Transcripts For CNBC Power Lunch 20180209

Washington about the massive spending bid are the bond vigilantes back power lunch starts right now good afternoon and welcome to power lunch. I dont know about you, but i cannot remember a week quite like this one. Another day of wild swings on the dow. Worst week on track for since october 2008 during the financial crisis the dow and the s p 500 hitting correction territory. They are off 10 from the recent highs and nasdaq darn near close to it. Tesla touching bear market levels, off 20 from its recent high fedex, ups, taking hits on the reports that amazon is now going to muscle into their territory michelle. Well see on that the latest on the topsyturvy friday lets get to bob pisani on the floor of the new york Stock Exchange. We are off the lows lets look at sector were getting a flight to safety in the ten year bond and reits beaten up, Leadership Groups and banks count them in the middle but industrial and energy and materials, the growth sectors, they are the ones that are getting hit. We want to emphasize this is a Global Market decline. S p is down about 11 from the highs. But so is everything else. If you look at Global Market, shanghai, spain, the hang sang, nikkei, all down the same. Everybody is deleveraging at the same time. Look at the remarkably similar numbers. The volume is huge and when i say deleveraging, well were seeing the biggest etf with enormous volume 300 of normal volume for the good part of the week. 200 to 250 and the day is not over but you get the idea this is what is involved in deleveraging how about what changed aside from the deleveraging, weve talked about Political Risk and inflation risk and valuation risk the Political Risk is modestly lower. The budget deal in raising the debt ceiling, that is a positive but much higher deficit spending is creating concerns about higher rates so the inflation risk is higher that is a negative and valuation risk, that is lower. The markets are getting cheaper. Weve emphasized this this week, a week and a half ago we were at 18. 5 times forward earnings and wednesday was 17. 5 and today 16. 8 that is the lowest forward p. E. Since the election more than 14 months ago finally, where is it going to end . I dont know but something positive, vix and the cash fix of 36, look at the futures contracts, february and march and april, 21, 20, 19, the market and people who actually trade this stuff professionally are betting that were not going to be nearly this high in the coming months and even back in february and that contract just expires in a week or so. That is a positive i dont know when this will reverse revert but that doesnt last very long. Thank you very much. From the friday trade last week to a wild week this week, with historic drops, epic comebacks and everything in between. Dominic chu is here with the tale of the tape. And it is interesting tape. Any time we saw a pullback to the likes weve seen so far, you go back to the end of 2015, into to 2016 during the diamond bottom where jimmy dimon set the market to the upside but look at the market so far this week. And the dow and the s p back in the 10 pullback zone and some traders call it correction dow is on pace for the worst week since the financial crisis. Losing half of last years entire game and the s p is down 2. 5 trillion and more than that now that we hit the session lows at just one point in the last 15 or 20 minutes. If you take a look at the market ride from a graphic standpoint, remember fridays close, we were down 600 plus points we made that down all the way to minus almost 1600 points and closing up slightly better fell another 600 points from the close of that day and only to rise to close higher by 567 and then wednesday relatively stable and then down again for thursday, a thousand points. Weve hit down to 300 or 400 points in the last 10 or 15 minutes. Lets show what you it looks like right now over the span that weve seen this week, period off by about 8 so for those traders out there, a big question will be if you liked as an investor the dow at 25, 26,000, do you love it at 23,000, 24,000 so whether or not they step back in is a big cause for watch in the coming week. Back over to you. Thank you very much. Dom chu with the tale of the tape and the question is now are we in a bull Market Correction or something more ominous like the beginning of a bear market katie nixon with trust wealth and bill smeed and ceo and eios. Good to have you with us and i would like to probe, bill, your thoughts on what one of the telltales would be as you see it that could distinguish whether this goes from a merely a correction into something worse. What stocks will you be watching as guide posts to that well we think the next bear market and the next big change over in trend, you get these longterm trends going, the next bear market and the next change of trend will be thein fatuation with tech arrogance. So the next bear market will be led on the down side by the amazons and the netflix and the teslas, and there is no evidence that that is the case this time. In short then, if the faangs hang, you are okay if the faangs fall, you hang. Yeah. In other words, growth is hard to come by the last seven years. And the longer it was hard to come by, the more willing people were to pay up for Revenue Growth but when the underlying economy starts getting stronger and stronger, then people will start paying for growth in e. Rather than growth in fantasy and so that is kind of where we are. So the oddity is we were long overdue to take the froth off this thing but i like at it this way, if a young fratzern Fraternity Members shows up at a party and drinks eight drinks in the first hour, they are wiped out by 8 00 or 9 00 at night but in a bear market, you have a drink and then a couple of drinks for four or five hours and at the end of the night they have a terrible mess and these people are getting plastered already. Okay. Katie, lets well move away from injecting liquidity in that sense and get back to Something Different here i would like to ask you the same question that i asked bill and that is what would say to you that this, quote, correction is something worse than just a correction sometimes a cigar is just a cigar and sometimes a correction is just a correction what would tell you this one is heading in a different direction . Right well first i will say, we think this correction is just a correction we look at the fundamentals as being strong not just here in the u. S. But globally the growth story remains very intact and the fundamentals at corporate level is strong. So we think this is just a correction and we look for a deterioration in fundamentals to suggest the onset of a recession to really be the end of this bull market cycle and we dont have that in our forecast still Interest Rates have gone up, katie, and bob pisani had a great data point about how much multiple has been pushed out of this market two weeks ago the forward multiple, people were willing to pay 18. 5 times forward earnings, as of today that has fallen to 16. 8 that is a big compression in a what are you willing to pay on forward multiples is the market too cheap to what you are willing to pay or has it gotten it just right now so michelle, that was a great point that was raised and it is happened because of two things not just the market going down, but earnings estimates have come up strongly in the last couple of weeks during the earn season weve seen analysts estimate rise 6 so the earning estimate for 2018 for the s p 500 are 18 gains year over year that is very, very strong. And that also provides a cushion for valuation. So even if the right valuation isnt 16. 7, maybe closer to 16, you have a lot of room there because of the tremendous Earnings Growth to still have a doubledigit year for equities here in the u. S. Folks, well let it there one thought, there, bill, to tie off. Very quick. Used as an example, say the whiffs of inflation are correct, for the average household the best way to protect against inflation is to buy a home and lock in your rent by bieg a home well the home build rerz going down like a led balloon for the last week. If inflation is a problem and there is 86 million millennials buying a house, it is just the opposite. We have to leave it there thank you. Weekly rig counts just out and jackie de angelis is at the commodity desk. And it moved the needle because u. S. Drillers added 26 oil rig this is week taking the total up to 791, up 200 from a year ago. That is according to baker hughes weve seen addition and subtraction but it is a big enough when it was over 65 a barrel two weeks ago that made it attractive now the weaker dollar was supportive, rising stock market was supportive and now you have this turn in equities and they are turning more cautious and paying attention to rising u. S. Production numbers the rigs will add to that. Back to you. They certainly will thank you, jackie. Coming up, the return of the bond vigilantes, who are they and why could they be responsible for at least some of the market moves that we have seen this week plus bogue and home depot and walmart the biggest losers in the do you what is an investor to do in this market. If you have a question, send them to us at power lunch at bcomnde awethcn. C a wllnsr is them hour. Dont move 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. But through goodt 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. You know whats not awesome . Gigspeed internet. When only certain people can get it. Lets fix that. Lets give this guy gig really . And these kids, and these guys, him, ah. Oh hello. That lady, these houses yes, yes and yes. And dont forget about them. Uh huh, sure. Still yes xfinity delivers gig speed to more homes than anyone. Now you can get it, too. Welcome to the party. And while you were away, the dow tested the lows of the day, down about 404 points. Now down about 400 on the button. 1. 