Yesterdays record drop played out. This is a time lapse video of what happened with the dow down 200, down 300, down 400 as you got closer to the end of the day, down 1600 points almost at one point by the end of the session, 1,175 point decline. Decline of 4. 6 . This is the biggest point drop in history add it up, the dow traveled 5100 points yesterday down 4. 6 does not rank in the top 12 or 15 declines weve ever seen the biggest decline was october of 1987, a 22 decline this was enough to get peoples attention. The dow and s p lost more than a third of their 2017 gains just during the last two sessions if you were wondering what else was going on behind the scenes, volatility this was the big story volatility is back yesterday we were talking at this time about volatility being up at 17 that was a big deal. By the end of the session it was above 35 for a gain of 115 . This morning you see volatility up once again, another 14 this morning, 4262. Mike santoli, this is something that youve been watching closely. Im characterizing this whole event as a volatility shock. You look at that chart of the vix, it looks like a stock undergoing a short squeeze what happens when something is being short squeezed people who bet against it or bet that it remains low are forced to buy it at higher prices thats whats going on thats part of the answer to the questio is selling and why. What started as a pullback got to a point where you had this Chain Reaction of forced mechanical selling i mentioned yesterday morning we were in that kind of market because it moved lower so fast after this compressed lower volatility period. Thats what we saw play out. What does it mean now . One striking thing about yesterday, it was almost entirely a stock market event. You were look at credit markets, the bond market. It was not as if the stock market was sniffing out something scary or an economic risk somewhere i was at dinner with a trader last night trying to figure this out. How much of this is just a function of the good news being bad news or all of a sudden, by the way, are we talking about other things Something Else is in the water here theres a murder on the orient type of thing here where you have a body and everybody on the train is a culprit i dont think this is good news being bad news thats maybe a psychological trigger. Thats, hey, we dont know what the fed will do. The bond market is not acting like thats the world were in the twoyear note wreeld cayeae down which makes you wonder is this a technical issue that we snap back from if thats the case, why are we still down its a technical issue that can play out but its a symptom of a market overvalued and overextended. You can see theres nothing fundamental to explain this. Was there anything fundamental to explain the 5 upside lately . Not necessarily. This is not a normal market. The vital signs of the market are out of whack when you see down 670 for the dow, then down 200. Tell me who else is on the Orient Express give me a couple they all did it give me a couple of them. I want in this instance, for this market. Give me a couple reasons beyond the good news is bad news. Beyond the worries about the stimulus being too much, beyond the fact that maybe we are in an overheated economy i dont know that you need beyond that. You know what the term correction comes from in a market the index or a price got so far above normal trend it has to correct back to the trend. Thats what were doing now. Kevin, you buy into that . I look at it from a 30,000 foot level and say to myself, if the longterm multiple im willing to pay for earnings is somewhere between 16 and 17 , in times when Interest Rates are between 5 and 7 , thats historically what were talking about. Stay on that context all of a sudden we have this benign Interest Rate environment, 3 , the market was okay at a 21 pe 24 hours ago then it woke up and said i dont like that. Ill take 10 off. Now youre at 18 as an investor im saying i like 18 thats getting interest for me in europe, i like 17 yesterday when we spoke with you, you had been buying in europe i did it again this morning im getting a 2. 58 yield on names like novartis, roche, total, glaxosmithkline, British American tobacco they sell all their products in the united states. Even at these levels are you looking at u. S. Stocks at this point . Europe right now today, this morning, is a better deal than the u. S. S p just because those Companies Sell all their products here in new york city, i can buy them with a fantastic discount. Look, chaos is opportunity, i dont know if i hit the bottom the last 45 minutes, talking to my guys over in europe, its starting maybe to show that bottoming process, which we may see in the next 45 minutes these are wild types but great values people are wondering how much damage was done. It was a comprehensive washout the last few days. You lock at how many stocks have broken 10 , 15 below their trend. You see the lopsided volume. You got one of these markets were everything was thrown out, you can kind of pick among them and find if its so deeply oversold that we at least get a bounce were back in the days where its about the Market Reaction itself that matters. What is the multiple thatat e palatable . I wish it wouldgo to 16 thats another 10 off here. Its not going to. My guess is that it will go further than it should, maybe get into the 17 range and pop back to 18 were kind of getting that now so, its when you have the most fear, i think hasnt Warren Buffett told you this a hundred times, when theres blood in the streets, thats when you should be harvesting reward i dont see a lot of pervasive panic. I see consternation at the bizarre moves. I think youre hanging out with prose i was getting emails from family, retail its jarring, without a doubt. People were calling their broker thats happening i think its the retail which is then leading all the algos the retail probably some of the later ones in the rally, feeling like theyhad been missed out on thing. You know what sha rab anchwa ameritrade are doing it was Sleepy Hollow until people woke up it ramped late last year. There was a big rush in december and january to catch this wave now theyre thinking, oh, my gosh am i the one holding the bag if youre a client of wealth front, the first correction, if you will, that some of these robo advisers there was talk yesterday that the systems were not responding well i dont like robos, you dont know what youre doing it tells you youre buying some kind of index. I like products that show you what you own the vanguard target trust 2045 trust is the same thing an Asset Allocation model. Well see lou that does in this volatility. As weve been talking, looking at futures under considerable pressure once again. Now down 500 points pore tfor t futures. Down more than 40 points for the s p 500, and down 76 for the nasdaq were also seeing volatility in the overseas markets we have complete Team Coverage of the markets this morning. Steve sedgwick is standing by in london well get to him in a moment we kick things off with Nancy Hungerford live in singapore what can you tell us becky, steep losses on the session in asia where equities picked up where wall street left off overnight. Let me show you the nikkei 225, which has for a second day moved in lock step with the dow jones average on a percentage basis. Lower on the session by 4. 7 but this is off the lows of the session. At one point the nikkei touching down 6 into correction territory. This close was the worst point drop for the nikkei 225 since brexit still hovering around correction other milestones to walk you through, the shanghai having its worst day in two years the hang seng, its worst day in more than two years. One big move to the down side, ten havent drcent dropping 7 a big outperformer last year. Youve been watching volatility, the spike in the vix, the story in asia is the same. Look at nikkei volatility index, up 51. 7 just on the session thats the state of play in asia lets head over to steve steve now in london for a closer look at the european stock moves there. The european markets are getting away with this compared with peers that nancy described in asia and stateside. The ftse 100, when i came in, 6950 was the call on this one. 250 points worse than now. A couple hundred points lower on the xetra dax. Weve been following the u. S. Futures. As they improve, still very, very badly down, but as they improve throughout the sgs we r session we rallied as well i spoke with bob dudley of bp this morning bp yields are about 6. 5 at the moment they think they got their Balance Sheet back on track. Cash flow is fine. 6. 5 dividend. The biggest falling sector, 2. 4 , banks also getting hit again today. Ironic because so many people say to me when the fed raises rates we get more net interest margins, better nims for the Financial Sector and they should be a ramal rallying sector, but falling heavily. Maybe they will enjoy the volatility were getting out of this market. Interesting to note telecoms and utilities, seen as slightly defensive sectors, they, too are under a lot of pressure. Healthcare down 1. 6 if you want to know who is on the Orient Express, people say look at the Market Structure we dont have many specialists in marketmakers anymore. Back to you. We will continue to check in and see whats happening overseas and here. If you are watching this morning, look at the boards again. Weve been all over the place. Down as much as 600 points on the dow, just a moment down over 500. Now down 486 well be in for a while riild ri morning. Lets bring in more voices paul hickey joins us, jack caffrey, and andreasga garcia a also join us jack, what have you heard from customers and clients about this my clients have been talking about we have come so far so fast and what is fundamentally wrong . There is nothing fundamentally wrong. We have some micro structural issues we built a market designed to support people buying. We dont have anyone to take the other side even within those in the market, only 10 , 15 make purely fundamental decisions. So much is structurally traded in the form of etfs. Are you telling your clients to buy on this now for the most part, for years weve been talking about a hated rally. People sitting in cash and saying i dont believe it. Its driven by Central Banks yet every time youve seen a 3 pullback or 4 pullback that was in hindsight a great buying opportunity. Now we talk about 7 , 8 , 9 , better buying opportunities emerge those will remain buying opportunities until we can come up with a credible case of why we question earnings nobody is questioning earnings if you look at what happened last week, you saw the markets down but the market got cheaper because earnings revisions are that much more powerful. Andreas, what do you think in terms of whether this is a buying opportunity, whether we were overbought at one point i think this is kind of an unusual step in the economic sicycl cycle. As you get closer to the stage, volatility in markets picks up that does not imply the dpr direction of the market will turn 1995 we had a similar year to last year. But what im hearing, yeah, maybe there was no reason for the up or down, but we dont know what will happen next i dont know what will happen next you dont i dont define next theres always people looking for actionable ideas my actionable idea is go outside, take a deep breath. This is just what the market does we got accustomed to no volatility now were seeing more normal volatility youre saying dont sell. You are saying buy i would say dont let volatility dictate your strategy shortterm volatility should not tell you what you should be doing. You should sit down, look at what your goals are. Stocks just got cheaper than a week ago right do you see anything in this volatility c volatility that changes any forecast of any sector on any company anywhere on cash flow and earnings no can i ask a question, weve all been talking about this as if its a dip, an opportunity. Flip it around, play out a thought experiment we had tony james on the show yesterday from blackstone, he said, look, we could see a correction of 10 to 20 so this could actually go much further and the question is were already at 8 with yesterday. Forget the losses today. You could be talking about 10 so my question is, is there anything underneath this either underneath us or psychologically that you think may be taking place where people say, i dont know. I dont know because there have been a lot of people who have been saying i dont know i dont know in the beginning of the show, there were a lot of great points mike was talking about it being a stock specific rally you wanted names on the Orient Express, its sentiment. Analyst sentiment had never been as positive in terms of revisions at any point in the last decade. Last monday and tuesday consumer confidence, percentage of consumers were expecting record high stock prices. Similar periods where you have seen it, in 87, 98, 2000, 2004 whats common about those periods . Very big pick up in volatility going forward. Sentiment got so offsides in january, and even in november and december, now you have to see sentiment resettle a bit friday over the weekend, after fridays decline, were seeing people say, wow, that was an interesting decline. Monday, yesterday, people starting to get worried. If you see a down day today, you will see people get really worried. Thats the time to go in an start putting in bids. Youre saying right now unless you see a selloff today, these prices are not worth it. Even if youre down 8 across the board. Were looking to put cash to work i would put no bids in where the market is trading now. Put things in a bit below where the market is trading. This volatility, at the top of the hour the dow futures were up, now down 144 so on the fair value, by the way. Yeah. Were seeing 100point moves yeah. So theres volatility as an investor you want to go in, step in, and give yourself a cushion. But this these kinds of opportunities are opportunities as we were talking about if you look back at the top in 87, since then annualized returns in the s p 500, 9 march of 2000, the annualized return is 5. 7 if we dont know if this is a top or bottom. But even at the worst three times to be buying in the last 30 years, the stock market has been the best generator of wealth than any other asset class. Thank you guys for joining us thank you we have so much to talk about. Coming up, the nasdaq suffering its worst trading session since the brexit vote of 2016. Well talk about the tech wreck next looking at futures, dow looks to open down about 513 points the nasdaq down about 75 points. S p 500 down about 40 points stay tuned, youre watching squawk box. Lets begin. Yes or no . Do you want the same tools and seamless experience across web and tablet . Do you want 4. 95 commissions for stocks, 0. 50 options contracts . 1. 