of months, it may not happen, but what does the knock markstock market look >> stocks will go down. >> many can't go down much more, scott. >> they will go down. it will get opec to start talking. to me, the positive thing about the freeze is that russia and saudi are talking. with what is going on in damascus, what is going on in the rest of the world, and at least they're talking. that was very important message that i saw coming out of the freeze. >> opec might argue that they, you know, sort of niemi was saying, saudi arabia is not the swing producer anymore. it is america. it is pioneer. it is diamondback. it is everybody, that we have the power to move prices. why aren't we seeing u.s. producers reduce production more than they have? it has come down, but not by
much. >> yes. we have dropped about 400,000 barrels a day from 96 to 92. look at all of the reports of all of the companies, most of them, we're the only company growing in the top 20 in the u.s. of all the majors, pioneer is growing 10% plus. we got 12 rigs running. >> scott, we love you, man, but how can you keep increasing production in this kind of price environment? >> it is still a good return. i can promise you, if all the companies had no debt on their balance sheet, they would be running a lot more rigs. the return is still decent based on strip prices. >> you know, we have talked a little bit in this program about this versus 1986. and how maybe this time is different because of the amount of debt that is involved in the oil bust. do you believe that? is now different or is this 86 again? >> this is 86, 81 to 86. this is my fifth downturn. 81 to 86 was the worst from the
standpoint of too much debt in the industry. a lot of companies went out of business. this reminds me of 81 to 86, on the debt side. on the supply/demand side, more like 98, 99. we had a million and a half barrels of difference now between supply and demand. in the early '80s, four or five million barrel swing. the debt the companies are as bad at they were in the early 1980s. >> but not worse. just as bad. >> exactly. >> what happens to that market? are you seeing companies coming to you hat in hand and saying, scott, can you bail us out? >> we don't need to buy anything. we have 20,000 locations in the midland basin. but a lot of companies are going to private equity. they're probably going to the majors. and hoping for help. >> are they going to get it? i talked to private equity people around here on and off the report, they're saying there is no money because all the money they already invested is noneconomic. >> exactly. and most -- a lot of the companies have tier with, tier
three assets. their debt, they got to pay 101. the debt will be put to them, and they got to pay top dollar for the debt. >> scott sheffield, pioneer natural resources, thank you for joining us. little bit of a different mood than last year. let's not make it another year. thank you for taking some time for cnbc, scott. >> thank you. appreciate it. thank you. back and you heard the headline there, scott says if things don't move up firmly some point in the next 12 to 24 months, could see half of the independent oil companies file for chapter 11 bankruptcy protection. >> as for today, there is a big turn around in oil, which is helping stocks come off of their session lows. stick around. crude close is just moments away. (patrick 1) what's it like to be the boss of you? (patrick 2) pretty great. (patrick 1) how about a 10% raise? (patrick 2) how about 20? (patrick 1) how about done? (patrick 2) that's the kind of control i like...
welcome back to "power lunch." i'm tyler mathisen. stocks slashing earlier losses. the dow down now about 12, almost 13 points. the s&p 500 just went positive by about two thirds of a point. nasdaq and russell are both rallying as you see right there, half a percent for nasdaq, two thirds of a percent for the russell 2000. let's look at ten of the major
s&p 500 sectors. financials, the laggard there, but just in the past few minutes, we began this hour or the 1:00 hour with telecom as the only one in the green. now you can see the materials, technology, energy, discretionary, health care, they have all turned positive. we're also following a pretty big reversal in oil as the final trades cross for the session. the crude close is on deck when "power lunch" returns. you both have a perfect driving record. >>perfect. no tickets. no accidents... >>that is until one of you clips a food truck, ruining your perfect record. >>yup... now, you would think your insurance company would cut you some slack, right? >>no. your insurance rates go through the roof. your perfect record doesn't get you anything. >>anything. perfect! for drivers with accident forgiveness, liberty mutual won't raise your rates due to your first accident. and if you do have an accident, our claim centers are available to assist you 24/7.