67 so with the spike in Interest Rates, once again there is talk about the possibility of bond vigilantes what is a bond vigilante it is a bond market investor who protests inflationary fiscal and too much Government Spending and sell their bonds and pushes yields or Interest Rates higher and it highlights the ability of the bond market to restrain Government Spending. When Interest Rates on government bonds go up, the same government has to divert more money to pay interest on the debt and away from the projects an the policies for which they borrowed money in the first place. And it is returning threefold the Federal Reserve is reducing how many bonds it buys and then the tax cut in the shortterm means less revenue for the government but many believe cuts might spur growth and lead to more revenue and this week very important, the decision to do a big spending package which means deficits of more than a trillion dollars per year in the coming years. Bond vigilantes havent reared their heads in the u. S. Since bill clintonon the power of the bond market surprises politicians unfamiliar with it. Two funny quotes first one from james car vel, the adviser to bill clinton and told the wall street journal in 1993, i used to think if there was reincarnation i wanted to come back as the president or the hope or a. 400 baseball hitter but now i want to come back as the bond market. Could you intimidate everybody and then in bob wood words book the agenda he said you mean to tell me the success of the Economic Program in my reelection hinges on the Federal Reserve and a bunch of expletive bond traders. Here to tell us more what it could mean for the market is the man who actually coined the term back in the 80s. He is ed yardeni good to have you here. Thank you. How did you come up with bond vigilante. Back in 1983 we had just come out of a severe recession and the economy was starting to recover rather nicely, but everybody was paranoid about inflation making a comeback and sure enough in 83, 84 we saw bond yields go up again. And that is when i said, dont get too excited here the bond market should be kind of ticking on a regulatory role of the economy and it will go up and the economy will slow and then bond yields will come down. And we had three episodes like that in the 1980s. And because of that, as you brilliantly outlined, clinton got the message. I dont think were getting the message now in the administration. That is my question are the bond vigilantes back and should they be back . Well, they had been sort of put under lock and key by the Central Banks, the fed has lowered Interest Rates down to zero in terms of shortterm rates and that pushed bond yields down and then they bought up the bond yields and the bond field should trade around the growth rate of nominal gdp. And dont get up set with me, but that is 4. 4 and however, it is never quite there. There is always extenuating circumstances. Currently we still have bond yields in germany and japan near zero and that is one of the factors that has kept the bond yield from going up even more. But now people are looking more at the domestic situation and saying maybe we need a higher bond yield. And as you pointed out, back in the mid80s, 1984 was a bad year in the bond market. Inflation was a much fresher memory than it is today. That is correct. And so it would be sort of surprising if the bond vigilantes came back in a big way. Yes. So though what weve seen over the past couple of weeks is they are seeing the incipient sides. Theyve saddled up the posse is getting ready. They are not all knowing. I think the inflation arent coming back. There is a concern about the deficit but inflation is the key. So if inflation doesnt come back, what is the right number for the 10year bond. About 3, 3. 5 . Still higher from here. The reason for that is i dont think will go up 4 i think it will stay around 2 or less. So you are suggesting it should reverse to the mean historically, the comparison earl your a earlier and not because of the deficit. Exactly i think the deficit and you look back historically and it hasnt been as influential as you would think and the bond yield, and it is much more inflation. So why did bill clinton get so mad clinton i got good advice. There is a back up in bond yield. Hes partly related to an economy that already was a full employment now getting super charged with more stimulus and so just because i say inflation isnt coming back, doesnt mean the bond vigilantes care about what i say and they have more to lose than do you worry about deficit . A trillion dollars of debt is a trillion dollars of debt but as a percentage of gdp, this trillion dollars is not as meaningful, i suppose, as a trillion dollars in 2012 or because the economy has grown. Well you are looking forward and when you look forward at the deficit situation, the debt situation, it just got worse and so that cant possibly be a good thing for the bond market so it is a negative. But what im concerned about is when you look backwards here, the debt amount has increased dramatically because Interest Rates were so low for such a long time. And i think what the stock market is worrying about is the worst Case Scenario is that the deficit does increase and Interest Rates go up so that it is kind of that bigger number. You are paying more interest on a bigger debt which means you cant as michelle explained put as much debt into the programs. And then you start thinking about where do we cut spending and the answer is politically nobody seems to have an answer. They sure didnt do that last night. No. Wild. Ed, great to have you on. Ed yardeni, the guy who coined the term bond vigilantes. Has a book coming up. Called predicting the markets. Everything ive learned in the past 40 years. Good luck with that. Thank you. The dow is down more than 2,000 point this is week now wiped out nearly half in point terms of last years gains. What do you do now send us your questions at power lunch at cnbc. Com. Well get ready with a panel to answer them in just a few minutes time stay with us feel that . 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Well do anything, spiritual chatter seriously anything to help you get your home. Ally. Do it right. To help you get your home. Directv has been rated 1 in Customer Satisfaction over cable for 17 years running. But some people still like cable. Just like some people like banging their head on a low ceiling. Drinking spoiled milk. Camping in poison ivy. Getting a papercut. And having their arm trapped in a vending machine. But for everyone else, theres directv. For 1 rated Customer Satisfaction over cable, switch to directv and get a 200 reward card. Call 1. 800. Directv welcome back to dom chu with a market flash. Lets call your attention to what is happening with the dow because we are near the session lows just bouncing off by about 430 points as you could see. So the down trend continues. We have set the lows for the day and well see if that continues. If you are looking for a speck of green in a otherwise crappy day, check out social media and twitter stock is up about a percent in todays trade on much higher than average volume on a four day winning streak which got a huge boost after a bullish report this week this is the best week for twitter stock since october of last year. Back over to you. No matter what you invested it, it is a good chance it is lower today than last week with the exclusion of twitter dom was talking about. What should you do now sold everything or hold on or is now the time to look for bargains we have sound advice for the wild times when power lunch returns. 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. So what else is new . Humm. Shes doing good. She needs more care though. She wants to stay in her house. I dont know even where to start with that. First, lets take a look at your Financial Plan and see what we can do. Ok, so weve got. Well listen. Well talk. Well plan. Baird. Hello, im sue herera. Here is your update. Vice president pence said the military parade that President Trump wants would be different from those held in north korea the president and the Vice President said the parade would celebrate the military i think any opportunity that we have to celebrate the men and women of the armed forces of the United States is a great day and i heart illy support the president s call to celebrate our military. Clashes erupting between palestinians and Israeli Forces in the west bank Israeli Soldiers firing teargas to disburse protesters and using slingshots to hurl rocks there is a spike in violence since the President Trumps recognition of jerusalem as the capital. Amazon is planning a Delivery Service called shipping with amazon which will allow it to pick up packages from businesses and deliver them to consumers. The service is expected to start in los angeles in coming weeks before being broadly rolled out later this year. That news has been pressuring shares of fedex and ups today. You are up to date that is the news update. Michelle, back to you. Thanks very much. And a check of what is going on we just hit session lows, down about 445 points. It was up 350 at the high. That is an 800 point range right now looking at a decline of 1. 7 . Joining us now to help us get you through the next 90 minutes of Market Action, our friend scott wapner. Good to be here. A lot of volatility this week. You think a 17,000 point that the dow has that is like an orbit of the earth. It is been crazy. Volatility this week is raising anxiety about stocks as you all know. Nearly 20 of the s p 500 already in bear market but this may also be the best time to pick up some names at a discount so with us today to help us do that, chad morganlander from Washington Crossing advisers and fast money trader guy adami and we kick off with vick on twitter who asks, is Goldman Sachs broken or a buying opportunity now . Well is it broken the market is broken, so by definition, Goldman Sachs is broken stocks have become a Collateral Damage of everything you talked about in erm term terms of volatility b butgoldman said book value is 181 a share and the right price to book for banks in this environment is 1. 7 or 1. 