50 futures contracts . What about a dedicated service team of trading specialists . Did you say yes . Good, then its time for power e trade. The platform, price and service that gives you the edge you need. Looks like we have a couple seconds left. Lets do some card twirling twirling cards e trade. The original place to invest online. Welcome back the biggest point decline weve seen in the history of the dow looking at red arrows once again. We were down yesterday by almost 1200 points on the dow at the end of the day a decline of 4. 8 . That does not put us near the top levels of biggest percentage gains. But its something that will catch your attention we are looking at the dow, s p 500 and nasdaq down by 8 from the record closes that we saw back on january 28th add to it this morning some additional red arrows. Dow futures now indicated down by 535 points. That means if we were to open now the dow would open up down 525 points the s p would open down by 43 points the nasdaq would be down by 83 points we have seen a lot of volatility just in these numbers this morning. A lot could happen between now and the next three hours before the opening bell a market meltdown across all sectors. Joining us to talk about what some people are calling the tech wreck is dan well ives from gbh insights also mark mahaney joins us good morning to you. Techland has oftentimes lived in its own bubble, its own world. Its getting drawn into this situation. Youre waking up in the morning, getting calls from clients, you tell them what, dan . In our opinion, this is the pound the table time, especially for names that we love pound the table as in buy, buy, buy yeah. Especially on the secular growth names. You look at ecommerce, you look at ad growth, you look at Cloud Computing, big data, thats why when we look at names f. A. N. G. Names, amazon, facebook, apple with a third of its market cap in cash, big data names that are getting crushed, this is what i view as a 12 to 18month opportunity to own the secular growth names where weve seen the best tech earnings in the past ten years, and numbers we can talk about multiples, but youve seen overall numbers come up 20 from where we were a year ago we continue to expect that to happen based on all the fundamental growth opportunities. So we expect this to be the time to go on the white board, put your favorite names. I view it almost as a garage sale i want to come back to your garage sale in a second. Mark, heres the piece that a lot of folks are trying to understand theres a huge retail audience buying into the names. These are the names they know this is what weve been told to do as investors. Buy the stuff you use, buy the stuff you know what do you know this morning and how do you feel about where things land . Andrew, i like that setup we coined the term internet staples. Consumer staples, those companies you buy because you will continue to buy those products, you have a class of stocks called internet staples, google, facebook, amazon, netflix, maybe ebay, they have very consistent growth google just printed its 32 chnd consecutive quarter of growth. The profit pictures for these names have been improving. Multiples across that group of stocks have not changed in three years. Stocks have gone up whats the price to multiple average . Its a diverse group. Exactly facebook and google trade 23, 24 times gaap earnings. Facebook is more attractive as a valuation, but both of them relative to the market are still attractivie itly priced assets netflix is in an Inflection Point. Margins are going up, Revenue Growth is accelerating the fundamentals on this group are i tact theres no change in them. We will have volatility in the stocks and we like to buy those down drifts on the stocks. Both of you seem semi disconnected from the Broader Market this is a simcon valley way to react. The people who concentrate on companies, this all does seem like noise my bigger question for dan, these stocks will be used as a source of funds to raise cash. Theyre up a lot, theyre widely owned, kind of caught up in this, even if they outperform here i wonder, what really is going to represent a washed out level for some of these big names that are so popular i think i will focus on apple here 250 billion in cash. Now they have repatriated, you have about 40 of the mark cap in cash. That could be 12, 13 of earnings power a f. A. N. G. Led rally, but really apple, people focus on that. Disappointing iphone x product cycle, we have 350 million iphones that will be upgraded in the next 12, 18 months, so you will have an elongated super cycle. When you look at the growth rates relative to valuation, multiples have to the changed. Growth has come up and i do think m a will be accelerated now from what were seeing here if this continues. You will see an accelerated m a with roughly 400 billion of cash getting repatriated. Heres a reason not to own those names if youre a longTerm Investor lets take amazon. Phenomenal Company Incredible entity. However if you go back and look at history of volatility, it has corrections of over 30 . If you dont like to tom rate that, you dont want to have names in your portfolio that trade at very, very, very high pes because at the end of the day netflix and amazon is way different than an apple. You just have to look at the Free Cash Flows, put a multiple on them. These are not the same stocks. For those who cant tolerate volatility, andrew pointed out the general public is having a hard time digesting volatility, why should they own netflix and amazon what is the benefit . With amazon, you do have 5 Free Cash Flow yield on this name cash flow story has come through in waves, especially due to Cloud Computing. This is one of the best mixed shift stories. The aws, the Cloud Computing business is growing 4 times, 5 times faster than the Retail Business thats why the stock is so outperforming. And that trend will not change one other thing to keep in mind, all the stocks are repate yarii some cash, you watch that in spays with ebay and even google is amping up the repurchase of shares theyre doing the right thing shareholder wise and will benefit from International Exposure so i want to be careful. Fundamentals are extremely intact on these names. When we see these dips, is this a garr rage sale opportunity im not sure, but do we buy on these dips generally we do and i dont see a reason to change course. We thank both of you. Thank you you saw the futures indicating the dow would open down by 535 points if we were open now, thats because of what weve seen in volatility volatility is back in a big way. If you had any doubt, just ask investors in the xiv they got wiped out yesterday this is an etf short volatility, they didnt think we would see big swings it plunged 85 in the after hours. Well talk more about that in a moment the futures under significant pressure once again. Do you futures down by 523 after the market closed down by 1175 points yesterday, adding to the losses we had seen from last week nasdaq down by 90 points s p down by 44 well talk more about all of this in a moment ay tuned you are watching squawk box on cnbc joints. Or your digestion. So why wouldnt you take something for the most important part of you. Your brain. With an ingredient originally found in jellyfish, prevagen is now the number one selling brain Health Supplement in drug stores nationwide. Prevagen. The name to remember. 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Welcome back to squawk box on cnbc we have been watching the market volatility its not ending this morning right now you are looking at the futures near the worst levels weve seen since we started about 35 minutes ago dow futures now are indicated down by 630 points this would put us in actual correction territory for the dow. With yesterdays losses and the losses from last week, we are talking about the dow having been down 8 from the highs that we hit back onni january 29th. Numbers that were a rapid ascent before that. This morning were not seeing relief after the pain of yesterday. Dwrou r. D dow futures down 620 points right now. Weve seen down by 300, down by 500, down by 600, singing become and forth. The nasdaq is indicated down by 104 points and the s p down 55 points yesterday was the biggest point loss in history for the dow, but the dow has gotten bigger than in years past. This was only a 4. 8 decline for the dow that does not put it near the top 10, top 12 in terms of percentage decline for the historical numbers the ticker everyone on the trading desk is talking about is xiv, thats the vix backwards, an etf short volatility. It plunged 85 after trading yesterday. Leslie picker has more on the me meltdown thats the only way you can december skscribe it. Afterhours trading an obscure Exchange Traded note used to bet against volatility came tumblingitumbling i down, crashing 85 its called xiv and held largely by creditsuisse. Its p in the after market, xiv continually traded well below that a source told me last night that Credit Suisse was Still Deciding whether to call the etn. The source also tells me that the firms more than 33 stake is completely hedged still, concerns that Credit Suisse would have to write off its position sent shares of the swiss bank down 7 in ho afterhours trading. Credit suisse did issue a statement saying activity is reflective of todays market volatility there is no Material Impact to Credit Suisse. The crash to xiv was mirrored by pro shares xvxy which also trays inversely to the vix leslie, what does any of that mean the best way to look at these things, theyre like a bond, an obligation, a note this is not an etf they get bundled into the same structure. This thing did exactly what it was designed to do it actually is in an orderly fashion wiping itself out. You bet that therewould be no volatility well, it came back, you got wiped out. I think its important we dont let the government get involved here telling us they want to protect us as investors with these instruments. If you own this, you dont know what you own, you got burned, its a good thing. You learned something important. Though, that sounds a little i agree with you, but it sounds like ten years ago, when people didnt understand what cdos were if you dont understand what you own, you deserve to go to zero to be specific about what you owned here, you owned the idea that we would never see volatility again a double inverse move in the vix. We looked at a very low move, anything thats gone, weve gone one direction, straight up for several years. We have not seen these moves we used to see where you see big upswings and down swings a lot of that is because the Federal Reserve was putting a floor on these situations. People were betting on the idea that we would not see the return of volatility. And they were wrong and lost their moc their money, thats okay the federal regulators step in sometimes and say are you sophisticated now buy this that falls into hi, im from the government, im here to help you. But theres reasons you dont let average Retail Investors buy into the hedge funds if you sign the creditor investor form, youre allowed to do that. How do you feel about bitcoin . Facebook is saying i dont want you to advertise Bitcoin Bitcoin was a phenomenon of the jubilation of the markets. It has declined dramatically i think its value is worth 7 more than it costs to make you said 7 more . Yes thats your number. Yes but not 1,000 more sure. If you believe its an infrastructure currency, it should get you a 7 return i think people will lose another 80 in it. Theres nothing wrong with that. One thing is currently when i say you can make it for about 1400 bucks, may cost you 2,000. Iceland, 1100 norway, 1400. Pick your number, it doesnt matter overtime it will cost more the more people who jump into trying to mine this stuff, the more power that is needed, the more Processing Power needed it depends on how many people are trying to mine these coins at one time. Plus over time i think we are going down the rabbit hole. The less coins available we were at etns before, you have to admit it was an orderly dissolution of that. It all took place in the after market during the actual trading day it closed about 15 lower it was the after market that sent it down 85 another thing to distinguish between etns and etfs, etns dont hold the underlying assets theyre a tax efficient mechanism, structured more like a bond its a bond you have to trust Credit Suisse that issued that contract so far they worked we are looking at the futures, and the bloodletting continuing, with the dow futures gown down by almost 600 points. People are waking up wondering what happened . Did we rise too steadily did we come down too quickly is there an underlying fundabilitial reason for any of this you look at these things, is there a fundamental reason for whats happening or a technical issue . Well talk about the technical issues now fundamentally there has not been a lot of reason for this here to talk about that is carter worth from cornerstone mac macro. We have people who generally are not watching the show, but waking up, seeing these things they may not understand Technical Analysis what do you look at . The premises is that theres wisdom in price. By studying it prices one can make inferences about what do and how to behave. We know that its not fundamental. The premise was that if rates move higher, the economy is Getting Better banks should do better that happened. Earnings are great, the whole thing fell apart its nothing to do with the fundamentalal as daytoday were not talking about a housing crisis like in 2008. In a bull market, analysts who wants them in a bar market who needs them the technician can point to something, and i would point to this as of now, were down 8 when you add the declines the futures wooeshgs down 12. If you look at all instances where the market dropped 5 or more, theres been 217 of them 1928 to present. Happened every three to four months its been more than two years since we have seen a 5 pullback so we know at this point its right in line. Of the 217, 5 plus corrections, dips, pullbacks, something happens once youre down 5 . Whether its because stop losses have been entered or the risk manager walks in and says you have to pull the book back once you go down 5 , you typically go down more of the 216 5 corrections, the need ymedian is down 8 the average is 12. So were at the median. My hunch is that in an opening swoosh, that presumptively will occur that purchases made for those who have the fortitude and the stomach to do it, will look okay now, the most important thing is you have to know who you are in the market what did you just say . It will look okay after an opening swoosh in line a swoosh is a 12 to 13 net loss from the high the futures at midnight tonight were down 12 . People should take great solace in these numbers. No emotion in what youre saying its a buying signal after 10 how much more juice you get is how much you have in guts. Some people think this could be like 1987, we could go down 20 today. That will be a 14 pe, please let that happen, ill be a buyer. The prim miss oemise out the there was a reason for the market to be going up and down we just gave back january. And a little more you are a santa claus what you say makes a lot of sense then were speaking the same language its important to know who you are in the market. Team are longterm there are people who will try to get it right just today. Theyre playing us out. One question, how quickly has the bounce happened . Assuming this is the dip, how quickly are we back to the highs or thats very important i think this you can say this with a high degree of certainty. The intermediate top of friday, the 26th of january, will be in effect for a long time meaning were not getting back there weeks from now orb months from now that wont be exceeded until summer or later. But its okay if youre making 2 interest all the way through in the formal of dividends. Thank you thank you it is time to slip in a quick break. Futures pointing to another big drop at the open youre looking at a screen of red there. Dow off about 377 points sorry, down about 244 points now. Well tell you about all of this straight ahead tomorrow, its a day filled with promise and new beginnings, challenges and opportunities. At ameriprise financial, we cant predict what tomorrow will bring. But our comprehensive approach to Financial Planning can help make sure youre prepared for whats expected and even whats not. And that kind of Financial Confidence can help you sleep better at night. With the right Financial Advisor, life can be brilliant. Gglobal bonds, and highdividend strategies. Sure, these are investments. But theyre not what people really invest in. What people really invest in, is what they hope to get out of life. But helping them get there takes a pure focus. Because when you invest their money without distraction, hidden agenda or competing interests, Something Wonderful can happen. They might just get what they want out of life, and maybe even more. Coming up, the dow closing yesterday about 8. 