hello, everybody. welcome to "power lunch." i'm sue herera. nbc news reporting that brian sandoval, the centrist republican governor of nevada, is being vetted by the white house for a possible nomination to the supreme court. the white house declining comment. pennsylvania governor tom wolf announcing today that he has prostate cancer. but he says the cancer was caught early and is highly treatable. wolf says the treatment will not affect his ability to govern. a fifa appeals committee reduced the soccer bans of sepp blatter and platini from eight years to six. both were banned in december. platini called the decision to
uphold his ban insulting and shameful. two south carolina teens have been charmg echarged with cruelty after police say they shot a puppy 18 times with a bb gun. if convicted, they face up to five years in prison. the puppy named brodie has been hospitalized but is expected to make a full recovery. here's the upside. hundreds of people have called the hospital wanting to adopt him. and who wouldn't? he's adorable. >> i'll bet. i want him too. >> that's the cnbc news update. back to you. >> thanks, sue. the oil markets closing for the day. big move here, oil turning positive midsession, drawing support from a mixed bag of u.s. data that showed strong gasoline demand and smaller build in domestic crude inventory. wti, a gain of more than 1%. brent more heavily used in london and traded in london, i'm guessing also in positive territory as we wait for that to change. there it is. higher by nearly 4%. gain of 1.30.
>> major indices and how we're sitting at this hour. off that oil rebound, stocks made major comeback and struggling to stay in the green now. the dow jones industrial average at the flat line, 16,410. the nasdaq higher by half a percent. the s&p 500, the one to watch, 1921 where we are now. we're just about flat. we'll see how we trade going into the final hour and a half of trading here. let's talk about the markets with the trading nation team. what do you make of the session, seems like a battleground session. >> two things, one, the oil supply numbers put a bid within the market obviously. you saw that. as well as the rumor that the chinese government will widen their deficit. that's a massive fiscal stimulus of around 1% gdp growth for china. that is definitely what stabilized the financial system. and also that's hence to reason why the treasury market started to sell off and see yields go
higher. >> seems like it is about oil these days. you had to see the turn in crude in order for stocks to go higher. boer boris. >> it is all about oil. oil drives everything these days, including currencies. the question i think is interesting is is 25 the bottom? is it really the serious bottom, have the saudis decided they don't want to go any further? if oil stabilizes here and stops having 4% to 5% days, as volatility in oil contracts, we'll start looking at more fundamental factors and the market will start moving away from oil as the key story driving it. >> in terms of markets what do you do in a market like this where we're range bound, hostage by the movements. are we in a range here and what can we trade within a range? >> we have been very cautious and somewhat bearish on the market going into the beginning of the year. we would start layering on risk as this market, yes, it is range
bound for the time being, but as the market adopts the thought that global growth is decelerating, so we would be moving up to quality spectrum by staples. we start buying high yield as well as buying some emerging markets at this juncture. valuations are making sense, spreads widening out within the corporate bond market. this is becoming a more opportunistic time to take advantage of this dislocation. >> boris, do you like emerging markets? in last month they have been doing okay. year to date, over the past 12 months, hard trade. >> i continue to believe this year is going to be the best year to sell rallies ever. it is just every rally is go to be a fakeout, a false. i think the structural problems are finally coming to bear on the market. chickens are coming home to roost. whatever hope we have is going to be extinguished by the end of the year. >> thanks for your thoughts. chad and boris, more trading nation, head to trading nation.cnbc.com. >> shares of tupperware brands dropping hard.
more on that right after this short break. as you see there, tupperware, down better than 5%. we'll have more when we come back. >> and now, the latest from trading nation.cnbc.com and a word from our sponsor. >> volatility spikes are notoriously difficult to forecast. but what we do know is that when they occur, they tend to be relatively short lived. so rather than trying to forecast when the next spike is going to occur, instead, consider taking a position that will benefit when volatility comes back down.