8 that gets you to about 320 stock. Is it happening today . Clearly not. And then the trading environment that we find ourself in, that should work to goldmans benefit. So this is extraordinarily painful, i think if you start to look at goldman, it is pretty interesting. You think they are happy with a little volatility for the first time in a thousand years. It all depends if this leaks into the credit markets. If it does they could be vulnerable for that matter so as i trader, if you are looking from a trading perspective, we would not be in it from a longterm investor perspective of three to five years out, i agree. You said something there, guy. What did i say. You said broken market. It is broken. And when people hear that and who dont understand the market as well as you do, i could imagine that makes them anxious. I dont want to be in a broken market what is broken. The market was up at the peak and now where it is today. Do you think that is a sign of a healthy market no, it is a broken market. Why . Because seven years over the last week is manifesting and im no fan of the fed. I put that out there ahead of time so come at me if you want, but many consequences of our fed which has been too accommodateive, it has taken volatility out of the market people are like, why do i need to buy volatility. And then over the last year people said, wait a second i could make a dividend by selling volatility why do i sign up whether the fed realized that would happen or not, it has happened and it is at their feet now could you say well wait a second they bailed us out, but im telling you, for every history it is littered with devastating consequences. Like a spring they push the spring all the way in with rates so low so for so long and now with the prospect of feds raising rates that spring is uncoiling. And it also pushes people to places in the market they never would have gone. With a double inverse on the vix. Yep. Glenda writes, is amazon a good buy for 2018. We shy away from amazon our best the better on the consumer side is walmart although it will sell everything, it is still have a valuation perspective, we think it is lofty. And that is a knock on amazon for always will be. Always will be. But look at the last quarter and take a look at what they did. Forget all of the numbers. Number that stood out was operating margins which were supposed to be 2 but they were close to 3. 5 . That is a Staggering Number for the company. What is the point . I do believe that amazon any time they want could sort of turn that dial on the margins and you saw it last quarter. So will it be good for 2018 . There is more pain here. Clearly names like this will be sold off, i believe, quicker than some of the other names but if you have the temerity to get in and say amazon isnt broken, the market is broken it will be an interesting 2018. It is different as your rules as an investor will you never look at amazon and say i like what this stock is doing and their business is rip roaring and putting people on the defensive by the week look at valuation. Our group were going to shy away from the growth type of names and in this type of market environment and as you see the fed and the ecb move, we think the low bid names will outperform. And the bigger the multiple on a stock, the more susceptible when Interest Rates if you go way out, you just buy a treasury with a high yield. Frank said snap has been low for a while, is this stock a hold guy . I dont believe in holds. I think if you hold something, it is the same as buying something. Karen finerman said this all of the time if you go long a stock, you might have well bought it because you long at the pricei closed im not trying to get wonky. I think snap has some upside and dan nathan spoke about this. The first Conference Calls were a train wreck. Spiegel could not be worst but last Conference Call he did a good job im not comparing snap to facebook but it took them a long time to get on solid footing and i believe that is what snap is doing now. Let me rephrase the question since this gentleman is not with us right now the stock traded sideways and had some moves here and there but the spike most recently, if i own it already, should i sell it should i sell it. Then you have were making a market call. Im just saying the stock popped so much. I would say stay with this thing. And look to add to the company and there are Certain Companies that i think have turned the corner i understand it is listen, the trader in me said you have to take some money off the table. And bev the best thing to do dont let the market trade you, trade the market if that makes sense. But i submit this stock has more room to the upside do you remember you mentioned facebook there and remember five, six, seven years ago, whenever it was, everybody was worried about facebook they dont have a mobile strategy or a they are not there, they are not there. And then they got a mobile strategy and they got there. You could see what happened with the stock. And i think that is sort of what is happening here and vick said is ups a buy you get this first, chad this news about amazon with the own distribution and shipping. From a value perspective it looks attractive, if amazon does get into the business. We think ups will do well. Nancy wants to know i thought shes home today. How does tax reform affect Company Valuations and earning estimates . Valuation if you think about it. A great example is look at what happened with bogue with boeing they talked it being i want to say close to 14 i forget the Percentage Points. But it was a creteive to their earnings power look at the guidance raise last quarter. From 11. 50 a share to 13. 50 in part to everything you discussed there. So it is very acretive, the question you have to ask yourself back is, is it all priced into the stocks and i would submit 80 to 90 yes. I agree with guy. Chad you brought some value stocks. These are boring names. Walmart and hormel, we think that is growing profitable walmart is not boring if youve been in the last year it is nice. Yeah. But it is not a momentum name. No. And exactly and hersheys, these are for investors looking three to five years out and nervous about the market and volatility with the positioning of the Federal Reserve. Own these companies because they have a rising dividend and consistent as consistent is long. Stock market is down 500 points and were talking about the Dow Jones Industrial average so looking at chad most have a lot of exposure to the consumer is there a reason for that. Consumption is robust every the next couple of years and also you want to look at Companies Like microsoft and starbucks. Those as well. We think theyll do well over the next 12 months. Guys, thanks. Im going to see you later. Yeah, you will. At 5 00 big show come on, ty. All you have to do is ask and ill be there. Options action tonight at 5 30 dom chu has a market flash. Flash away, dom. So tyler, you just mentioned that last leg move lower in the markets and it has pushed the s p 500 down towards what some traders may view as a key support level. This is the 200 Day Moving Average or the average price of the index over the last 200 trading days it represents the longer term trend line of the market and the last time we actually touched it was back in early november of 2016 so this could be a key Battle Ground area for how markets evolve so as we breck break below that level, is there a place where some may view it as a buying opportunity well see toward the closing bell back over to you. Dom, bond yields and culprit many say for this recent selloff now the tenyear yield at 2. 8 , were going to head out to chicago for the latest on the bond Market Action and given all of the volatility that word is back in u. S. Markets is it time to put money to work out side of the United States . Well ask the head of footsy russell. He sees opportunity right now. 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. Weve been preparing for this day. Over the years, paul and i have met regularly with our ameriprise advisor. We plan for everything from retirement to college savings. Giving us the ability to add on for an important member of our family. Welcome home mom. With the right financial advisor, life can be brilliant. Were back. And selling pressure is on the market today the dow and s p came into the day in correction territory. A loss of at least 10 during last hour or hour and a half, the nasdaq also fell into correction territory you are getting into later noon and margin calls and force selling to pay that on the other side and perhaps that is putting more pressure as well on stocks at this hour, ty. And this is, as you point out, the time when those margin calls get resolved the bond market is figuring very prominently in what is going on across all markets and Rick Santelli is at the cme. Well have some fun we had some auctions this week, threes, tens, to 30s and you have pay for them. So lets look at the chartsp a threeyear note yield is moving down where did it accelerate . Around 228 where did the auction go off 228. Tens, the auction went off at 281. It was fighting for a while. Now below it the last man on the yield curve and things flow downstream, 30 year bond went off at 312. It is clinging but giving up a bit as well. On a friday when you have to come up with the dough you do things like sell futures it is a friday and hard to say whether it will rebound. I wouldnt bet on it the high yield so far is around 2. 84 and finally yeartodate to date on the dollar index, it is spongy, but the high is 29. 5 and the low 88. 70. What is the 50 to that . Around 9060. Do you see where it is trading around 90. 5. Back to you. It is like a circle yields go up, stock investors sell because they are nervous and when they are nervous, they buy bonds and the yields go down it is a big circle we saw it happen today it is not just the u. S. Market taking the hit, exchanges that have hit or entered correction territory, argentina, spain, germany, china, hong kong and japan. Joining us to talk about the Global Market is Mark Makepeace from the ftse russell and a member of the London Stock Exchange you are in the business of making [ inaudible ]. We are waiting for this correction to happen weve all been talking about it now for the last year. For last year there has been very little volatility so were getting to that time where markets will get ahead of themselves, weve seen the market sort of now, sort of pulls and well see where the market find new value. So we were expecting some volatility and were seeing that how long it will last, im not sure. You are the executive board of the London Stock Exchange and im sure volumes are up. Volumes are up. And volatility does increase trading. That is good for Stock Exchanges. For index providers, we do like longterm investors because passive investment is all about longterm investment and the indices are natural hold for the market so they dampen volatility. Do you think that there is a bubble in passive investing. No. And at the moment, the levels of passive investment is still below 30 . So that means the vast majority of the market is still very active so over 70 of the market is active so i think passive has a way to go but it is driven