5 below the record high. Thats the biggest percentage fall since august of 2011. Futures down sharply this u wchg. Yoreating squawk box on cnbc stay with me, mr. Parker. When a critical patient is far from the hospital, the hospital must come to the patient. Stay with me, mr. Parker. The at t network is helping First Responders connect with medical teams in near real time. Stay with me, mr. 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Built by investors, for investors. Before investing consider the Funds Investment objectives, risks, charges and expenses. Go to flexshares. Com for a prospectus containing this information. Read it carefully. Today, the new new york is sparking innovation. You see it in the Southern Tier with companies that are developing powerful batteries that make everything from cell phones to rail cars more efficient. Which helps improve every aspect of advanced rail technology. All with support from a highlyeducated workforce and vocational job training. Across new york state, were building the new new york. To grow your business with us in new york state, visit esd. Ny. Gov. Welcome back to squawk box this morning take a look at whats going on we are in the red. Another down day dow looking like it opens off about 610 points down right now. Nasdaq if we opened up right now would open down about 113 points the s p 500 would open down about 54 points. Joining us right now from the cme in chicago, scott nations of nations shares is a cnbc contributor. What is the conversation on the floor right now this morning, scott . Well, i think were surprised at how much lower were going to open this morning and how bad it got overnight. I think that we had expected much of the worst of it to be done by the open people are talking about short vol etfs people are looking at those. I dont think those are the problem. They started yesterday with about 4. 1 billion under management thats going to go to zero thats certainly a lot of money but nowhere near some of the catalysts that weve seen in the past i think the problem is the fed got way behind the curve when it comes to growth. We got good Earnings Growth numbers out of our nonfarm payroll. Monday we got good news out of china purchasing manager overnight we got some good news also out of european purchasing manager data so it just seems that growth is getting away from the Federal Reserve right now. Scott, clearly those were triggers i wonder though if it really just was the excuse to release a lot of pent up selling and obviously were now caught up in one of these kind of position unwinds, big institutions feeling perhaps forced to sell and bringing risk down why dont you talk about how you expect the market rhythm to go from here. These are the kind of environments where people say, wow, were washed out. We might get a ferocious rally how do you think things are set up in the next couple of days . Whats going to happen on the open is its going to be tough to get markets filled. Market makers arent going to line up to lose money just to make it easy for retail traders. So i think that well have some volatility. Isnt that their job . No, actually, no. Market makers job is to make money for themselves its a great question. Its not like the old days of specialists on the floor of the new york stock exchange. Market maker is in business to make money for themselves. Becky, that may be part of the problem. Many Market Makers in a purely electronic environment have no affirmative responsibility when it comes to the market this is a day were going to be missing the specialists here. Lets talk about fund flaws for a second the majority of fund flows have come in through ets, big indexes, spys, the market cap weighted a few years ago we had a bit of a meltdown situation where the bigger names didnt open for 18 minutes. It doesnt look like that has ever happened again even though weve had a lot of volatility in the last few days. Etfs have been working perfectly. Totally liquid perfectly what do you expect is going to happen any chance of that happening again . You know, you make a great point. Yesterday they performed really, really, really well. On the day of the flash crash, may 6th, 2010, some of the less liquid ones did not do as well they are great vehicles. Great vehicles for investors. Scott, we are up against a hard break mike santoli, thank you for being with us for the hour ntui cere me back, we have coinngovagof a major Global Market selloff. Sometimes, they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Global markets tumble. It is continuing this morning. Weve been watching the futures. They are swinging wildly we are looking at the dow futures down by almost 700 points stocks battle to recover from yesterdays historic selloff so far they are losing that battle question is, what should you be doing with your money today. We have some of the smartest minds lined up to help you navigate the selloff tuesday, february 6th, 2018, and the second hour of squawk box begins right now live from the beating heart of business, new york city this is squawk box. Good morning and welcome to squawk box right here on cnbc. Were live at the Nasdaq Market site im Andrew Ross Sorkin and joe is off joining us is kevin oleary. Also with us for the hour, Jason Trennert take a look at u. S. Equity futures after what was a very big down day some calling it an historic down day. Maybe thats the law of big numbers. This is swung by more than 100 points since i walked over to do the open. Yeah. Dow looks like it would open down to 750 points off now 743 points off nasdaq looking to open down as well, about 138 points down and the s p 500 if we did it right now would open off about 70 points lets show you whats going on this puts us well into correction territory which means a decline of 10 for all three of these indices from january 9th. Youre looking at whats going on in europe overnight pretty much across the board we have markets down at least almost 2 1 2 across the board we could be looking at what now looks like another wild session for the markets. Want to get over to dom chu whos here with us on the set trying to figure out where this is all going all right so, guys, as you talk about the streaks that have been broken, Brian Dietrich put it out there, we had gone 404 days on the s p 500 without a move of 5 off record highs lets put it in perspective. That one meek move here, the one weak move here, 4 to 5 . Lets broaden that over the long term we are still up very markedly sings the election and certainly going back further than that to put it into perspective, we are not hitting alarm bells here this is a market pull back as you look at where we see the Market Action happening in the etf, kevin oleary likes to talk about whats happening with the etf. We looked at the large spdrs if you look at the s p 500 spdr, it traded over three times its normal daily volume yesterday. You look at some of the individual hot spots, the financials, 2 1 2 times their normal trading volume. Technology, 3. 7 times what it normally trades over the last few days and discretionary, over 4 times. Clean, erfect, it worked. I mean, its down. Got that. No flash crash no, no, no, no. We didnt see a single move lower. They did move down sharply one other thing to watch right now is of course whether or not there was a safety trade in play we saw a bid to treasuries and yields go lower. Generally speaking theyre still higher than they were a week ago. Gold prices as well. You take a look at some of those stress indicators in the marketplace. The ten year note yield is back up off of its lows now i would just point this out from a High Frequency data perspective the treasury will auction off 66 billion worth of securities three year notes, ten year notes and 30 year bonds this week. Will there be any demand for those . Break it down one very basic sentence. If you believe the bond market is always smarter than the stock market, what do you think the lesson is . The lesson there is perhaps the fact that the stock market is just revaluing whats going to happen if Interest Rates continue on a general trajectory higher okay. Take that for now. Stick around for more on the markets were joined by mike ryan, chief Investment Officer at ubs Wealth Management marianne barto is here and Jason Trennert is here im going to you, mary, first. Youre getting calls, even this second, what are you telling them this is the buying opportunity everybody is looking for. What happened in the market yesterday seemed very technical. It was a deleveraging process. Now we use computers as was pointed out, it was very smooth trading to get a bottom in the market, you need to see panic. We started getting that yesterday. You see that in the measure of the vix trading up near 37, 38 we have a trading index called the arms or trend index. That closed up over 3 when you look at the breadth, decliners way outweight advancers. Panic is starting to hit when you get a little bit more panic, youre getting closer to the end. I dont think were at the end yet but youre getting closer to the end. Were now talking about down 10 to 11 . Absolutely. When you look at getting closer to it. Once a year you get 10 last year we didnt even get really 2 , not even 5 . We havent gotten 5 in two years so clearly we were overdue. Absolutely. I dont want to be a scare mongerer whats the chance we go 20 . Anybody . 3 yield on the spy if we went down, 3. 2 . Thats just not going to han, andrew theres just too much demand for that kind of yield. Thats the thinking that markets are always rational. Theyre not always rational. Please let that happen. What a buying opportunity that would be. Let me ask a different question it seems like everybody at this table feels like this is a buy on the dip, take it as an opportunity now. My question is slightly different. If you think youre right, this is the dip moment, how quickly does it ricochet back . Because it may be that you have many days and maybe even many weeks to buy back because who knows whos to argue that this thing is going to ricochet back like in the next five hours. Of course, but i would just say but thats normal. Stocks are Long Duration assets. Stock portal was up, s p up 7. 5 in january thats unsustainable thats not normal. The nice thing about this, dom mentioned this, ten year treasuries are higher today than they were a year ago that is a Strong Economy signal. So, again, i think if you want to have a trading mentality and you say, gee, i have no idea how quickly theyll ricochet back, but i think this is actually some indication that markets, free markets are actually starting to work more normally, which is what you want in my opinion. Lets talk a little bit about what happened, what kind of sparked some of these things on friday we were sitting here at 8 30 when the jobs number came out better than expected jobs number, wage growth up 2. 9 up year over year we thought were at a point that good news is bad news. Thats what kind of sparked it then weve gotten way out of whack. Were not following the treasury market anymore. You hit it on the head. Its an over reaction to a High Frequency data point lets face it, all of the confluence weve gotten on inflation is were not expecting it to merge. Does this change the pace and also the tempo of what the fed has to do. I think thats what touched this off. What you saw yesterday had nothing to do with rates. Its a nice good morning and welcome to the new fed chair. It was. Well, mr. Chairman, welcome to the world. Happy first day. Heres your mandate marianne touched on this this was largely technical driven dom and i were talking about this before the show started you had a lot of folks who were short vol. The other folks were placing bets oncor lagss and stocks starting to break down they were looking at the micro trade, not the macro trade you had people off sides on two sides of it. One is they were basically short the vol. What they also did is they were looking for correlations to continue to decrease in stocks which also means that tends to be a buy in terms of you want to be short the vix on that i think that combination is what contributed to it. Real economy, i hate to make it political you and i, weve had a lot of political conversations about the market the president of the administration has often gotten a lot of credit. As it should. That was my question, as it should or not . Absolutely. Because interestingly, if you think if you go back to were back to the markets probably back to, what, december 8th . Right, Something Like that. 4ish, right aroundish the tax reform plan. So what does that say about where we are right now see, i would argue, again, as a Small Business person, the one thing that changed almost immediately with the election of the president is that Small Business confidence spiked and, again, we talked about this before, even the knowledge that regulations and taxes wont get worse is a benefit to economics to confidence. Are we all of the view that actually whats happening in the markets is really a function of the fact that the real economy may get too hot . Is this all the good news is bad news because the want to ask that question a different way. Lets say the market opens down 1,000 points lets say it goes to 1,000. Right. The person thats buying a wicked good cupcake in could he h cohassett, massachusetts are they not going to buy a love pop card. Cha ching, by the way, he owns both companies. It doesnt change the optimism of my compass that says its never been higher their cash has never been higher the growth has never been higher. Only if you believe weve had this wealth effect issue if you think that this is longer lasting than just, you know, the next five hours. The economy is doing great. This is a correction on value and we were debating how long it would go. Lets get back to fundamentals on this thats where were talking around the point based on what you see with earnings, based on what you see with the economy where should we be at fair valuation the number one question ive gotten over the last couple of days within local news outlets, within other networks at the news family because we at the cnbc are the place you turn to, the one question that a lot of hosts have asked does this mean the economy is doomed to fail . And the answer is absolutely not. Were in a 2. 