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welcome back to "power lunch." tyler mathisen here. seema mody over there with breaking news. >> in an s.e.c. filing, tupperware brands says it has not yet completed an assessment of the effectiveness of internal control over financial reporting as of december 26th of 2015 and believes that deficiencies could represent material weakness in internal control over financial reporting. here is the thing, tupperware brand says it does not believe the evaluation will impact consolidated financial statements previously reported, but yet this uncertainty around tupperware's financial reporting still hitting the stock. looking at shares down better than 4%. off its lows, but still under
pressure on this news. for now, back to you. >> we're going to have to watch that some more. okay. tupperware shares getting hit hard. thanks. the rising cost of public pensions continues to stretch the finances for many american cities. moody's estimates municipalities have run up 2 trillion of unfunded pension liabilities. that means they promise more in retirement benefits than the money they have to pay for those retirement benefits. philadelphia, for instance, owes current and future retirees more than $12 billion worth of retirement benefits, but only stashed away $4.8 billion. situation is so bad, the city's fiscal watchdog rob debow called it the worst pension fund in the country. worst than detroit or chicago. and he joins us now. welcome to "power lunch." >> thanks. glad to be here. >> it sounds very bad. what do you do at this point? do you start raising taxes by an incredible amount to fund the pension or tell future retirees they're not going to get what they were promised?
>> what happened to us is pensions have gone up and up as a percent of our budget, gone from about 5% to 16%. so really what happens is pensions wind up squeezing out other parts of the budget and give us fewer resources to provide core services to our residents. >> can i be clear about that? so, what, ten years ago philadelphia used to spend 5% of its revenues paying off pensions and now it is up to 16%, you said at this point? >> that's correct. so a big drain on our budget. >> i got to imagine that means -- is that less police on the road? is that fewer number of days of garbage collection, how does that play out? you have to take from somewhere else. >> it means, you know, less of everything. there is less available to invest in the services that we want to provide for our residents. >> what do you do? >> well, you work with your
unions, you work with other elected officials to figure out a long-term solution. that solution will require, you know, looking at the plans, looking at anything we can do with them, looking at anything we can do on the resource side. it is a problem that was created over decades, and, you know, will take a while to solve. but we're dedicated to doing that. >> part of the problem also, the returns of the markets have not been as robust, probably as had been modeled in. is that correct, rob? i would imagine during the financial crisis, the fund took a big hit and been pretty tough sledding in the past couple of years. at this point, what are some of the adjustments being made to how that fund is managed in order to exact more from that? >> right, so we did take a big hit in the downturn. after that, we had, you know, a few years stretch where we did pretty well with our investments. but the last year or so has been really rough. we have tried to be more
defensive. we have more of our resources in cash than we did before, more fixed income. that's helped us weather this storm. but obviously, you know, means we don't get the type of returns we want, which then -- >> i gather you also cut the exposure you had had to alternative investments, which are not only not performing all that well, or haven't in the pasteur or s year or so, but co more. >> over the last couple of years we reduced our exposure to hedge funds, for example, by a couple hundred million dollars because as you say, what we're looking for is getting return at a low cost. and if we have investments that don't justify their return, their cost, i mean, we want to get out of them. >> two quick questions. with all of the additional spending as a share of budget, from 5% to 16%, have you cut the short fall in any meaningful
way? >> well, unfortunately what happened is our funding has gone down over time. one of the big -- >> explain that. if it is a percent of budget it has gone up. how has it gone down? explain that. >> two things. one, when the stock market went down in 2008-2009, our investments went down too. not by as much as the market, but by enough that it hurt our funding percent. >> i see. >> the long-term problem for us is we have more people receiving benefits than we have active employees. of our unfunded liability, about 80% of it relates to a plan that no one has been able to enter since the late 1980s. >> wow. >> your liability is something like 11 billion. is that the liability, something like 11 billion, you have 4 billion set aside. how soon do you need to make up
that gap? in other words, it all doesn't come due tomorrow or next year, right? >> that's right. so we work with an actuary who gives us amorization payments. it is like a mortgage, but it is a mortgage that is not paying for an asset we still have, it is a mortgage paying for retirees. >> doesn't -- don't retirees at some point just have to expect they're going to get less than they thought they were going to? >> well, i think what you have to look at is kind of what you can change for current and future employees rather than retiree, so we, for example, implemented a new plan a couple of years ago that combines a defined contribution plan, which is the -- defined benefit plan,
traditional pension plan people have, with the defined contribution component. so our long-term costs for that plan are much lower than for the old plans. and because a portion of it is defined contribution, it shifts some of the risk away from the city. >> okay. yeah, we're seeing more and more of that across the country and most corporations have gone that way already. >> bob, thanks so much joining us. >> thank you for having me. the dow is trying to stage a comeback at this hour. it is down, if we take a check here, just about seven points. the stocks leading the way here, united technology, apple, intel, j & j plus. we're going to continue our coverage of this market turn around when "power lunch" comes right back. 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 i thione second it's there.day. then, woosh, it's gone. i swear i saw it swallow seven people. seven. i just wish one of those people could have been mrs. johnson. [dog bark] trust me, we're dealing with a higher intelligence here.
