Transcripts For CNBC Fast Money 20170413

Higher. Its about to get worse as a passenger forcibly removed from his plane says he is liking about to have legaling a. We have breaking news with the aptly named mother of all bombs were sent to wall street. Kayla is standing by. Reporter melissa, the president is wheels up on air force one headed to maralago hours halfthe white house dropped the mother of all bombs for the first time in afghanistan. According to department of defense, it was dropped at 7 32 p. M. Local time from a u. S. Airplane in northeast afghanistan. Just about two hours from kabul. It targeted isis tunnel complex of the set devices that operates in pakistan and afghanistan, but not the headquarters for that group, according to nbc News Pentagon unit. Nbc news says it took place in an isolated area far from civilians according to two military officials, general John Nicholson call at this time right munition for the mission that the u. S. Was carrying out. General nicholson was said to have the authority to actually authorize that strike. Critics have raised questions about exactly how powerful, how deeply the force would have gone into the ground and whether it would have destroyed the isis tunnels it was seeking out. Earlier this afternoon, the president called it a successful mission. We have the greatest military in the world. Theyre done their job, as usual. So we have given them total authorization. Thats what they are doing. Frankly, thats why they have been so successful lately. If you look at whats happened over the last eight weeks and compare that really over the last eight years, will you see there is a tremendous difference. A tremendous difference. So we have incredible leaders in the military, we have incredible military. We are very proud of them. And this was another very, very successful mission. Now the u. S. Military was tested today with a misfiring air strooic in syria that killed 18 members of u. S. Backed forces. But it has been an eventful week for the burgeoning Foreign Policy of the trump administration, relations tested with china, north korea, russia, nato. Last thursday, you remember, you had the first u. S. Direct assaults and today the largest nonnuclear bomb ever used in combat strapped in afghanistan. Global tensions hitting stocks today, sending the dow and the s p to their lowest level, now well below the 50day moving averages, ending at the dead lows of the day t. Trump trade getting what kind. Industrials down 2 morris. Materials down 2 pin 5 t. Big losers, the bank stocks, down nearly 3 . Even a Big Bank Earnings this morning failing to impress investors, j. P. Morgan, wells fargo all lower. Trump is getting more hawkish on the geopolitical front. Are they telling investors to pull the rip cord on the trump rally. Guy . It seems its getting interesting. The only thing predictable about President Trump is his unpredictability. Hes turned course 180 on many of the things hes said. To answer your questions, transports closed below 160. First time in quite some time, critical level. The good news is the vix was basically unchanged. But Bank Earnings were good. I thought pacific bank was gold. Goldman has to hold 220. Dont discount for a minute that were off tomorrow, some of the selling today could have been exacerbated be i the fact that next week is tax day. Maybe people selling some stocks to waste capital to pay their tacks. I dont know, im just throwing that out. Well, its a long weekend, there is no reason to hold the risk you want to, it broke down technically, closed below 50 for the First Time Since september. Think about whats going on with trump right now. Think about where this guy is getting fuel for his next move. One place hes getting compliments and accolades is when hes fired bombs. Frankly, as we get into a more tender geopolitical situation globally. This is a case going into a long weekend, why would you need to take more risks when the mark versus broken down technically. We have broken down every sector. Everywhere you look, we havent gotten into french elections, a week from now, we will be on the eve of something that could be transformative for the european union. Looking where bombs are, very disturbing ppi trends globally, which tells you the inflation trade for now is on pause. Are you feeling more cautious about the markets today versus the beginning of the week . I felt more cautious the second we we heard about this bomb being blocked. Quite frankly, the mother of all bombs. The banks were down. Then they started to rally back up. We were in positive territory when we started the halftime report. As soon as we we heard anything about these bombs being dropped the markets started to get the selloff. People started getting less comfortable with the banks, when you look at the trading volumes, the trading revenue the banks put up. Citi, 19 . When you look over at j. P. Morgan up 17 . These numbers were impressive. I think the banks delivered just like we hoped they would. The volatility we talked about. Monday it started to jump about 10 . Tuesday, wednesday, today, we started seeing it near 16. I think tim has it right, the idea that bombing isis is a popular thing makes a lot of sense, especially when your legislative agenda is really in jammables. It has access, when we come out of this in april. We will get to this budget showdown on april 28th. So thats what im saying. Tongue in cheek. We have a situation where, you know, every major asset is showing a good volatility over the next few months. The s p is down 3 from an all time high. Its orderly, et gets bought. Its got a bib. We dont, i mean, listen. Weve had a couple bouts of volatility over the last year. We had q12016. I think investors have forgotten what it means to be fearful. There are people out there that thought it was the fundamentals in the economy as opposed to hope. I would have been one of those people. Granted its early in earnings season. We got the first glimpse of the banks that show decent fundamental also. They gave us exactly what we thought, right, a slow down in loan. We saw pick up in trading. Revenues were good. The margins were right. And yet it wasnt good enough, so does that tell us the fundamentals arent what is driving this route . No, i think first of all, you need to see, the rest of the earningsen in to follow through. There is a lot questions about the global economy. We had a nice go chart yourself a couple nights ago. Yeah. We both got to a similar place, the uptrend is in fact. I actually think j. P. Morgan gave everything you needed to nibble that stock a. Break of 84 means that stock xould be at 76. So people who wanted it by the banks were fawning all over themself, fawning all over banks, should be tuning in and buying banks here. I think citi bank gave you more than j. P. Morgan. I thought the net interest margins were okay. Their tangible book is 65. 