by the desire to rejuice the cost of in vesting. A lot of the passive products are from the point of view of the vidindividual investors, thy are very concentrated in several companies . Right . Isnt that something they ought to know. They reflect the opportunity of the mark. So if you think about it, if you are the Large Cap Companies that do dominate markets, so if you buy on a market cap index, which the majority are doing, you get a low Cost Investment in that market the way it is represented. So let me understand a little bit about your business. A Company Comes to you and says, we want an in dex that does x. And you then become the neutral Party Provider or creator of that index with that companys input. Is that a fair and then you get a licensing fee for creating it. The biggest part of our business is Institutional Investors come us to, because they want to they have an investment objective and we create the benchmark, whether it is a global equity, whether it is a multiasset, so enable them to measure how theyre performing against that objective. Whether they choose to follow that in a passive way or an active manager to try and outperform is up to is up to the investor that drives the mass majority of our revenues. What do you think of the etn, the Exchange Traded notes and a lot of them super leverages and inverse to the vix and complicated and being blamed for a lot. Do you have any of those if you see where all of the money has flowed into in terms of etf, the vast majority flowed into the low cost market cap indices and there very safe. Have you ever been have you ever met an in dex you didnt like . Have you ever turned somebody down have you ever had someone come to you and say i want to measure myself against this and you say no. We do we have a governance board separate from the commercial side and they will constantly say no. What is the most ridiculous request youve gotten . I i cant recall but one thing weve done is set limits on the inverse and the leveraging indices to three times. Now that is lower than regulators and in many cases, weve taken the lead where regular lators have allowed it and weve said no. When the Global Markets have been this upset and the speed in which they got there, are you sitting back and saying that everything is working the way that i think it should or do you take pause and say, something doesnt feel right the velocity of these moves is too severe does there need to be more regulation how do you as an operator think about that question . A lot of the regulation of the market and the way the exchanges work, they do building dampens and and what we see here is a Market Correction. Markets will often go through this correction period so about 10 i want you to come back and do index karaoke you remind play index karaok with us some time, will you . Thank you. Good to be with you. We can do it in the car out front. Yeah. A question, what do hedge frundz do when the markets tank . How some of the biggest investors in the world are handling this selloff. Well do that next on power. Welcome back hedge funds have generally been underperforming the markets throughout this big market rally. What do they do now, with these levels we have seen in a selloff . Leslie picker joining us now with more on that. I know you have been talking to a bunch of them. Absolutely. Things were finally looking up for long short equity hedge funds in the second half of 2017 and in january, after taking years of pain, they had finally pared back their short exposure, riding the market higher, finishing the year up about 13 , thanks largely to their longs. But still returning about half that of the s p. Now, the market that we have seen this week is one of the main reasons why investors allocate to hedge funds in the first place. To protect against swings and selloffs, but not everyone within long short equity will be able to produce alpha in this environment. Now, early indications are showing that human driven or fundamental strategies are having a harder time than those conducted largely by algorithms. Thats according to data by credit suisse. The average fundamental longs are losing more than their shorts, so theyre coming down along with the market. Now, equity, those strategies have done better because the computers allow them to be more nimble and better able to manage volatility thats the losses you get from positions where youre selling too much well find out exactly how the performance is when february numbers come out at the end of the month, guys. We should highlight that while you were speaking, the dow has come way off the lows. Were now down only like 225 points but we were down 500, and the s p is back above the key moving average of 2538 that we were talking about as well. Paying attention. Maybe some of that maybe some of those algorithms margin selling is starting to subside just a bit yeah. Its a hedge fund issue too, right . It is i have spoken with people who say that given some of the ac t activity we have seen, it could take another week to see the hedge funds reposition their books and work through the margin selling we have seen. Not to oversimplify, but we hear a lot about risk parity, and the way i understand this, and to simplify, when risk goes up, and because volatility has gone up, risk has gone up, a lot of hedge funds feel they need to pare back on riskier assets, which means they have to sell them that could explain a lot of what we have seen exactly if you think of risk parity as a singular portfolio, and that every security has embedded in it a volatility metric, which determines how much it swings when the price changes now, you take that and look at different assets classes, currencies, fixed income, equities, and im missing one, commodities, and you look at how those Asset Classes are performing in the current environment, we have seen a lot of volatility embedded in equity specifically you will decrease your weight in equities and increase your weight somewhere else thats a less volatile strategy, if thats the kind of volatility target that youre looking for so thats why youre starting to see some of that activity and why risk parity has come in focus in this current environment. Thanks very much. You notice the dow . Now down by 1 less than 160 im hesitant to say a level, because its coming back fast. Going so fast look at this thing unbelievable cramer is pointing out on twitter that some of those vix products that michelle was just talking about, and we have obviously been so heavily focused on in the last many days, are continuing to decline, what he calls a big win for the bulls. So its interesting. Youre looking at the dow down by 148 right now looks like its starting to make a run to the flat line. Well watch. Coming up, dr. Doug with helpful psychological teps to help you keep your sanity as youre losing your money and is there something in this chart that tells us what happens next stay with us for the second hour of power lunch. And at 4. 95, you can trade with a clear advantage. Fidelity, where smarter investors will always be. And at 4. 95, you can trade with a clear advantage. At ally, we created a savings account with a great rate. But if thats not enough, our app helps monitor your spending too. And if thats not enough to help you save, we could start a carpool. Look at this traffic. Dont worry. Ok, if thats not enough well start a trainpool. Oh i have a meeting in five minutes. And if thats still not enough. I got it. Well just create a shortcut. Well do anything, seriously anything to help you save. Ally. Do it right. Talking 4th quarter . Yes. Mom anits not theirs. Car. Its mine. Mine. Mine. And it always will be, forever and forever. The new rx 350l with three rows for seven passengers. Experience amazing at your lexus dealer. You or joints. Something for your heart. But do you take something for your brain. With an ingredient originally found in jellyfish, prevagen is the number one selling brainhealth supplement in drug stores nationwide. Prevagen. The name to remember. Welcome back its now the second hour of power. Im Tyler Mathisen glad you can be with us on this very eventful day and week heres what we have on the menu for hour number two. How we got here, where were going, and how folks stay calm our markets experts will break down what to make of these volatile times and market psychology we will break down the mistakes that investors typically make when emotions take over in their Investment Decisions more importantly, how you can avoid some of those mistakes plus, faang fear on these widely held large tech names large caps, i should say the key to keeping a bear market away and what happens if the faangs fall over . Power lunch starts, again, right now. And welcome to power lunch. Im michelle carusocabrera. Another volatile day on wall street dow has traded in an 850point range. As we have seen, anything can happen in the last hour of trading right now. The dow could post its worst week since the financial crisis. Heres where it stands now 23,653 nasdaq at 6,724. The s p is above the 200Day Moving Average thats a technical level we have been watching, and the russell 2,000 is at 1455 all of the major averages are lowerer but by less than 1 at this hour. Utilities and real estate, they are your sector leaders. So with the selloff in the stock market, we had people go back in the bond market that has pushed yields lower and thats why utilities and real estate tend to be the best performers right now. Energy and consumer discretionary, she tried to say, are lagging, for the week all 11 of the s p sectors are in the red, however and weighing on the dow, walmart, apple, procter gamble, nike, american express, however, theyre both in the green. Expedia, chesapeake, and trip adviser are your s p laggards, while mattel and extra Space Storage are holding up in this market mattel higher by more than 4 . Technology names are under pressure netflix and amazon are both down 5 facebook and amazon are down nearly 2 . Energy is getting crushed today. Apache, devon, pioneer, neufeld, and range resources all lower by between 3 and 5 . Scott. Thank you for more on what is moving the markets, lets bring in bob pisani and mike santoli from the new york Stock Exchange. Everyone has the same question, where is a bottom . How does the market typically signal that thats anywhere close . Yeah, where is never answerable in terms of a level, but what does a bottom look like in terms of conditions a lot of