♪ no, you're not ♪ yogonna watch it! ♪tch it! ♪ ♪ we can't let you download on the goooooo! ♪ ♪ you'll just have to miss it! ♪ yeah, you'll just have to miss it! ♪ ♪ we can't let you download... uh, no thanks. i have x1 from xfinity so... don't fall for directv. xfinity lets you download your shows from anywhere. i used to like that song. time for the latest installment of our series bridging the divide where we look at the people looking for solutions toward inequality in the u.s. sharon epperson joins us. >> the gap between blacks and whites is particularly stark when it comes to jobs. the unemployment rate for african-americans between 20 and 24 years old is more than double that of whites.
but one organization is helping many young men and women who are jobless or in low paying jobs find new career opportunities. >> there were times where i didn't know i was going to eat, there was times i didn't know where i was going to sleep. >> reporter: at 18, brandon jordan was a high school dropout. homeless, but not hopeless. >> i ended up realizing that i need to do what i need to do. >> reporter: he eventually got a ged and an apartment with friends in atlanta. he took some college courses, but didn't have the money to finish. >> i wanted more for myself. but i didn't quite have the opportunity. >> reporter: but that all changed. while working at a panera last summer, he saw an ad for a year up. jordan now 24 applied to the nonprofit, which offers low income young adults training and a corporate internship in it, finance, and other areas. >> it just seems too good to be true when you first hear about it. >> reporter: more than 6.5 million 16 to 24-year-olds in
the u.s. are not in school or working. almost one-third of them are black. year up which offers a stipend and college credit to each participant is aimed at helping these so-called opportunity youth. students go through a -- they g through a six-month boot camp learning technical and professional skills, including the importance of showing up on time. they'll get a stipend for every day they attend class, but lose points and money if they're late. dressed unprofessionally on fail to complete assignments, and if they lose too many points, they are out. >> europe fundamentally believes you hire for skills, but fire for behavior. >> gerald founded year up in 200. >> we know that talent is distributed evenly across this country, yet opportunity is not. >> reporter: more than 13,000 young people have gone through the program since it started in boston with 22 students. 3200 will enroll this year in 13 metro areas.