94. So that is a bank that still is trading below the tangible book as opposed to j. P. Morgan, which probably deserves to be richer. Would you buy on these . I think citi you can buy, j. P. Morgan have you as to watch. They will say that to all of you . Look. I tell you why, everything that went well to the banks in q1 was backward looking. It had to do with this idea that this new equation would come, wait a second. Kind of. Okay. Activity picked up dramatically in all banks. Rates rise, we saw Consumer Confidence go higher we saw Interest Rate go higher. There were things getting in place for this inflation trade. For this new program agenda. None of its happening. Hold on a second, dan, first of all. We got two fed hikes, it has nothing to do with trump. The Fourth Quarter had in ug to do with trump. The facts that theyre saying Better Mortgage business started nine or 12 months ago. The fact that banks have comps that are easy and banks have Balance Sheets Getting Better for eight years. Nothing happened. J. P. Morgan. Everyone says their growth wasnt there. How about the growth year over year being up 9 , . Its a really interesting. So sequentially it was down . And before that . And year over year, it was up 17 and the prior q1. So we go back and forth on this sort of stuff. You cannot argue that something that is a result of the elections, let me finish. You are the whole market. Banks are not. Okay. Banks, you are totally wrong on that. Banks only got going at the election. Banks have been 234r59 for eight years. You think object governor tur ril lo resigning, this was the watchdog for the banks and basically worked for the feds. He resigned. You dont need deregulation. You have already changed the environment. Have you already changed the environment. I think the reason the banks have fought performed well is because of this consolidation phase after that big huge run to the upside, right . There will be some correction. Some. And some consol dag. I think lee cooper said it best, you know what, you have to go all the way through summer before we see the move go back up in a bullish manner, which is why the really smart money is using this higher volatility to create, buy rights and use the options. Is that what you are doing . Can you effectively get more banks today . I did, in terms of the options, we saw huge calling, out in may, very big. I think citi bank in the next four weeks goes higher. Our next guest is saying buy the banks right now. A policy analyst, exam markets, he joins us now. Ed, giving your title. You say to buy the banks because of potential policy moves, correct . What do you see coming . Yes, absolutely. I think the reason you boo i the banks is threefold, kind of what is going on at the fed. What is happening with regulation overall. What will happen with tax cut. I think with tax cut the loan, if we get a tax package by the end of the year, you absolutely dont want to be short the banks, you really want to be over kind of weight the banks at this point. Because the earnings of the banks are going to be super charged if we get the tax cut i think we will get. So could you have made all these arguments december 31stt . Im just asking, the trade turned south this year. So im wondering why are these three items going to be catalyst at this point . Is there anything incrementally that makes it more positive these three things will be factors to the upside . Yeah, december 31st. What we would have said is absolutely everything is in play, obviously, not everything is going to happen. If you want to talk about timing, expect it takes longer. Keeping an eye on the prize. When i talk to the folks in d. C. , they talk about tax reform him one of the openings that might be on the table i think is really interesting is maybe a straight cut to 15 on this corporate level. That itself not factored in at all in any client i talked to. The reason why they think they might want to go to a straight cut to 15 is because all of the reform that youd want to do in the ryan better way plan. You dont have to do it at this point. You dont have to change in deductibility. You dont have to worry about inversion, or repatriatiation the economic incentives have changed at a rate of 15 , rather than 25 and you have to go through this massive process of winners and losers and with a thin majority in the senate, that gets tough. Sometimes in d. C. The easiest thing to do is the simplest thing to explain. If it go es to 15 , you want to own the banks. Thanks. Also, i think we get back too where should these banks be traded. A big debate and everywhere banks trade at a price to broker. Whatever regression you want to look at in 2015 when banks, arguably trade at a much higher multiple. Can we get back there . Theyre lean nighting machines, are banks built for speed right now . Thats where i look at the regulation and trilo leading the most financed since alexander hamilton, in his going away speech, he talked about all these things the feds should deregulate. That will add to earnings, tax reform, so when we talk about multiples, i want to know what it is before we have that conversation. If this goes through, which i see it going through, that e goes up. These multiples are low. 15 , when does it happen by . Whats your time frame . By year end. By year end . So not only aggressive on the cut, aggressive on the time line . Yeah. Okay. And great authenticity. Thank you. Ed mills, fbr. If