5 to 3 economy. Is this a chicken and egg sort of question valuation side of things. Let me say this, the question i got, our clients are institutional investors. The question we got from clients yesterday is something i cant answer which is a little different, which is are the machines taking over, right . Is this something that is because so much of the trading is done by algorithms. And forced selling because of things like the volatility index spiking by 115 yesterday. Our clients are pretty sophisticated in terms of forecasting earnings and all the rest of it they werent worried about the fundamentals of the economy, they were much more worried about the structure, the pipes of the market. Jason, you make a great point. That was the element that we were missing last year because the markets were so smooth is as we grow as a more passive market, more computer driven market, your swings to the down side are going to be much stronger. Where was that fall last year the same algos running the market on the way up. You didnt get the sell triggers they got the sell triggers as the market was going back down were starting to see Interest Rates normalize. Were starting to see wages go up we started to get a little bit of volatility within the market but then you reached critical levels that triggered the computers to sell and that gets to your comment on vol they were short vol. They were forced to cover their vol position and sell their equities this is no different i was talking to aunt bernadette aunt b is real she came to the markets in 1956. One of the first women to ever be on a trading desk i was talking to her last night about the markets. The first thing out of her mouth, she said oh, they had to deleverage their books this is very, very traditional wall street. This was technical it wasnt fundamental. Its not going to change the earnings forecast. This is not youre absolutely right, not going to change the economy, its just that the markets have more of a computer passive investment trading function and, therefore, the volatility on the down side will just be bigger from time to time. I think one thing that is different right now is the nature of this correction is different than any weve had during this expansion and during the bull market because this is growing things now you think about it, so far what weve seen, largely concerns about double dips, soft patches around the world this is the first time were dealing with normalization inflation is getting back to levels that we have to kind of sort through this. I do think at the end of the day the volatility well work our way through this then well start focusing in back on the fundamentals i dont think to your point, andrew, weve seen enough thats going to suddenly alter the wealth effect. This is not going to be a big effect on the porlt folios. Lets hope youre all right mike, mary, thank you guys and jason and dom, stick around. When we come back, the global chief Investment Officer will be joining us Richard Turnill from black rock will be joining us then later this morning gm cfo on the block. Take a look at the volatility index. It doubled during regular markets. It is up again another 35 wow. Volatility sitting at 50 yesterday at this time sitting at 17. We havent seen days like this in quite some time stick around you are watching squawk box right here on cnbc you cant predict the market, but through good times and bad at t. Rowe price weve helped our investors stay confident for over 80 years. Call us or your advisor. T. Rowe price. Invest with confidence. Welcome back to squawk box. Futures take a look right now. We are in the red. We are deep in the red after a very red day yesterday the market looks like its going to open down again and down big time triple digits. Were looking right now if the market opened today at this very moment, 640 points off nasdaq would open down 102 points down. S p 500 would open 58 points down, 59 points depending on it keeps ricocheting back and forth. The Financial Sector was one of the big problems yesterday. It took the biggest hit during yesterdays selloff. Is this creating a buying opportunity or is this buyer beware joining us is marty mosby. Marty, we saw this led down by wells fargo. That was reaction to what we had seen from the Federal Reserves action on it from last week. Explain this what happened . Where is the necessity for a pull back and what are fair valuations as far as you see it . So what we look at is a price of book value. The book had gotten up to 230 of the tangible book value even the returns that were at today which were around 10 . We thought that was at the upper end of the range the last couple of weeks weve been talking about neutralizing our long position in banks in preparation for the pull back. So this was a needed pull back to get into a better position or entry point for the fundamental positions in place. You told people to jump out a few weeks ago. Are you telling people to jump in now when this thing starts to settle, we will . What does that mean youre going to wait until when . You wait until it goes down another 3 to 5 . At that point well be able to have what we call a return to risk ratio much closer to 2 going into friday a return to risk ratio it was less than 1. We had more down side than up side at that position. You think there is more room for down side before things stabilize though well, especially with the banks because what we have here is a sector thats been very hot and what we have also is the first half of the year is the seasonal swoon that we have in bank earnings. So First Quarter we have several things playing against earnings for banks which then brings them kind of down from their highs as a report to peeks in the Fourth Quarter. Were going to see deposit costs picking up with the tax reform and the benefit of this sector and these banks have gotten, theyll start paying out some rates for customers that theyve been holding back on in the initial part of this rate rise those two things i think gifts us a little bit of a pull back. That is treating the entire sector with a pretty broad brush. When you look at some of these prices individually, there are stocks that you like first of all, wells fargo. Lets talk about that. Huge selloff and part of the reason that we saw the selloff throughout the rest of the sector yesterday did you think that was over done it was over done in a sense that when we see the corrections and pull backs, the down side volatility is going to be much smaller than the up side when you look at wells fargo, you have the news coming from the fed. This was their final kind of ringing in on this issue when you look at what the constraints have been, you can manage within the Balance Sheet constraints they have and still create for growth. We think we will start to hit a plateau here we think that their Inflection Point is after First Quarter earnings in april. Wait a second, marty. You have a strong buy and price target of 68 in a stock trading at 57 have you not updated your price target since we heard from the fed . No. We updated it last night. Why would you be telling people to wait if you were looking at a price target that is 11. 50 above where its trading right now . Were just saying in the if you look at the timing, where the Inflection Point in fundamentals will be after the First Quarter when they start to build the momentum again in the earnings in the back half of the year thats all were saying. If youre a long Term Investor which is what were seeing with wells fargo, you can buy in now and youll have a good Long Term Return with a good dividend in a High Quality Bank that has derisked their business over the last couple of years. You like j. P. Morgan chase. You have a market outperform on that stock we do its one of the high quality names of pnc its not one of the ones that has the most leverage to this operating environment. What we see here is acceleration of capital return. Also what we see is the tax reform benefit those things really help the super regional banks citizens, financial or sun trust would be two that we really like being able to grow organically as well as benefit from this operating environment we have. Marty, want to thank you for your time today. Thank you for having me okay. Coming up, blackrocks global chief investment strategist, his take on the selloff plus Quarterly Results from General Motors the numbers and Market Reaction all straight ahead squawk box returns with a lot more back in two. Today, smart planning is helping the new new york rise higher than ever. As the world leader in unmanned aerial systems, were attracting the worlds best talent to Central New York. And turning the airport into a firstclass transportation hub. All while growing urban areas into vibrant places to live and work. Across new york state, were building the new new york. To grow your business with us in new york state, visit esd. Ny. Gov. Still to come this morning, gms Quarterly Results the companys cfo will be joining us to talk it through. Plus, Richard Turnill who is the global chief investment strategist from blackrock will tell us what hes doing to protect his clients from the sharp selloff. Believe it or not, we are well off our lows that we saw half an hour ago dow futures down by 493 points in the last 20 minutes or so we saw down by as much as 750 points below fair value. If we were to open now the s p would be down by 40 points, nasdaq off by 70 points. This comes after the declines that weve seen in the last several sessions this is off from yesterdays closing highs that we set on january 29th markets go up and down but this time they are doing it very rapidly. Stay tuned we have much more right here on squawk box. Highest in Investor Satisfaction with full Service Brokerage firms. Again. And online equity trades are only 4. 95. I mean you cant have low cost and be full service. Its impossible. Its like having your cake and eating it too. Ask your broker if they offer awardwinning full service and low costs. How am i going to explain this . If you dont like their answer, ask again at schwab. Schwab, a modern approach to Wealth Management. People dont invest in stocks and bonds. They dont invest in alternatives or municipal strategies. What people really invest in is what they hope to get out of life. But helping them get there means you cant approach investing from just one point of view. Because its only when you collaborate and crosspollinate many points of view that Something Wonderful can happen. Those people might just get what they want out of life. Or they could get even more. Good morning, everybody. Welcome back to squawk box. Live from the Nasdaq Market site in times square. It is all about the markets this morning. Weve been watching very closely. Futures have been all over the map. All over the map in negative territory i should probably say. We have seen down and we have seen way down. Dow futures are off by more than 500 points we have seen the futures down by 750 points folks, thats just in the last half hour. It is a very volatile morning following a very volatile trading session yesterday. S p down by 43 we are talking about both the well, at this point the dow futures are putting us in correction territory that means we are down 10 from the high that was set back on january 29th not quite there with the s p 500 not quite there with the nasdaq at this point but we are very close and its all because volatility has come roaring back volatility index yesterday was up by 115 that kicked all kinds of things into play. Were going to be talking about that through the morning. Steve liesman is here in particular because this is the big question of the morning, the fed reaction steve . How is the fed going to react . I think that is key, and drew how the fed reacts is how it thinks the market is selling off and how severe it is going to be lets go through some theories of the crash the first one, stocks went too far too fast peter bookbart points out stocks went parabolic in the first four weeks. That is now gone and theyre working on some of the gains from last year fear of inflation and rates sparked by the jobs report with the high wage, but honestly there is not much more evidence of inflation the question is whether or not financing the deficit becomes a problem here with the huge deficits that may be coming in the months ahead and then theres this idea of Computer Trading and etfs. I think it might have exacerbated the problem, but i have a big problem thinking its the major cause of the down draft. The down draft has changed the outlook from the Federal Reserve and the Interest Rates in the months ahead lets take a look at the detail here march is trading at under 80 . That had been up to 90 . Thats the first rate hike if you remember when we put it on this chart last week, the second hike was seen coming in june thats now been pushed later to august the third rate hike is under a 50 pera 50 probability. What could give the market some clarity . New inflation or wage data bond auctions that show the u. S. Government can finance the deficit at least at current rates and maybe some fed speak where we learn more about how he thinks about the outlook for rates and the economy. Several fed Bank President s are speaking this week we will hear from powell in congressional testimony by the end of the month if not sooner my sense of powell and this new coming board appointed by the trump administration, it is likely to be less likely in the current economic environment to alter policy in response to a market decline, becky. All right, steve. Thank you. I try and go back to what sparked this the Labor Department numbers hit on friday. The fed is moving more quickly you were on set. You were talking about good news is bad news. We have spread a long way from that and things have gotten out of control based on the selling things that had to kick in, the volatility index, things like that. I dont know if they have the inflation chart that i had earlier this morning in the back there. If you look at core year over year inflation, its still down below 2 the Federal Reserve is not hitting its goals. Remember, at the last fed meeting two fed officials dissented because they did not want the fed to raise rates. This was the last rate hike meeting that is. Right. That tendency is to be more dovish at least with the Bank President s on the board. That was one thing theres been a lot of commentary about the wage gain that spooked everybody, the 2. 