people are looking for the same things. One, a washout reading in terms of the number of stocks making new lows the number of stocks, percentage of stocks down 10 , 20 from highs. Thats already, really, flashing some of the signs that we are pretty well washed out investor and trader sentiment, getting those plunging to certain levels where you can tell that fear has built up. I think youre also starting to see that, again yesterday afternoon, and today if you look at options, call volumes, and you want these rallies to hold this is how the market reacts. Its emotional, its fragile you have these waves of selling and buying none of these rallies have been all that impressive in terms otheir ability to stay for an hour thats what you have to see. We want to see a little calmer markets here. We have seen today, again, fifth day in a row, no letup in the volume or volatility we have seen enormous moves every day this week in the middle of the day out of nowhere, enormous moves in volume that signals that were still in this deleveraging process we keep talking about from various strategies bob, im sorry to interrupt you. I want to point out that the dow has surged into positive territory as were having this conversation its right around the flat line now, but you get my point that this is maybe on the back end of some of that margin activity that people were worried about in the midafternoon, abating a bit. Whats your take can we highlight . It took 20 minutes to move 500 points thats right. Unbelievable. Thats a sign that this enormous intra day move. Heres the one thing you want to watch for, in general, all this week the rallies that we have seen have been on lighter volume the declines that we have seen have been on heavier volume. Now, just in this spurt, michelle was pointing out in the last 20 minutes, a spurt up in the volume what i watch is the big three etf volumes, the spy, the russell 2000, and the triple qs. Thats a substantial part of intra day active trader activity when those things start spiking up dramatically on an upside, i say thats a good sign i havent seen it all week, but i notice some uptick in volume as we have moved up. Just to point out, guys, you know, a week ago, on friday, we had that pretty big selloff, and you heard it repeated as always gets repeated, that markets seldom bottom on a friday. Its one of these wall street rules of thumb and now, of course, if you did try to buy the dip last friday, mondays drop was a pretty rude answer to whether that was smart or not so who knows what that means for today. Maybe the market will keep people guessing and say friday was a worthy bottom, but we have to see what would it mean or signal to you if the dow and s p closed higher today well, first off, its positive, but let me point out, we had a very strong open. The s p was at 2620 when we opened we had a big move up in the first couple of minutes. So it went up to 2620 to i think 2535 is a low, thats an 80point range halfway through, 2577, exactly where we are we have regained exactly 50 of the high to the low that we have had. It would be positive if i think it would be great if we ended positive, but it would really be positive if we could pass the old intra day high today, and that would be a sign that buyers were notably coming back in the market one positive for certain, at least from a technical standpoint, mike santoli, is that we, as we said earlier, the s p had tested that 200Day Moving Average and bounced now, and bounced pretty significantly. Its definitely a net positive i do think its very telling that we had to have a 12 drop in basically two weeks to reach the 200day. What it tells you is how extended we were on the upside, and forward going, its a reminder thats defining your uptrend, your longterm slow moving uptrend what we have done is unwound this massive twomonth rally and now youre back to seeing the the longer term uptrend is reliable its not just some magic coded number thats really what its telling you. People need to keep in mind, when i say deleveraging, this is a global phenomenon. All Global Markets are down about 11 . The nikkei, china, all of the big markets, germany, its remarkable everything is down almost exactly 11 . And bob, just for the novice viewer, deleveraging means selling . Generally, yes. So remember what we were talking about, these various strategies that have confused everyone. The biggest strategy of all was short volatility and go long the stock market traders expressed that in various ways, shorting the vix is one, but going low in the market, you sell puts, thats effectively long in the market when the market drops dramatically on monday, the puts went in the money. The traders in the trade were underwater and they had to short the market to continue to stay neutral where they wanted to be. That was a problem that exacerbated it. There are other strategies we have talked about, but basically, traders were excessively long the markets and have been unwinding a lot of those trades we just dont know how big the trades are nobody publishes them so theyre estimates. Cramer keeps pointing out the vix products, the same ones that many have deemed the culprit in some of the velocity of the moves we have seen as when they have dropped, as they did, then the market has taken off the opposite direction. I had pointed out and i felt on monday that those strategies worry factor and the drop in the market after the close, but theres other kinds of strategies out there that dont involve trading vix products that are Exchange Traded notes, or Exchange Traded etfs. There is momentum trades theres risk parity. Theres people who just go, i mentioned earlier, short the vix and long the market. That doesnt involve etfs at all. These are other strategies that are also deleveraging. So yes, that is a part of the stew we have been talking about. Those problems with the vix products but its not the only component thats ere and if nothing else, an indication if youre sort of looking to get a gauge on where things might be trading, looking at those and seeing what theyre doing on an intraday basis is part of the point i believe jim is making in telling us to look at it. Right i mean, they are some indicator of perhaps some strategy, some traders who are trapped, who are basically forced into some action in response to very unstable setup when it comes to those volatility derivatives no doubt about that. I do think you can broaden it out a little bit to say, when the actual volatility levels of the market go up, as they have so dramatically right now, and the vix goes up, your standard asset allocation, big institution says, okay, thats nighsignal of how risky the environment is right now do i want to be more or less exposed to stocks than i did a month ago . Most of them are saying less thats also deleveraging thats bringing position size down, and reassessing what your risk level is. Final point, bond prices, prices themselves have been going down as well. If you have a 60 40 stock bond mix, both legs have been losing value. That creates different dynamics in terms of how you try to rebalance. We have to go thank you, bob thank you, mr. Santoli much appreciated all right, another big issue this week with the markets was President Trump signing a multibillion dollar spending bill to keep the government open that spending pushing up the deficit and the amount of new debt that the u. S. Needs to sell remember when Rick Santelli is standing in the pits thats whats happening here. Hes going to have to do a lot more as a result of whats happened Steve Liesman is here with a look at what were calling the great paper chase. The effort to solve trillions a lot of paper to chase out there. Tremendous amount of new supply coming on to the treasury mar t market that looks to be one thing, along with the technical stuff, spooking both the bond and stock market how much more, you ask last year, the government sold 586 billion of new paper. This year, its going to be 1. 4 trillion thats a lot of new paper. What happened . One, congress adopted tax cuts two, more spending, as michelle just said. Three, the fed decided to reduce its Balance Sheet, which means its essentially selling treasuries lets zoom in on the end of that chart there. New issues rise, as we said, 586 to 1. 4 trillion thats a doubling is my math right there you are correct there holy smokes now, according to ernie, he helped me crunch this, theres 1. 13 coming from the spending and the tax cuts then you add into that the next screen were going to show you right here 230 from the Federal Reserve. For this year, and 270, thats their Balance Sheet reduction. What theyre taking out more treasury new paper, all of this has meant higher rates as the market prepares for greater issuance unlike when we did this back in the recession, it comes at a time of higher inflation and lower unemployment there will be buyers for this paper. The question is at what Interest Rate stocks, i think, may not stabilize until the new level is clear. When does it start rolling out . Well start seeing this when now were seeing it. Remember how, two or three soft auctions already the First Quarter issuance is the highest we have, i think, almost ever had, certainly going back a long way to 2011. The First Quarter this year and the First Quarter next year are the big quarters for issuance. We have to see what happens with revenue. You have the administration suggesting that all this tax cuts is going to come back in the form of Strong Revenue now, mr. Tudesky says even if that strong growth appears, its unlikely to change the outlook for government revenue this year or next year its more likely an out year issue for the deficit. This is why you have people like paul talking about inflation coming back with a vengeance, because this kind of stuff looks like a potential powder keg for rates all the supply coming on the market, the fed raises rates, the tax plan, the spending bill, and so many other things and we havent even gotten to infrastructure spend i think that these numbers i just put up could attenuate what the administrations ambitions when it comes to infrastructure. And its not merely the stepping back of the fed you have to wonder whether other buyers, big buyers, china, saudi arabia, and others, what is their willingness going to be . The best thing to do when a train is rolling down the track is get out of the way. If you think the next guy over there is not going to be purchasing, you