>> he hopes to eventually serve youth in 30 areas. those who makes it through the first six months are awarded a six-month internship, about 250 companies have partnered with year up and spend almost $28,000 to cover the costs of each intern. year up alum brian goowin was working in a pizza, now a business solutions consultant at salesforce p&l.com. >> if someone told me three years ago i would be doing what i'm doing today, i wouldn't believe it. >> reporter: 85% of alums have a full-time job or are enrolled in college full time. their average starting salary is about $36,000 a year. >> mr. kay, sir. >> jordan hopes to follow goodeson's path. he landed an internship at
aaron's, a retailer. >> i earned this. i'm going to do this. this is mine. this is mine. >> now, the year up experience doesn't end when a student finishes his or her intern ship. there's an extensive alumnae network. brian mentors new year up interns at salesforce. many students are already talking about staying involved with year up when they graduate. to learn more about the inspiration for year up and to hear more of the stories, go to cnbc.com/bridgingthedivide. >> so good to see a private sector solution, right? >> they're working hard at this. gerald, he came from a world of understanding how it works, you know, in the private sector and wanting to do something. >> we're always talking about the government trying to solve the problems, the private sector can have a better impact. >> and companies know the talent they need, the skills, and they're working with year up to make sure they are trained to do the job. >> when i hear salesforce.com,
they hire 50% of the interns they've had? >> many of the companies do that. >> by worth of mouth, if you were another company looking for talent, that would get a good way. >> entrepreneurs understand how to be entrepreneurs. they get it. i like that kid working for aaron's. i liked his attitude. >> absolutely. tune in tomorrow, we'll look at one community health center's had results. coming up next, we're going shopping for retail bargains don't move. "power lunch" will be right back.
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this is a big week for earnings for retail. let's take a check on the retail landscape you see there the first three are trading higher, but retail overall has been outperforming the s&p 500 year to date. oliver chen joins us. great to have you with us. >> thank you for having me. i feel like the two reports really tell the story of retail, sort of the off price, the lower-price retailers and they're doing well, whereas nordstrom, for instance, not doing well. >> yeah, that is true. i think it is a story of feast and famine and winners and losers. we have a dynamic, where apparel has been softer, but you think about target, about the broad lines retailer, that's been
doing better. we do prefer targets over walmart and tjx over macy's, and the off-price market is very vibrant. it's a real treasure hunt, so an un-an zone-able kind of vang, where consumers like going into the stores. at target we think management has been very agile making good decisions. their online business is very integrated and fog focused on what they -- two good prints off today. >> it's not off-price, but not from downmarket. >> i would say off-price now is -- he or she likes to mix and match. there's no brand loyalty. tjx, it's about maxi-nistas. >> i just want to clarify something that i think was interpreted incorrectly about my love for homegoods. i love the store.
you hill the nail on the head. it's a hunt-and-gather kind of thing. when you go with my beloved spouse, you end up spending a lot of time there. i wish -- men are killers, we're shooting, we want television set, we go and kill it. >> you find a pair of pants, you buy all five colors. >> we have more good stuff out of home did many goods in our house than i can tell you about. that is part of it, you go in not knowing what you're going to find, not knowing what you buy, and you always come out with more than you thought. pinches it's all about surprise and delight, and it's about nesting. it's about, you know, making a different shaded home. home and autos are big trends for consumers and home goods, it's difficult to walk out there. so the average check size, the inventory turnovers, the treasure hunt, it's fun.
shopping should be fun. >> oliver, i was wondering macy's for a long time was getting hammered last year. it almost should have been the tell about the market, right? it was an early sign that something was going on. now i look at macy's and it's up 22% year to date. i mean, it has outperformed the market. i know you dug deep into particular companies, but do you have any sense of whether or not we're getting any signals out of the retailing that the market might finally be turning? >> i would say macy's has reinvented itself, and retailers generate -- there's a being online business, so retailers are here to stay, i believe. this is a setup year, a year in which macy 'is investing. think about bric merging with clicks, and, they're thinking about reinventing the store.
that's something to watch. >> oliver thank you, has a market perform. oliver chen of cowan. that does it for us. >> what are you going to do now that you've done two hours? i'm going to homegoods. you stay tuned because -- >> "closing bell" starts right now. oh, the show has already started here today. welcome to "closing bell", everybody. i'm kelly evans. >> and i'm wilford frost in for bill griffeth. quite a comeback, a major reversal for oil helping the dow pull back from its deficit earlier. we're currently down 20 points. still the biggest drag was financials. we'll see if stockless hold into the close. >> and concerns over energy loans senior pressure ugh s today's ceo will join us in an exclusive is it interview. facebook announcing instagram has more