9 . It was for supervisory workers nonsupervisory workers who are the vast bulk of the labor force out there, they only had 2 point be point 4 year over year wage gain. Thats even with some of the higher minimum wage things that have kicked in. Right, which is a onetime effect it doesnt end up continuing over time. So i would really want to see more evidence of concern about inflation and concern about wages to really worry about it i think theres an issue here. You do have this one concern which is the predominant one for me youve got a big tax cut, a deficit finance tax cut into a full employment economy that does raise issues about Interest Rates and you did have that bump up in Interest Rates i think when you get a little stability in the Interest Rate environment, stability on the outlook, thats when stocks can stabilize themselves. Weve got to go let me add this quickly to that too. This is a nice welcome from wall street to jay powell on his first day in this new job. Hes been around so maybe this doesnt spook him. He knows the markets pretty well i think thats right. He is known for his market expertise much more than, say, his economic ormon tear ri policy. Former private equity guy. It is also true, the first day of yellen and first day of bernanke were both down days powell got more of a cold shower than those other two remember, every fed chair faces his or her challenge, and it was greenspan within two months that faced what is still the most historic decline by the dow jones in the dow jones in history. Lets hope were not repeating that. Yeah. That was in two months of his being in office. Steve, thank you very much. For more on the Global Market selloff and what you should be doing with your money, we are joined by blackrocks global chief investment strategist, Richard Turnill. Thank you for joining us this is a morning where a lot of people are waking up and are very nervous about what theyve been seeing and then once again with the futures this morning. What would you tell them first of all, thank you very much for inviting me on today. So we see this event as very much being driven by volatility and by positioning january was a record month for flows into equity, both etfs and mutual funds we have to think about this pull back in that context but i think its also important to recognize what this is not about. First of all, this is not about inflation actually if you look at inflation, break evens, they havent budged at all. They are exactly where they were a few days ago its not about growth. The data again were seeing about growth in the u. S. , in china with the recent pmi data, in the eurozone with the recent gdp data is consistent with the sustained expansion. Its not about earnings. Were actually getting close to record upgrade in earnings coming through right now the fundamentals remain very strong now these periods of volatility are common in bull markets we havent seen one for a long time so i think many investors are simply getting very used to having this low volatility regime that means the near term outlook is certain our message would be focus on the long term. Focus on the strong fundamentals valuations remain reasonable and are getting cheaper, particularly outside the u. S. Including emerging markets and we continue to think that global Central Banks are going to be cautious and predictable in the way they start to stem the tide in policy. We view this as an opportunity potentially for investors who are under risk to start to buy in from some of the attractive areas of the market. Thats a sound message, but it may be easier said than done when it comes to taking that advice for some people, particularly Retail Investors who are watching this market climb steadily over the last two years and who have been waiting and waiting and waiting to get in maybe they eventually threw in the towel in say the end of last year, the beginning of this year they just jumped into this just in time to see the pull back they think theyre the ones holding the bags what would you tell somebody whos thinking Something Like that this morning . So youre absolutely right. What we havent really seen until very recently in this market was Retail Investors are buying into the risk on environments in fact, its typically one of the characteristics youve seen later in the cycle weve just started to see that coming through in january and thats reversed very quickly we seem to have a lot of investors who are sitting on either high levels of cash or in many cases on very high levels of bond holdings, safe Haven Holdings many of those investors have been looking for an opportunity to add into the market the problem is, when that opportunity comes, thats exactly the time when youre most fearful so were seeing levels of anxiety in the market riding to very, very high levels the vix up into the 40s today. Levels typically associated with panic. Again, that creates a very near term risk. We dont know how some of those investors have just got into the market and may react in the short run. Again, our message is really youve got to look beyond the next few days and recognize whats happening here as a back volatility, back positioning but its not about fund amountals. The fundamentals remain strong we see broad based recovery. We see growth persisting through two years here as i said, we see valuations being reasonably attractive in equities right now and getting chee cheaper particularly outside the area in emerging markets. Richard, can you speak a little bit about the weakness of the dollar from a longer term perspective . It just seems to be the one thing that seems to have been a little bit out of sorts in my opinion with the strength in equities and the selloff and bonds. So what do you make of that . Yeah. So the dollars behaved in quite an unusual way in the early part of this year so particularly when we had the risk on environment in january, people upgrading their expectations for the u. S. Growth starting to upgrade their expectations about what the fed might do later this year you typically think that would be a positive environment for the dollar instead, you saw the dollar weaken what we believe after the last few days it really reinforces that a lot of that movement with the dollar was about global Risk Appetite so as investors became more confident about investing back in january, seems a long time ago, what you saw here was a dollar weaken as investors started to reallocate the higher risk assets. In the last couple of days youve seen that partially reverse as youve seen investors go aggressively risk off what we know is longer term what really drives the dollar is Interest Rate differentials. We will continue to see the fed raising rates three to four times this year. Other Central Banks will be more gradual. We think that will eventually give the dollar a bid. Youll see some support coming in for the dollar. In the short run it feels the dollar is a barometer of risk. Richard, thank you for joining us we really do appreciate your time. My pleasure. When we come back, the active passive management debate thats been heating up as Global Markets weighed into the sea of red. Well hear from the global director of etfs and derivatives at ftse and russell. Squawk box will be right back. Its all yours. Wow record time. At cognizant, were helping todays leading Life Sciences companies go beyond developing prescriptions to offering subscriptions with personalized, realtime advice for lifelong, healthy living. Honey . You almost done . Nope. Get ready, because were helping leading companies see it and see it throughwith digital. Its technology was engineered beeping . While its design was meant to be seen. Experience the new 2018 lexus nx, and the nx hybrid. Experience amazing, at your lexus dealer. Joining us to discuss the active passive debate is the director at the ftse and russell. Good morning. You appreciate the debate better than anybody. You probably appreciate that now that weve seen this tumble in the past day some people say it is in large part because of the passive passive gain, if you will. Yeah. Well, im not sure i would go that far, but there is a tremendous amount of assets out following passive strategies but active strategies still have far more assets in them, you know, even though youre seeing the growth in passive. And at the end of the day, you know, at ftse russell we have 15 trillion benchmark to our index. Probably just a little less after yesterday, right and a lot of those assets are in actively managed strategies. Majority of those are actively managed strategies. Right. But what youre seeing is all investors, passive and active, reevaluate their strategies am i in the right vehicles or have the right exposures at the end of the day what theyre trying to do is make sure they have the right Investment Products to make their outcomes. The question is is there something structural going on . Is this cheap mentality, by default a passive fund, mutual fund, its a sheeps skin. Is that what it is is that going to exacerbate the ups and the downs. Theres a missing market about this i have to disclose i work with building indexes with ftse. I won the cnbc stock contest yesterday. Weve got that picture of that thing. But heres how i did it. I simply went back to an index called ousa that ftse russell built when it was time to call those stocks and asked them what were the two heaviest weighted names in that index. At that time it was boeing and apple. They beat everybody. All the active stock pickers got cleaned out by this actively managed index, which is basically the mind of a very strong manager instituted into rules that they built. This is a new form of investing at half the price. I used to pay those managers 100 basis points i pay him 48 and i whacked all those guys im using these indexes. What people dont understand is theyre taking over. Theyre not robots, theyre researchers and they tell they build what you want is that basically whats happening . Yeah, thats exactly whats happening. Congratulations in being the winner. Thank you i love to gloat but i dont really yeah. Absolutely and the real value that an Index Provider like ftse russell brings to the table is it doesnt just give you whats happening with the markets tick by tick, which we do you can see up on the screens there where the markets are going based on the index is, but more importantly we provide insight, transparency so investors know exactly whats in that index if you want to replicate that index in a passive vehicle like an etf or fund or if you want to do what kevin does, he takes active strategy insights yes go ahead. No, i was going to say, one of the things we highlighted over the course of the past year or so is this idea that its the biggest actively managed mutual funds in america are outperforming the s p 500, have last year. The issue becomes the debate, and you guys rightfully put it so, it is a debate, about whether active managers add outperformance or alpha in downward trending markets. Thats what they always say. Its up now. If we are in the midst of this market downturn, is it the active pickers who day by day manage these funds, are they the ones who are now going to outperform if markets are going to pull back from the record highs that weve seen . The weirdness to this part of the debate is this is again, were saying this is not a fundamentals driven rally. So you are talking about market sales being put in and potential irrationality at thof a market. The numbers are the debate. Yesterday market is down 4. 1 . That ousa was down 3. 6 thats 40 basis points of performance. Its people doing the Research Beating the old stock picker guys thats my point. Youre saying its a thats essentially an actively managed strategy. It is. But it may be cheaper and that i think is another debate, for whatever it is worth. My own opinion is that you have not fully tested passive strategies in a period of market stress this is, in my opinion, the monetary costs that you have. But does that create its own structural dilemma of course youre not going to find out though because youve had this extremely unusual period in which youve had financial repression where essentially set the most important price in the world was a ten year treasury. Youve had a lot of misallocations. Tell me the down side the down side is that theres a lot of people that think theyre safe because theyre in indices that will be fully exposed to the decline when you do have correction and you do have stress in the market. To me thats the down side. But theres not some grander structural problem there could be. Thats what im no one knows. Not if the names are liquid if you pulled liquid nobodys putting their money into equities. Theyre not investing in commodities or fixed income. What people are really putting their money into is what they hope to get out of life. But helping them get there requires a real refusal to settle for avage. Because when you approach investing with a tireless desire to beat the status quo, Something Wonderful can happen. Those people might just get what they wanted out of life. Or maybe even more. We know life can be hectic. Thats why, at xfinity, weve been working hard to simplify your experiences with us. Now, with instant text and email updates, youll always be up to date. You can easily add premium channels, so you dont miss your favorite show. And with just a single word, find all the answers youre looking for because getting what you need should be simple, fast, and easy. Download the xfinity my account app or go online today. Right now, what do you make of what were seeing not only with equities here in north america but were seeing this globally, a selloff and a pull back. You know, clearly theres a correction happening in the market over the last couple of days and, you know, i dont know where thats going to go i think importantly our focus is on the long term we view the best way to do that is continue to execute our disciplined plan, which has continued to improve the core business on our path to 10 marge gibbs and laying a foundation to win in the future of transportation as a service thats what were focused on we believe if we do that were going to drive significant longterm shareholder value. You bring up transportation as a service youre investing 1 billion this year 1 billion in selfdriving car technology, Autonomous Car drive Vehicle Technology when can investors and General Motors say, look, i think im going to get a payoff at a certain date in the future well, we are absolutely laser focused on being first at scale safely in a ride sharing network. And back in november we said our expectation was to launch this in 2019, and thats what were focused on we think the opportunity is significant in this space, and, you know, first step is safe launch in 2019, and thats what were absolutely focused on. Yeah, but, chuck, you know, some people look at this, its a billion this year, maybe another billion next year. Who knows how much youre going to have to invest over the next several years. Is it 2020 20rks 21 . When do you expect that profitability . More to say on that once we solve the most complex problem, being able to deploy avs in this environment. As we said back in november, we believe this is a luge opportunity. If youre first at scale, youre going to have the opportunity to take advantage of that again, well have more to say about the specifics of the returns as we get into the launch mode in 2019. Chuck stevens, cfo General Motors joining us on a very busy morning. Also on a morning, andrew, where General Motors beat the street on the top and the bottom line and posted record margins of 8. 