dont want to be and of course, china has inexorable dollar flows. These massive surpluses. The easiest thing for them, they could at the margin change that. To what scott was saying, you can have this problem of setting the right Interest Rate without an inflation problem because its a supply problem. And the question is, digesting all thesupply, even without an inflation concern, right now, its an inflation concern that could hang over the market as well thats kind of what i mean. The market has the possibility, because it looks so much ahead, of being worried about inflation for a while. One other thing im hearing from folks out there is that there is no undersecretary for domestic finance right now thats the person in charge of figuring out when the treasury is going to sell the stuff and talking to markets we thought it might be secretary mnuchin, the question is what kind of job he is doing right now, talking to markets and making them feel as if the treasury is going to sell this stuff in order no possibility that someone like powell or somebody of high stature within the fed would make any kind of comment whatsoever about that spike in wages from friday and give some sort of calming feeling as though its not the end of the world that wages or inflation or whatever ticked up, albeit a hair were hearing that from Bank President s, but powell will not talk until the end of the month when he has his testimony. Thanks. Wild swings in the past hour. Went from down 500 points on the dow to being positive, all in a few minutes look there, you see the nasdaq is positive right now. The dow is positive right now. Joining us now is longtime Hedge Fund Manager dan arbs, now ceo of zurrian investments good to see you. You have spent your career looking at large structural changes. First in the former soviet union, eastern china, and so forth. An hour or so ago, guy adami said the market is broken. I wonder if you agree with that, and whether you think and if so, how . Okay, so very good place to start. Nice to see you. Good to see steve, scott, everybody, michelle. Market broken is an issue that we should think about. Because the economics and the valuations are reasonable. Im not worried about fundamentals but i am worried about Market Structure a couple things are going on here that are very disturbing. We have talked at length about the impact of systematic trading, algorithms, taking fundamental signals and amplifying them way past the mean, and im particularly worried right now about a potential liquidity crisis that is deriving in the etf market when were seeing not only the inverse volatility etf structures being disrupted but were starting to see real flights from the etf market, the corporate etf market thats a 5 trillion market, and when etfs are redeemed, the managers have to sell the underlying stock are you talking about, when you say a corporate etf, you mean a stock or bond stock etfs, in particular take the spy the spy is trading at a level, i understand, that is beneath the Intrinsic Value of its holdings, which expresses the fact that the spy is getting backed up in meeting its redemption requests. Its getting backed up in selling and creating room to be able to sell without losing money. So as we have gone through the week, a lot of people have said this is not 2008. This time around, there are technical issues at play here, but there are no fundamental structural issues that you need to be worried about like banks on the precipice, being so highly levered and so on and so forth. Should i take comfort in that . Because what you just told me takes away some of the comfort that i might otherwise have felt i think you should take comfort. And i agree with those statements in fact, i made that exact statement myself earlier this week publicly. I think you can take comfort that were not facing a systemic problem, but i do think that this is revealing cracks in the structure of markets so its not economies, its not the financial system, its not Balance Sheets its not earnings. What it is is whats going on in the plumbing, in the background of the markets, as algorithms have taken a larger role, and etf and the etf market has grown to be 5 trillion. Thats very significant. So when we look back at this week, theres going to be a lot of talk about the structure of the markets and the functioning of the markets i dont doubt that. And part of that debate, i think, a lot of the people who run the algorithms will say, explain 2017 then. It was so docile do we even have a 2 move last year there were tons and tons of algorhythmic trading, yet no volatility so let me so let me give you a perspective on that, okay. We explain 2017 because what do algorithms do . They detect momentum, and they follow momentum. What we have seen here in the last couple weeks is i think the beginnings of the stirring of the market that is concerned rightly or wrongly with inflation, with rising rates, with the exit from qe, with all of the things you and steve were talking about a couple moments ago, and what some of the signals have been doing, some of the forward thinking players in the market, including myself, have been saying look, we have to start to look ahead to what the fiscal situation looks like, because therein lies the seeds of the next financial crisis supply and demand in the treasury Market Going Forward are fiscal responsibility or irresponsibility with fiscal policy in washington, were doing things that are good for the economy and markets today at the expense of tomorrow and our kids generation, and sooner or later, were going to have to face the fact that in effect, the country is insolvent apart from the deficits that are on Balance Sheet, that have been built up here, we are we have 100 trillion of unfunded off Balance Sheet liabilities having to do with the social safety net coming so people are picking that up, and when youve got the seed of that thinking in the market, the algorithms pick it up and they go way overboard with it thats whats happening here in the last couple weeks. Not many people have made that point this week youre the first people that made it on our air that im aware of, that it is notmerely the growth in deficits and the headline number of the total national debt. It is those unfunded liabilities that are in the pipeline that are going to have to be funded one way or another to maintain the social compact between the population and the government, number one, and the social compact among the population in the society. So one way or another, those things are going to have to get funded maybe by more borrowing. Lord knows no one wants to cut social security. How much more borrowing can we do before people begin to lose faith and say listen, the chinese, the japanese, the saudis own half of the 6. 2 trillion, which is the largest single block of our treasury market theyre not buying right american institutions are not necessarily going to be buying treasuries exactly as steve said a minute ago, the question has nothing to do with inflation. The question is basic supply and demand whats the clearing price for treasuries and how long will the world continue to have faith in the u. S. Treasury and the u. S. Dollar as they command currency. It could almost become selfcorrecti selfcorrective. They cant borrow as much and cant spend as much. Heres the point, last thought i would leave you with is we have a problem with politics when you get into politics and you get into office, you think about extending your job and accomplishing whatever you can get accomplished this month and this year. Youre not thinking strategically, which is what we need to do, because we have just piled brick over brick for our kids generation to worry about. And people are beginning to realize thats not sustainable all right, dan, thank you so much have a great weekend thank you appreciate your time. Take a look at the screen boy, we have had a tremendous comeback now the dow is higher by more than 100 points. Every single one of the major averages has really rocketed into positive territory. I mean, in under a half hour, we made a huge, huge intra day move well discuss more of this on the other side of the break. Heres what else is coming up. Are the fang names the key to where the market goes . If they fold, do the bears come out of hiding . Then, when volatility soars, some investors panic we break down how to stay calm, how to avoid common money mistakes plus, much more on the markets with just two hours left to trade in this wild week its all coming up on power lunch. Obvious. Sometimes, they just drop in. Cme group can help you navigate risks and capture opportunities. We enable you to reach Global Markets and drive forward with broader possibilities. Cme group how the world advances. Stocks rebounding in a big way after the s p 500 broke below its 200Day Moving Average about 35 minutes ago errr now higher by 200 points. We were. The Dow Jones Industrial average, but boy, a rock and roll session here to break down the charts for us on this tumultuous day is todd gordon. Good to jhave you here. Were standing here. 30year bond futures no, i wanted to see the s p. Going to start here . Its your show. Last time we were on, we were talking about this this is the major reason for concern. If you look at the technical position of the 30year bond, we just lost a 38year up trend why is that . Are bonds selling off because of reflation, improve said growth outlook, or Central Banks . We dont know. This right here is what youre concerned about, broken below that line. Exactly that comes from 1982 so we have just seen almost four decades of uptrend if we get out of here, did a great job, if you pull in the camera close, we have just broken up support, and why is that thats the source of volatility, thats why were here where we are today. Next chart, i believe, i guess can we do top down, go from the s p . Bring up what you have next okay, so heres theweekly this is, i think, and this is very important here, whats going on this encapsulates the rally from 2016 the same concept where it seems like its a random rally with no pattern. Its very structured and we broke through this level which is about 2650. This is a problem in the context of the rally for the last two years. What i want to focus on is when we come back, this should have been support it wasnt. It was broken. Its lost. It should now offer resistance on this rally which is very sharp, which is typical of bear market rallies because people, when they want to cover their shorts, they run this is a typical bear market rally. 2650 is what we want to look at. So since we have broken through 2650, that is now resistance correct to the upside, so its our new ceiling. Whats the next down level to watch . Okay, so if we hold 2650, and thats going to be interesting, then i think next up will be the monthly, and then were going to get a little more context. We just looked at the trend from right here, now lets scale out a little bit, get more context if you look at, again because this is all the way back to 2010 exactly right so this encapsulates the entire qe era rally, which at this rate of approach, trend support will be tested just at about 2300 so if we hold the overhead resistance we just covered, thats going to be the defining level. If we break that, thats a problem. Okay. What do you make of the intraday moves were having today that are so dramatic . Can you disearn anything from this sure, not surprising. Again, very characteristic of a bear market rally. I hate to say it, this is what we did, but we were short, and i just made the call on the way in to the studio today to cover shorts i covered half i am still short im not surprised, but again, that 2650, which is going to be up here, 50, thats the line in the sand were about halfway here this is completely on target, no problem from a shortterm bear point of view. I still see a downtrend in tact. This move was so fast, and this one is also starting to feel very fast when was the last time you noticed this kind of pace when it comes to i mean, boy, just it seems like i was sitting in the hedge fund days in the credit crisis when the yen carry trade was being unwound, s p futures going crazy, 2007, 2008. I mean, i dont know if thats whats going to happen, but the volatility has come back with a vengeance. Certainly has thanks so much for coming in todd gordon. Scott, over to you. The fang stocks drove a lot of 2017s massive gains, sending the market to record highs are they now the key to determining whether we are simply in a correction or the start of a bear market we have michael, managing director at webb bush securitieses nice to talk to you. Scott, i miss you i miss kicking around netflix, michael there you go. Thats another day for that conversation how about the fangs . Tech looks like its leading us back here. Are the fundamentals intact for these stocks to continue leading the market i think so. I dont cover google yet, i will, but i think each of these four stocks have something unique about them. You know, theyre each disrup r disrupters probably google to a lesser extent, but facebook is changing the way we communicate amazon is changing the way we buy things netflix is changing the way we consume video content. And i think that they each have clear leads over any competitor, theyre dominant theyre growing, and so if an investor is going to look for, you know, a safe haven of growth, these are the stocks theyre going to look to i think theyre actually defensible stocks. What do you make of the amazon stuff today about the shipping service and fedex and u. P. S. Not surprisingly getting hit on that news im a conspiracy theorist i actually think amazon is using this as a bargaining chip, and theyre going to squeeze an extra couple Percentage Points of margin out of u. P. S. And fed ex theyll threaten to do it themselves, but they dont have the ability to deliver last mile except from their own fulfillment centers. I think its a five to thenyear buildout. Whats your rating on facebook i have a buy in at 260 target so this pullback, i had people making the argument to me before the pullback even started that facebook, if you take their earnings out a few years, was still cheap. If anything, a stock like that has gotten much cheaper. The one risk factor seems to be regulation and maybe more than one, and this change to the business that they have done do you worry about that at all theres an open question whether the change to the news feed is reactive or proactive. Itspossible that we had a decline in actual engagement, and theyre responding to that their explanation is no, they led with the change to make facebook a safer place i dont really worry about regulation i think these guys will probably comply with anything that comes their way. And its really more privacy and safety and i think zuckerberg is an enlightened leader i think i see them managing the regulatory process well. Theyre going to grow a long time because they deliver an audience, and they can target that audience. I think advertisers embrace them because advertisers use facebook they understand it they dont use snapchat, they dont use twitter as much. They dont really understand what an advertising buy gets them they totally get it on facebook and google so i think those two are the defense stocks i think theyre places that are going to grow for a long, long time do you wry about rising Interest Rates at all, especially when you look at like a netflix or an amazon that have huge multiples i think netflixs case, since they have huge dent, you know, relative to their revenues, thats a problem and of course, if youre talking about debt markets, debt as an alternative to equities, of course amazons multiple is huge only because they choose not to deliver as much earnings power as they can. I mean, for every 10 billion of Revenue Growth, theyre delivering 3 billion of gross profit growth. They can just not spend that one year and drop a ton to the bottom line. These guys can make 10 or 20 any time they feel like it thats not true of netflix, which is why scott gave me a hard time about my rating on netflix. I still do. I just havent seen you in a while. It would still mean that amazon would have to withdraw a lot i mean, amazon uses all that money and doesnt deliver it to the shareholder because theyre reinvesting, right it would fundamentally change amazon if they had to deliver more to the bottom line, to the investor, wouldnt it . Thats true, but amazon is going to grow, my model has them growing 55 billion this year. At 35 margin, theyre going to add nearly 20 billion in gross profit if bezos can only find 19 billion worth of stuff to spend money on, theyre going to make an extra 2 a share. Touche. I got it theyre getting to the point where they cant deploy all this profit thats a great problem to have sure is wow. Michael, its been nice catching up. Thanks, scott i hope i see you again soon all right, market psychology in times of volatility investors sometimes panic. That panic can lead to poor trading decisions. Dr. Doug is here with advice to not get emotional and stay the course at fidelity, trades are now just 4. 95. We cut the price of trades to give investors even more value. And at 4. 95, you can trade with a clear advantage. Fidelity, where smarter investors will always be. Welcome back the oil market closing for the day. Lets geto jackie at the cnbc commodity desk what a move today. Thats right. Crude coming off a session low to close at 59. 20 the session low was 58. 07 well under the key psychological level of 60 a barrel. Simple story here. Crude followed the equity market lower in earlier trade, then it rebounded with stocks. Add to that the dollar index is creeping up. U. S. Production is higher, and opec may not have any job owning tricks left. All Things Holding over 60 seem to be dissipating at this point for the moment for the day, almost 4 losses. For the week, just under 10 thank you very much, jackie we want to highlight to everybody the news crossed that fidelity, one of the largest retail brokers is going to stop clients from buying one of the remaining Exchange Traded funds that allows people to bet on a calm market. Youll recall that one already had to be wound down the xiv, but there was another one out there, the svxy, and fidelity is telling its clients its stopping them from being able to buy this Exchange Traded fund we had a lot of discussions this week, guys, about whether or not this is one of the issues in the market because so many people had on this trade. They were going to go short volatility because the price was going lower and lower and lower in the vix, and then boom, when volatility went the other way, this bets in the opposite direction. You can see people suffered losses of almost 90 in the xiv earlier this week when this all went down. Dont let the green number there fool you thats the correction chart to look at its up now, but for the week, its down 90 something percent. A couple of the other products have been basically shuttered because they lost 90 of their value. If fidelity is doing it, if some of the others are going to follow suit, and what that could do to volumes. Even as the market came back, the shares of cboe have been negative by around 5 . There could be impact on the cboe, which has been benefitting from the volume taking place in some of those instruments, and in fact, the cboe remains down by about 5. 