7 guys, back to you. Bill, thank you for that. When we come back at the top of the hour, the council of economic advisers chairman Kevin Hassett will join us to talk about what he sees happening in the economy and react to what hes seeing in the market. Futures down 520 points for the dow right w. No s p off 45 squawk box will be right back. S with signs of opportunity. But with opportunity comes risk. And to manage this risk, the world turns to cme group. We help farmers lock in future prices, banks manage Interest Rate changes and airlines hedge fuel costs. All so they can manage their risks and move forward. Its simply a matter of following the signs. They all lead here. Cme group how the world advances. And i recently had hi, ia heart attack. It changed my life. But im a survivor. After my heart attack, my doctor prescribed brilinta. Its for people who have been hospitalized for a heart attack. Brilinta is taken with a lowdose aspirin. No more than 100 milligrams as it affects how well brilinta works. Brilinta helps keep platelets from sticking together and forming a clot. In a clinical study, brilinta worked better than plavix. Brilinta reduced the chance of having another heart attack. Or dying from one. Dont stop taking brilinta without talking to your doctor, since stopping it too soon increases your risk of clots in your stent, heart attack, stroke, and even death. Brilinta may cause bruising or bleeding more easily, or serious, sometimes fatal bleeding. Dont take brilinta if you have bleeding, like stomach ulcers, a history of bleeding in the brain, or severe liver problems. Slow heart rhythm has been reported. Tell your doctor about bleeding new or unexpected shortness of breath any planned surgery, and all medicines you take. If you recently had a heart attack, ask your doctor if brilinta is right for you. My heart is worth brilinta. If you cant afford your medication, astrazeneca may be able to help. Good morning, everybody. Breaking news. Stocks around the globe dropping sharply once again here at home the dow is pointing to a more than 500 point decline right at the open. Although its been all over the map, its been very volatile this morning we have every angle of this market selloff covered weve got the volatility spike, what you should be doing with your money plus the white house response cea chair Kevin Hassett is standing by. February 6th, 2018, and the final hour of squawk box begins right now live from the most powerful city in the world, new york. This is squawk box. Good morning on this roller coaster of a tuesday right here on squawk box on cnbc. Were live at the Nasdaq Market. Im Andrew Ross Sorkin along with becky quick joe is off sitting in for us today, mr. Wonderful himself. Kevin oleary. Adding a lot to this conversation market maker, youve been doing a lot of things. You can tell us what youre doing. In the meantime helping us dig through the selloff, i want to tell you about the top story markets under pressure this morning after yesterdays record selloff on wall street 4 trillion, i say with a t, in market value has been erased from world stock markets just over the past week or so take a look at the futures this morning because we are in the red again. The dow looks like it would open down about 560 points down its been all over the map we were worse a little bit earlier. It got a little better, but this is where things have been settled for the past hour or so. Open down 77 points, the nasdaq, and the s p 500 looking to open down about 47 points lets show you whats going on in europe. We have red arrows there again across the board weve been off at least 2 in most markets, in some cases 2. 5 and close to 3 . Well she you also whats happened overnight in asia because the selloff has continued there as well. Its actually been a stronger selloff really keying off of what happened in our own stock market yesterday youre looking at the anything kay and the hang seng off in both cases close to 5 the hang seng more than 5 lets show you whats going on in the ten year to the degree you believe that the bond market is smarter than the stock market right now. The 30 year at 3. 017 well tell you what were going to talk about what that may or may not mean in just a minute well also show you whats going on with the dollar and then well switch that around also show you real quick whats going on with oil. You can buy a barrel of wti crude for 63. 25 right now we want to get over to bob miss san any wh pisani. Bob. Hello, andrew just a little checklist. Four things ill be watching in the next couple of days. First, margin calls. This is demand by the brokers for traders to deposit more money into their accounts. Margin debt was at a record easily people have borrowed a lot of money to trade volatility products, leverage and inverse etf. We had widespread conversation about volatility etns like the velocity shares, xiv, thats a product that allows you to bet volatility down. When it goes up you can lose money, in this case you can lose a lot of money an historic ocean of money came into etfs in february. North of 12. 5 billion of outflows since the beginning of february thats the first few days according to kbw financial etfs have seen in flows as raetes have risen this is the big issue. How will they react particularly those who bought aggressively in the beginning of the year . Finally, watch redit if the credit markets dont show any stress, its more than likely this is a buyable bit rather than the end of the bull market if the stress spreads to Credit Investors will be much more concerned. Finally, guys, the good news is the markets getting a lot cheaper. We have gone from over bought to over sold in a week. A week ago the forward pe from the s p 500 was a pricey 18. 5. At the open it looks close to 17. 2 not dirt cheap but its a lot cheaper than it was a week ago guys, back to you. Okay. The go ahead, becky. I wanted to touch base with bob regarding the dialogue thats going on on twitter right now and social media about the flash crash that occurred in etfs that is not happening now and youre right there i remember you were the first to utter the words actively managed etfs you got me into this sector. Im a huge advocate for it now tell me what your concerns are regarding a repeat of what we had on the meltdown when the big names on the nyc did not trade and etfs went nuts has that happened yesterday . No. No in fact, i made a big point of bringing tom farley on at the close saying are we having any problems he said we werent having any problems at all. Markets were plain vanilla etfs operating normally we had the big problem on august 20th when the markets moved down there was a little bit of delays in the open. We did have some problems with the etfs at the time a lot has been addressed there have been changes in the Market Structure i dont have any concerns. I have some concerns about the volatility products that are out there. When you have a product that is leveraged to the vix or to volatility and when it says when you go down when volatility goes down 10 you make 10 vo la till the goes up 10 you lose 10 on a day when volatility went up 100 , do you lose 100 thats an issue. Those fringe products can be a little disruptive in the market. As for plain vanilla etfs, the market is working fantastically right now. Thats good news. Etns are different than etfs. Zblaert a lot of people got confused thinking they were buying an etf. Now theyve lost their money its a lesson learned. I dont want to see the government get involved in regulating them. Blackrock issued a statement yesterday saying that Exchange Traded notes, etns should be seen as a different product than plain vanilla etfs thats a very interesting call well talk about that later in the morning. Bob, well see you in a little bit well come back to you throughout the day meantime, the white house weighing in on the market turmoil. Heres a quote from yesterday, quote, were always concerned when the market loses any value, but were also confident in the economys fundamentals joining us from washington is White House Council of economic advisers chairman Kevin Hassett. Good morning. Good morning, andrew. Help us with this, kevin. Theres an argument being made right now that the administrations policies to stimulate the economy, whether it be regulations may be effectively over that real economy to the point where the fed is going to have to put on the brakes thats how this fall began what do you make of that well, first of all, i want to reassure everybody that was in Constant Contact with regulators, secretary mnuchin, gary cohn and i have been following a lot of things that your previous guests were talking about just to make sure that things were proceeding in an orderly, disappointing fashion over the last couple of days the fact is that the president s tax cut and the regulatory reforms are supply side reforms. What they should do is increase capital spending, something that we see very sharply in the data. That should increase supply and put downward pressure on prices. You know, ive been out there saying really throughout the tax debate, i even said it on this show, that we believe that and weve modeled this, that the positive Economic Growth that you get out of the supply side boost does not put upward pressure on them when we model this, we get a path thats very consistent with the feds Forward Guidance what set off the last couple of days clearly is the very strong Economic Data which shows that our analysis of the Economic Data are correct the data is so strong that the markets are starting to worry about the fed policy we respect their independence. I can say that when we model it the future Interest Rate path looks pretty much like the feds Core Guidance does. Kevin, the president has used the market as a scorecard oftentimes for his own success or failure at any given point during this presidency so far. In fact, has said that the tax reform cuts in terms of looking at that has said thats been a success because look at the market how do you guys internally think about that now. Well, sure. There have been a couple of bad days if you go back to the day he was elected i think were up by about 1 3. I think the way to think about it, lets go back to economic theory economic theory before the tax reform if you hurt the dollar, you got to keep 65 cents if you earned a dollar you got to keep 79 cents of it you can do the percentage yourself thats about what the value of an equity should be if its the present value discounted after tax cash flows we expect that that would act as an attractor for the market and that over time the market would head there, but nobody knows what the market is going to do today or tomorrow. You know, the markets are reasonably efficient especially in the short run theyre very volatile as well as weve seen over the last few days. Kevin, thats what weve been kind of bumping around here, trying to figure out the reason for why this happened. Theres not a lot of clear indications in terms of fundamentals the economy hasnt changed our outlook. Earnings outlook hasnt changed much of anything what do you think sparked all of this i think that getting inside the mind of the market is difficult. The economic fundamentals are really strong and, you know, Earnings Growth forecasts are certainly going to be revised upward given what were seeing the atlanta fed has a 5 First Quarter which is while that thing is probably going to revise down, dont forget the Fourth Quarter we had massive private demand in the economy, above 4 , and the reason gdp came in a little bit below 3 was that we ran inventories down to the bone. In the First Quarter they have to rebuild those inventories which means were going into the year with very, very strong Economic Growth. With all of that in the back drop you would have to say that people would be concerned that discount rates for those future cash flows are changing, which is something can i finish the last thought here . One of the things that i have also been saying on this show over really the last few months is that, you know, when President Trump took over, we inherited an economy that was growing in the 1s and, you know, the Economic Team of the previous president saying it was secular stagnation, stuck there forever. What were saying is, no, they were making policy errors. If we fix those policy errors we can get growth back to normal. Guess what, growth has headed back to normal normal involves a lot of other things, too. I think what were seeing is Interest Rates seem to be moving back to normal as well. Kevin, investors like me that put money to work in Small Businesses all across america have been very, very pleased with the policy. I want to stay out of politics for a second. Okay. Policy on deregulation, the policy on tax is driving forward the growth of these small companies. Now as an investor im going to ask you. The new mandates that youre looking at in the white house, lets call it immigration versus infrastructure its going to be hard to drive both at the same time. Which are you biasing . As an investor i would love to see you go to work on infrastructure which mandate comes first . Well, again, the Political Team has to work out the immigration problem. You know, im not involved in that aside from a little Economic Analysis of how this is going to affect the economy. Infrastructure is moving forward very much so the Economic Team has done a heck of a lot of analysis about the Economic Growth impacts that will come from infrastructure. I can tease the economic report of the president is coming out soon youll see a lot of talk of infrastructure even if you look at the latest news, the truck manufacturers like freightliner and navistar are posting record numbers the economy is looking so strong that the truckers are thinking, geez, were going to need a lot more to move things around if we dont have the roads in shape to move the things around, it can slow the economy. The president is right to emphasize infrastructure youll see something soon on that its something weve been working on since last summer immigration is going to be an important political thing as well i know a lot of people in the west wing over there are working on that trying to get a deal. Hey, kevin. Its one thing to say you never want an economy can never be too good, but in a way it can be so i think the larger question theres two things going on here. One is, you know, how hot is the economy . How hot will the economy become . And as a result of that will Interest Rates go up by the way, if Interest Rates go up, how much more expensive is that going to be north Just Companies but also for the government, for everybody. Is inflation back on the scene . Thats the ultimate question. If the policy unto itself has caused that and, by the way, were taking on Additional Debt to do it, was it really not only was it needed but was it a good idea . Yeah. You know, youre right to pose that question, and heres the way that i think economists like myself think about it, that weve been talking a lot about how much wages were going to go up, something ive been saying on the show for a good, long time since the tax debate started. You saw that were going on 4 Million People have gotten really big wage increases because of the tax bill and you then have to ask yourself, is that inflationary theres an old economist, you can google him named sidney winetraub. They said the higher wage numbers is not necessarily inflationary as long as productivity is going up where does the productivity come from the productivity should come from capital spending. If we see wage increases without a surge in capital spending, we should be worrying were seeing wage increases and Strong Capital spending. Were seeing a weak dollar which is inflationary and other things could be inflationary your take is this is not bad inflation, its good inflation well, the Wage Inflation is justified by higher productivity and the productivity is supported by an almost unprecedented, you know, acceleration of capital spending, which we see, especially in the durable goods order data which suggest theres a heck of a lot of capital coming on in the First Quarter. Okay. Kevin, were going to leave it there. Always appreciate spending time with you. Thanks. Andrew, what is this too hot economy thing . What are you talking about there. How can we be too hot . Is the inflation too hot . Gdp at 6. Thats what sparked thing on friday its a wage over its back its panicking thats why. Its the market has been inflation. Its doing a wonderful job. When we come back our special coverage theyre going to be doing that the futures. Dow futures are down well be right back what is the power of pacific . Its Life Insurance and Retirement Solutions to help you reach your goals. Its having the confidence to create the future thats most meaningful to you. Its protection for generations of families, and 150 years of strength and stability. And when youre able to harness all of that, thats the power of pacific. Ask a Financial Advisor about pacific life. Hey ron theyre finally taking down that schwab billboard. Oh, not so fast, carl. Oh no. Schwab, again . Index investing for that low . Thats three times less than fidelity. And four times less than vanguard. Whats next, no minimums . No minimums. Schwab has lowered the cost of investing again. Introducing the lowest cost index funds in the industry with no minimums. I bet theyre calling about the schwab news. Schwab. A modern approach to Wealth Management. Welcome back to squawk box, everybody. Weve been watching the futures and again there has been significant pressure on the futures this morning in fact, just in the last 2 1 2 minutes were down another 80 points the dow futures are down by 680 points below fair value. S p futures off and nasdaq off by 118 this puts the dow if we were to open at these levels, theres no guarantee of that. If we were to open at these levels we would be looking at the dow down 10 from where we were just on january 29th at the high there youre very close to correction territory within a couple of points from the s p 500 at these levels but, again, we have been all over the map this morning and all over in the red, i should add we have not seen positive green arrows on any of these things but it has been a wide range of the losses down a couple hundred points, down 300 points, down 750 points down by 650 points joining us right now to make a little sense of this or at least try to is jeremy siegel. Professor of finance and also with us, tom lee who is managing partner and head of research at fund strapped global advisers. Jeremy, thank you for joining us when you look at this, what do you think walking away from the losses weve seen over the last few trading sessions. I mean, i dont think this is puzzling at all. The market went up too far too fast you know, i mentioned on this program last december and early january there were too many momentum players in this market just riding the trend. Theres an old saying on wall street, up the staircase, down the elevator and thats what we have up 100, under 200. People say im going to ride the trend. Im going to put stock orders when the trend ends im out. Thats exactly what happened no puzzle in my mind i mean, something triggers it, and you were right i mean, the news of yields were going up, the news there might be inflation, you know, some bad earnings from exxon mobil, et cetera, it could be any minor thing that causes people to jump off the train and they jumped off the train. I actually think the great news is as we commented on, etfs, there was in the past flash crash we had some crazy priced stocks, crazy priced etfs. This was very orderly. We had no prices out of the ordinary yesterday afternoon at 3 00 so i think the market actually worked extremely well i think were getting down to, you now, very reasonable level right now from over bought levels in late january. How are you measuring that, jeremy is that based on pe ratios yes i mean, first of all, earnings are way up this year we have to understand earnings are front loaded with the Corporate Tax cuts so we keep on raising those earnings i mean, forward earnings operating earnings on the s p 500 to be at 17, 18 in a low Interest Rate environment and, remember, you know, even if we go up to 3 1 2, 3 1 2 percent, this is a low interest environment. Its very reasonably priced for equities. I was going to say,we were 10 higher just last week. If thats way over bought for you and this is way over sold for you, what are we talking about, 5 higher i dont think were over sold okay. I think were getting to what normal price is. I said that 2018 is going to be much more challenged in december for the first time in history. I was probably the most pessimistic person here on cnbc. I said 0 to 10 return on s p this year with the Interest Rate challenges, with political challenges it was not going to be anywhere like 2017 and i think thats what were seeing right now. Jeremy, whats the chance this goes significantly lower . Well, i dont think its going to go significantly lower. If we today is the day i mean, you know, its obviously i think this morning might be a buying opportunity if i see it down 500 points. Is the siegel family buying have you called your broker . I dont trade short run on the market i watch it, but i dont trade short run on the market but i do think were getting to reasonable values. People will buy this morning i think a year from now are going to say, okay, i think ive got a good ive got a good price. Could it go lower . Absolutely we did see that yield go down from 285 to 270 for the competition with bonds, which is absolutely critical. Right. Has been reduced, and i think thats subjective. We only have a few seconds left why is the credit market reacting why nothing in the credit market we got yesterday in the credit market. The yield went be down from 282 on the 10 to 270 in about five, ten minutes. I was watching it. That was the risk off rush to treasuries that weve seen over the last ten years it works it worked yesterday. Professor, always good to see you. We will, im sure, see a lot more of you in the next couple of days. In the meantime, want to thank you and slip in a quick commercial break first before we do that, a quick check on the markets as well lets show you the futures and more of those red arrows the dow jones looking like its gotten marginally worse in the past couple of minutes opening down 690 points if the market opened right now. Almost 700 points now. Back in a moment well, have you seen her work . No. Is it good . Good . At cognizant, were helping todays leading banks make better lending decisions with new sources of data so, multiply that by her followers, speaking engagements, work experience. Credit history. That more accurately assess a business chances of success. This is a good investment. Shes a good investment. Get ready, because were helping leading companies see it and see it throughwith digital. Welcome back to squawk box this morning take a look at the futures because we are in the red. The dow looks like it would open down close to 700 points off this morning nasdaq would open 100 points off. Dow off 66 points. Lets show you whats happening in europe. Of course what happened in asia where you said the heang seng over the dak, cac, ftse 100 off over 200 the cac off by 3 . Our guest, kevin oleary, mr. Wonderful, put a little cheer into our step this morning if you could. Also tom lee here and he said buy bitcoin. You were right at the time not to go off the markets for half a second. Im curious if youre in the same place now. Yeah. I think bitcoin is a generational storyabout millennials in the u. S. And lack of trust outside the u. S so you can look at this not a harbinger though of not just a bull market but a market out of control because i think when you saw how well bitcoin did, that might actually and jim cramer said this really that might have been where the bubble was maybe the bubble was lets assume youre right, because i believe millennials dont trust government and all of that. So why in the long term should you get extraordinary returns from this one asset class beyond what infrastructure returns would be above 7 . Why would that happen . Well, its gone to thats really the big debate, kevin i think it has to do with is bitcoin a store value. If its digitally scarce, store value doesnt have to relate to underlying costs but the cost of security thats what were going to see what happens in the next five years. We want to get over to the cme. Well get back to the stock market to figure out where thats headed. Rick santelli has december trade deficit data which may move the market as well rick, the numbers. Yes, the trade balance and most certainly it will be a deficit is minus 53. 1 billion. Thats about a billion heavier than we were looking for we were looking for about 52 billion and sequentially, of course, thats heavier from the minus 50. 5 billion of last month. We still have jolts to come up Interest Rates, you know, consider this, 2017, talk about it a million times 10 basis points higher than that right now. To me the credit markets and the lack of big ranges in the dollar index just dont auger for this to be like some of the other min be any little crashes that weve had along the way so, of course, were continuing to monitor Interest Rates the curve has been steepening while rates drop that to me says were pricing out the fed no matter what people think about the fed, they do Pay Attention to the markets. Weve all said that theres been a thumb on the scale of Interest Rates. Well, now theyre acting a bit more independent and weve also known that theres a lot of froth in the equity markets. But as long as they take the head and they dont get down to the beer, were still probably going to be okay well continue to monitor. Down here its Pretty Simple people looked at charts in the stock market for a long time they look at 9,000 points or so since the election they say its acting like a commodity so take a third a third a third. And it flattened out a bit at 23,000 these are the thoughts going down here but many traders have been on this floor a while they know you never try to catch the dropping knife, thats for sure. We always say the bond market is supposed to be smarter than the stock market now that rates are falling, it seems, why are stocks still falling . Youd think that wed see well, first of all, what are they falling they settled at 240. 241, 242 so were still at 274. Theyre falling from 28 4. Basically were ten basis points off our high yield close that isnt to me falling, okay thats coming back a little bit. Now if they start to get in the 250s well have that conversation another thing down here, we look at fair value. Those 15 minutes where the futures markets are open beyond the cash markets, 4 versus 4 15. Ill tell you what, thats more art than science as well, just like the markets after the big boys close so, you know, right now the futures for the dow are down 336. I know that your fair value says theyre going to open down more and, indeed, they may. Dont be surprised to see a whole lot of volatility in the first five minutes. Great to see you, sir thank you for that we want to get over to the professor Steve Liesman with his reaction, both to the numbers and i want to get a little bit of better sense of how you think the bond market and is reacting and how you think that should be impacting equities. Let me first just say that the trade deficit numbers, andrew, theyre going to hurt a little bit the q4 gdp number dont know how theyll play into the q1 outlook which is also strong q4 was two six break it down a little bit you did have good exports but you had more imports as well up 2 1 2 on imports. Up 1. 