25 you wonder whether some of the other brokerages follow fidelitys lead and restrict their clients from doing this as well they say its only temporary, and that in the foreseeable future, they may be allowed to buy it again provided the market, i think it says cooperates, even though that says corporates. Yeah. I dont know if this is a good move or not, to be honest with you it brings back memories of me to 08 when people were banning short selling and this, that, and the other thing. I know thats another conversation for another time. Lets bring in a guest now with us a wall street trading coach is doug, aka, dr. Doug. Good to see you. Good to be here a mouthful for me do you have any opinion on the psychology of i mean, reacting to this news. Too, fidelity telling their clients you cant buy and sell this anymore, i mean, the average investor has gotten freaked out. They listened to us discuss something they may not have known all that much about. Thats pretty scary right there, because that triggers a fear response. Its almost telling people that we dont trust you to be responsible to manage your own risk, and were putting measures in place because we really dont know what could happen and it could go very bad very quickly for a lot of people. I think that is the wrong message to send in these kinds of markets people are skittish and they have fear tempering in their portfolios so how are you advicing people to deal with the volatility we have been through, especially since we havent felt this in an awfully long time thats an interesting question because its called status quo bias. Because we havent felt it in a long time, we feel it now it becomes a lot more compelling to us that were seeing it. You have been at this a long time, we have seen the markets for a long time. It is like life. The markets are like life. There are up volatile days, down days, and days where its just okay to drop your sails and go sideways for a bit, and thats what we might be in this environment. Professional traders, hedge funds, some of these people that have been starving and trying to wait for the volatility, they are having a feast right now they are doing fantastic the markets and a lot of opportunities coming through what this lesson, to me, on these inverse vix products tells me is that investors, and i dont care how sophisticated you are, that a lot of them, and maybe the machines, too, they basically are trend followers. They want to invest in what worked, past tense in other words, they chase prior results no matter what here, they were chasing a repeat performance of 2017. I think thats probably accurate they got their you know whats handed to them. We tend to look in hindsight and what worked in the past and hoping it works again in the future to continue to make money. Thats the trigger its the fear. Its a fear of missing out on the opportunity to make money, and thats what triggers all of these volatile moves what does it do to the psyche of the investor who sat out one of the greatest bull markets that we have seen and only joined it at the very end before at the very end of this leg, if this is in fact still going to go on to a secular bull market, have now ridden into this decline is that recoverable . How do you repair someones psychology after that . Like anything else, we hit a slump in sports, you go back down to the basics you break it down to the basics. If youre sitting on the bench and you watched this happen, you have this i missed out when i get back in, i want to make great things happen but you have to wait for the opportunity to appear. If it doesnt appear and youre forcing it, thats when you have these issues best advice to clients, if youre turned around, flatten the positions out, reflect if you have a portfolio on, derisk a bit so the volatility is not going to freak you out. Like youre on the beach and youre like, i dont want to go in all right, i go in you see a fin. Ynl getting out of here and i dont think im getting back in. Thats an irrational fear its a fin, but youre not going to get attacked by the fin when people get irrational in the markets, they start to do things that are irrational thats the problem i attach a shark to a fin when i see it in the water im thinking shark. Thank you and watch shark tank. Its great. Really good thank you, doug. The dow flipping from tripledigit gains to tripledigit losses and back again. And there you see, up 25 points. The index is waffling, moving in and out of correction territory. So what is fueling all of this whats next . Well debate it on power lunch. Lot of Tech Companies are reporting today. And, hows it looking . I dont know. Theres so many opinions out there, its hard to make sense of it all. Well, victor, do you have something for him . Check this out. Td ameritrade aggregates thousands of earnings estimates into a single data point. That way you can keep your eyes on the big picture. Huh. Feel better . Much better. Yeah, me too. Wow, you really did a number on this thing. Sorry about that. Thats alright. I got a box of em. Thousands of opinions. One estimate. The earnings tool from td ameritrade. 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. 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The dow trading at a more than 800point range today it has turned positive looks like its holding on higher by 57 points to 23915 its been a wild week for stocks what now is there even more pain to come, or does this recent trading suggest there is more in store david is president of Guidestone Capital Management ron, your prediction after this tough week clearly, we had a 10 correction we have not had for the last 14 or 15 months you is to go back to late 2015, 2016 i cant tell yet if were done were chopping around today in such a violent way that we certainly retested tuesdays lows im beginning to call this a cap and trade market if you look at, and i know Steve Liesman got more deeply involved in the longer term considerations about bond yields, but if you look at the chart of the tenyear note yield against the dow in the last techb days, every time we touch 2. 9 , we sfark sparked a sellout, so were dealing with deleveraging at 2. 9, rebounding at 2. 8 its very, very tough and violent, but right now, thats what seems to be the shortterm consideration. We chuckled about this circular thing stocks sell off because theyre nervous about rising yields. Then the nervous stock Market Investors buy the bonds, and then the bond yields go down michael, what do you think i think that probably volatility is the new normal these days this technical drop today that pierced the 200Day Moving Average, i think led to some short covering, so we have seen this huge volatility back up coming into a friday is always interesting. You remember last week, art told us that the wisdom on the floor was markets dont bottom on a friday, which would indicate we have a little more of this coming on monday but i think Milling Around here a little bit and giving the weekend some time for us to digest this would be a good thing. So anything close to a flat close has me encouraged today. What have you been doing this week, michael . Not playing golf what have you been doing i have been working on the handicap, tyler. A few strokes here the handicap has shown no improvement this week. You know, we have been talking with clients, but basically, we havent done much at all we doing thi week, michael . Other than playing golf, what have you been doing . Yeah, ive been working on the handicap, tyler. The handicap, which has shown no improvement this week. You know, we have been talking with clients, but basically we havent done much at all we are looking for opportunities. Again, it does feel a little bit early. It feels like youd be trying to catch a falling knife. We have a list of purchases we would like to go in on last time the market was at 23,000 accounts look pretty good. At 22,000, they look pretty good were seeing markets go down and correct. Its what they do. We just havent seen it in a while. Its no damn fun but well get through this are you a sanguin i wouldnt say that word im glad we got the correction that was long overdue. We have spent a lot of time talking to clients as well ensuring them this is a normal and healthy correction theres no underlying weakness that will turn into a bear market the bond market has behaved very well highyield spreads have widened a little bit, but not much what were seeing is necessary im glad i hope we see a positive close on friday so it doesnt carry over into monday we expect continued volatility theres a lot of systemic trading strategies that will create volatility. And i agree were likely to see to normal vols of volatility not what we saw in 2017 but normal volatility and thats healthy. Thanks for the calm words michelle, one final its 16 times earnings now these fundamentals arent bad after this pullback. Valuations are better. 16 times earnings. That was my check please, you took the words out of my mouth thank you. 16 times rising estimates 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. 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. Building a smarter grid, investing in new technologies, energy is changing fast and wwere changing with it. Fe. 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Its fascinating to see a multiyear runway micron we like the cloud exposure as well. What do you think, dipping into technology . Were underweight technology in general over the last year the sector has essentially doubled the s p 500 so well expect mean reversion this year but we like intel. We own intel as well its a very Strong Company its got a good place in ai, data center and cloud. Were very bullish on that area of tech. So, we like intel. Got it. Thanks for a couple names here, if people want to dip in during this volatility. For more tradings nation, head to our website, tradingnation. Cnbc. Com just an hour until the closing bell dont go anywhere. Announcer and now the latest from tradingnation. Cnbc. Com and a word from our sponsor. Using limit orders is generally a good idea. But in low volatility markets, consider setting your buy limit orders much closer to the market price. Low volatility is jemly associated with rising markets and trying to buy on a dip can often cause you to miss the trade all together so, if you really want to buy a stock during market hours, just use a market order your brain changes as you get older. But prevagen helps your brain with an ingredient originally discovered. In jellyfish. In clinical trials, prevagen has been shown to improve shortterm memory. Prevagen. The name to remember. At holiday inn express, we cant guarantee that youll be able to contain yourself at our breakfast bar. Morning, egg white omelet. Sup lady bacon fruit, there it is but we can guarantee that youll get the best price when you book with us. Holiday inn express. Be the readiest. Oh thanks. Say, yeah, i took your advice and had geico help with renters insurance it was really easy. Easy. Thatd be nice. Phone for help with chairs, say chair. Phone for help with bookcases, say bookcase. Bookcase. I thought this was the dresser . Isnt that the bed . 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You could mauck tke the argumen, certainly, that youre willing to pay a lot more when we were at the highs, certainly. Lets bring in kelly and wilfred down at the new york Stock Exchange have a great weekend. Thank you very much same to you. Its a big deal we got through that hour the way we did a lot of people were focused on margin calls we went down big time ahead of that we found footing this is the closing bell, by the way, everybody. We went below the 200Day Moving Average, which a lot of people said was trigger to go lower and that was the trigger to rally back. How about your favorite stat of the week . How many points have we traveled with all of this turmoil the dow has traveled around 20,000 points this week. On pace now for its worst week