8 you had some nonpetroleum, really wasnt an oil thing i want to talk get to your question in a second, but i want to talk about how the fed is likely processing this decline, the kind of normal matrix that it goes through when you have a big shock to the economy like this the first two questions it wants to know, is there danger for banks and the Banking System and the second thing it wants to know is are markets functioning . And the reason why it asks those questions first is because those first two things, if the answer to that is yes theres danger for banks and no, markets arent functioning, that would necessitate some kind of very Quick Reaction by the Federal Reserve. In this case i think the fed would say, no, the banks are well capitalized and, yes, markets appear to be functioning. Then its going to go on and ask, is there an economic effect of this, either through the confidence route or through the wealth effect, and i think the answer is modestly, but not dramatically yes finally, is there impact on financial conditions and i think the fed in this case will take the totality of the returns over the past year into account and say, you know what, we were up 25, 28 and now weve given back 6, 7, 8, maybe 10 of that but financial conditions are still relatively easy, which is to say, becky, i dont see very much reaction yet from the Federal Reserve up to this point. If it gets worse i should hope not i would think it would create more of a panic if they reacted at this point. What would they do i think thats right. If markets werent functioning you might have some expression of liquidity. Right. Remember what greenspan said thats not the case here. Its not. Every measure that weve read, things are actually operating. Right it may not be the direction that we like. I think thats right, but i do think if you look at these probabilities out there, what you do see is you see them dialing back we were talking about four hikes. Now were talking about two and a half and i think the market has dialed back its expectations for the Federal Reserve in part because of what i think are the economic effects of this down draft. Its going to take some of the shine off of the wealth effect thats out there and also some of the confidence effects that have been out there in the economy. Steve, thank you very much. Pleasure. Folks, when we return, volatility is back in a big way. Rick santelli just mentioned it. Weve been hearing from jim cramer about this. The concern that that has sparked off to a market that is so used to zero volatility for so long. This morning you see the vix just under 50. Yesterday at this time it was trading at 17. Up next, we will check in with an index watcher in the meantime, one more look at the futures this morning. You have to look every two minutes because theyre changing that rapidly dow futures down by 725 points at this level. Looks like we would open down 71 points on the s p 500 and down bybo 1 aut36 on the nasdaq squawk box will be right back. Driving specific sectors of out performance. Where a rising middle class powers a booming auto industry. A leap into the digital era draws youthful populations to mobile banking and ecommerce. Trade and travel surge between emerging markets. Everyday our 1,100 investment professionals around the world search out opportunities for alpha. Partner with pgim, the Global Investment management businesses of prudential. Had a lot of volatility. Spiking again this morning after closing up 117 in yesterdays session. Joining us right now is tim freeman, partner at elevation llc. Good morning. Good morning. Help us try to understand to the extend that we can use the vix as a barometer for this way the market is going to go, how much more volatility theres going to be, you think what . I think we saw peaks yesterday. Yesterday was very much a retail event. It was not an institutional climb event. It was very active in the index options which is an institutional client hedging product. It was very, very quiet in the pits there was very low volumes when i was trying to sell options all day down it was very difficult to sell into these higher vols. Its going to be going lower we have a market disruption event in these Retail Products that should clear in the next day, two, maybe three. Elevated volatility. Why do you say why do i say . You say its going to clear in the next day or two. Theyll cover their vix futures and theyll go away and well move on. The markets are acting very, very rationally. These products were designed. Right. People were on the wrong side of the trade and were going to move on. Is there anything structural going on we had a big debate about active versus passive etf market, leveraged etf market and how that may be exacerbating things on the up other down side. The fed is pushing everybody into the risk assets weve watched that people that currently make prices are algorithmic traders yesterday was a very rational event in the market given the Market Structure that we experienced. So if you look at the exchanges, the exchanges didnt fail. There was no flash crash. Right. This was a very rational event. What i saw the exact same thing in the options market. If you look at s p index futures, the term structure is very downward sloping. Front month vix futures are hovering around 30 and five month vix futures are who have verying around 20. Theyve actually fallen. Exactly theyve come down off the highs overnight. To me, again, were going to see this market disruption event in volatility products clear, which is what prices are telling me. Are you okay with etns as instruments to actually purchase and insure against volatility . Each product is serves a purpose. I dont think people spend enough time in prospectuses to understand what they truly own and what theyre truly short so im more comfortable personally with etf products. Thats just my personal feeling. I know you said it was a retail event yesterday, but because were in a higher vol environment, do you think that there will be systematic selling by ctas and other funds . Sure. I dont know if you have necessarily seen the lows in the stock market today that very well could be the case we could get some added on selling from those sorts of funds here today, but i would expect the lows to be pretty close. Yes. Certainly volatility is in sales. Interesting we mike coarse up. Very possibly could. Jim, thank you. When we come back, market watcher ken scfiher will join us right now dow futures down by 625 points stick around, squawk box will be right back. Your an amazing machine. Especially when inside another amazing machine. The lexus es. With Standard Technology like lexus Safety System plus. The lexus es, and es hybrid. Experience amazing at your lexus dealer. Welcome back to squawk box, everybody. Take a look at the futures this morning. Right now the dow futures are down by 637 points below fair value. S p off by 57. The dow closed down by 1175 points we have been in the red all morning long, but the swing has been pretty dramatic just in terms of how deep the decline has been weve seen down by over 750 points but weve also seen down in the 300s. Just while weve been on the air this morning weve been watching it bounce all over the place something to be watching before we get to the opening bell still 45 minutes from now. Joining us to talk more about this is ken fischer. Is he the executive investor at fischer investments. Ken, youve been watching markets for a very long time founded your firm back in 1979 what do you make in the past few days of trading activities bull market went out with a bang and this is classic off the top correction type activity you cant really predict what happens from here in the short term with that in fact, if you think of warren buffets famous line that stock markets are a popularity machine in the short term, a winning machine in the long term, this is all about popularity sentiment, psychology. Where that goes in the short term is not clear but corrections end as fast as they comeand invariably where were going from here is searching for causes what made this happen. Why is it going on they happen for any reason or no reason so its a pointless effort in a lot of ways. Its all about psychology. Lets get back to the weighing mechanism if you were trying to measure the stock market right now by weighing it, what does it tell you about where were priced right now . Down about 10 from where we were on january 29th, at least for the dow based on this mornings futures. When i think about weighing i think about way down the road because in fact if you look at valuations any way you cut them, i dont care how you cut them, on a one, three, five year basis theres no correlation could efficient whatsoever between valuation and subsequent price action we have a very long history of valuations, parallel price movements and valuations dont predict pricing. Thats way down the road because the weighing process is a much longer process than most people ever anticipate. Its a very long term event. Things like the schiller cape pe has a zero correlation could coefficient. It doesnt help you with time. Well, if youre thinking way down the road and you see a 10 pull back like this, what would you tell somebody to do who a Retail Investor whos looking at the markets and thinking, wow, this is a lot of red arrows really quickly. If you think of dancing in the streets, i think you make more money sitting on your hands than dancing on other peoples streets. And what you get in a correction is about the shrieks id sit quiet. That means dont sell but does that mean buy or no if youve got money, buy. If you dont have money, you cant do it. This is a bull market. This is a correction in a bull market this is made to scare away greater fools before the next up leg. Markets are really good at doing that i always refer to the market as the great humiliator trying to time a correction is a whip saw. A client walks in with a million dollars. He wants you to invest, 65 years old. At what point does a ten year bonds yield look more attractive to you than owning the stock market how high does it have to go when you would rather allocate to that risk free, risk free return lets call it risk free return what would get you there risk free as long as theyre going to pay you. If you dont believe in the pace of the u. S. Government, then were really screwed. Thats the way i look at it. Tell me about your question is when when for a 65yearold and my answer is what is your answer my answer is when hes about 78. No, im asking you what yield on the ten year would have you buy that instead of equities i know, but i dont think its a timing machine either this is correction were not going to see its big enough to go there no, its not a possibility its not a reality you have to get to rates that are much higher than bond rates can move to that fast to overcome a correction. Thats what im asking you. Does 7 get you there . Oh, yeah. Absolutely absolutely. Okay. But the reality, we cant get to 7 from here in a time frame before were for getting completely about this conversation were having today. Absolutely youre right if its the number 7, im going to go with you but in a number that were going to get to possibly in any time period anyone can remember the conversation were having today, were not going to get there. Ken, good to see you. Thank you for joining us. Thanks for having exchange jim cramer will join us live hes been up since 30 is 0th morning, well get his take on this mornings sell off. Hes been watching closely stick around welcome back to squawk box. Jim bullard is saying that the good news is not necessarily translate directly to higher inflation. He does notsee the big connection between better wage or job numbers and inflation he says Monetary Policy is close to neutral today a tax driven could mean growth remains potential. Bullard is one of seven speakers akapl kaplan again on thursday and ha harker thank you for that. Our good friend jim cramer is still a good mood from the eagles but i dont know about the market the mark, a great show you guys are doing bob pisani and freedman understanding the mechanics. Can fisher talk about the longer term wheel 347 this morning are we back in the bum market territory. The market was up so much and you go back an hour half later, are we back, the market is down so much. Something you really might want to buy and want to own it for a long time. If you want to commit some s p 500 money, thats fine, i really like what mr. Wonderful say about this is an etf do not confuse that. I am not saying the direction is wrong. I am saying the velocity is a little insane. Feels like portfolio insurance during the period of august through november is there a stock or two thats beaten in a way thats undeserved well, it is difficult because the stuff that really is interesting is Something Like a boeing that mr. Wonderful picked that would be something i look at because they got a 10year plan like fisher said, wait a second, what i was thinking. There was a 10year period people that own xiv, have to sell futures what will you are seeing between 930 and 940. We are selling understand that because of that product, xiv, which is a folsom product thats revealed as being nothing more than a tub of cigarettes this market you are going to have for selling. Thats why people should be looking at a stock at boeing if they can get it at 300 i think amazon after an amazing quarter. You should not be able to get it at this price. Because of the xiv, you will get it there be aware that the market is a little broken and the s p. Obviously, there is a lot of volatility trading people kept shorting volatility and kept on making money and money. No pros wanted to hold the long on volatility. It is a piece of paper and probably worth less. Thank you, jim. Well see you at the top. Congratulations on the super bowl win thank you if you have not seen his twitter video. Unbelievable check out the futures right now. We are in the red agn. Ai dow is off 512 points. Well be back in twominutes idg, insure prosperity. As Investment Management professionals, lets measure up. Cfa institute. It can detect a threat using ai, and respond 60 times faster. It lets you know where your data lives, down to the very server. It keeps your insights from prying eyes, so theyre used by no one else but you. It is. The cloud. The ibm cloud. The cloud thats designed for your data. Ai ready. Secure to the core. The ibm cloud is the cloud for smarter business. Secure to the core. Whats Critical Thinking like . A basketball costs 14. Whats team spirit worth . cheers whats it worth to talk to your mom . Whats the value of a walk in the woods . The value of capital is to create, not just wealth, but things that matter. Morgan stanley sighs i hate missing out missing out after hours. Not anymore, Td Ameritrade lets you trade select securities 24 hours a day, five days a week. Thats amazing. Its a pretty big deal. So i can trade all night long . All night long. Is that Lionel Richie . Lets reopen the market. Mr. Richie, would you ring the 24 5 bell . Sure can, jim. Trade 24 5, only with Td Ameritrade. Today, the new new york is ready for takeoff. Were invested in creating the worlds first stateoftheart drone testing facility in Central New York and the mohawk valley, which marks the start of our nations first 50mile unmanned flight corridor. And allows us to attract the worlds top drone talent. All across new york state, were building the new new york. To grow your business with us in new york state, visit esd. Ny. Gov. To grow your business with us in new york state, thwho hold themselveshe to a higher standard. They are called cfa charterholders. Demand the best. Demand a cfa charterholder. Cfa institute. All right, i want to thank our guest host today, tom lee and kevin oleary whos been with us all morning. Guys, we appreciate all your time today pretty crazy on the market if it has been 30 seconds the futures have moved significantly. Futures are down we are just half hour to the opening bell right now it is time for squawk on the street, well see you back here tomorrow this is cnbcs breaking news, market selloff. Good morning, welcome to squawk on the street. I am Carl Quintanilla and david faber and jim cramer hes on a project to south korea for the olympics thats a long trip. Of course, coming off a very poor day if you were sht
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