that is the case, thats pretty compelling for the markets overall. Do you think its the case . I think its, yeah, i think its more likely the case than that. Hows that . In this environment, there is no way to gauge what is going to happen. If you had to bet on it. On these levels the chart that tim and dan put up. Tuesday. Go chart yourself trend. They talk about exactly how they said. So you have an opportunity to buy the financials against that upward trend mark. My only point is exactly what he is saying. Buy if have you all this stuff. The economy continuing to progress, few have Corporate Tax cut, then i would agree with that, especially after youve had a 10 pullback in the xlf. Im not optimistic this will all happen. What did the president say yesterday. We are doing it first. Bigger tax cuts. Agreed. I dont know. He has a civil war in his own party. He has democrats that dont want to work with him. He will force the democrats by not paying these subsidies, affecting the most vulnerable. I mean, im telling you, thats not going to get the democrats to the table. Think about banks relative to the s p in terms of valuations that dont require all kind of things you are talking about. I dont believe we will get half this stuff done. I dont think we will get a quarter done. I stayed and i didnt buy, but by not selling, i take the trade. Are you comfy if the trade is so low . Thats what im asking, they overshot the upside. I dont think they overshot. I do think its a healthy pull back. I think people, there was so much of the excitement about the trump trade and everything else, obviously, that was a part of what it is. I still look at the fundamental case we are looking at right now. One of the things i pushed with j. P. Morgan was the idea of how much stock they brought back. It was unbelievable numbers. 25. 9 billion of stock. How about the fact that he said whether its a one times or two times tangible book, they are a buyer of their own stock. Thats the put in a j. P. Morgan right now in my opinion. Coming up, the passenger forcibly removed from the United Airlines flight in a legal battle. The details on the story that captivated the internet this week. Stocks are soaring, elon mufx tweets more vehicles. We will bring you those details next. Netflix gearing up for earnings, stocks are up more than 15 this year, how traders are ahead in the big report. Much more fast money still ahead. Predictable. The comfort in knowing where things are headed. Because as we live longer. And markets continue to rise and fall. Predictable is one thing you need in retirement to help protect what youve earned and ensure it lasts. Introducing brighthouse financial. A new company established by metlife to specialize in annuities life insurance. Talk to your advisor about a brighter financial future. Welcome back to fast money. Shares of tesla soaring after a number of elon musk tweets. Musk tweeting tesla semi truck unveil, set for september. The theme has done amazing job, seriously next level. One user followed up asking when bigup trucks are available. Pickups unveil in 18 to 4 months. They may be a luch longer term for tesla, the market is most lucrative. It may be a threat to a ford and a gm. Guy. Without question. We didnt laugh, we made fun of the piper jaffre note earlier, basically, theyre asking everybody to take a major leap of faith. Thats effectively what you are doing. If you are buying the stocks. Thats what you are doing. There are reasons i believe to they can this leap of faith. I think its akin to what amazon was maybe ten or 12 year ago. So was that the right move then . Yes. How do you trade the stocks from here . I think it goes against the 280 level we saw popped out in 2014 and 2015. I think you stay long and let it ride the upside. Are they concerned about this other new model, it complicates production. Theyve had issues with every new model. How about the model breathe out. Its efficient and production. Does it make me a bad guy . I have attention deficit disorder. I look at these guys, were awful over the map. Clearly, a stock thats moving on Intrinsic Value on a lot of upside on the core and the periphery, yet were supposed to get excited about a pickup truck . Actually, yes. When you look at the big autos zone out there ford, gm, chevy, outside of gm, itself, gmc. Its amazing, in the u. S. , what is selling . The pickup truck. Why wouldnt they be aiming to get in from . Can they do it. So they will sell 6,000 of them. When are they going to do this . I tell you what, i would think they have as much excitement as that over the model 3. Ion why they wouldnt . I dont know if they can make one. I dont know if they can either. I think its important to remember. I think they delivered like 53,000 cars last year. So are you talking about the model s the model x the model 3, hopefully 400,000 of them and growing, then you have all this other stuff the semi trucks. It seems like a lot they can chew. It doesnt seem its something they can do on their own. I want to say one other thing, i have been skeptical for all the reasons, valuations, at tesla, guy has been talking a year, traileding against 180. Listen to what he just said, trade it against 280. Thats crazy. Thats uncharted. I understand, what im saying, look at how much its moved in a very short period of time. Months ago, he was saying trading. Are you complimenting him . Im complimenting him. Im saying, if you take a leap of faith of a 100 rally. Go chart yourself, this is no. Im also trying to stay, where this stock. Does the speed of the move concern you . Should that matter . I dont think the speed of the move has been all that crazy a move to be honest with you. The yeartodate. The chart t. Stock goes up. It moves. Theres other stocks that have had crazier moves than tesla. Listen, i get all the reasons to be negative. Nobody gets it better than me. I also understand whats going on here, i think the holders hold, the incremental sellers, they dont exist. Thats my view. Still ahead, United Airlines is not out of hot water yet after forcibly removing a passenger. Things are about to get worse. Thats next, im melissa lee. In the meantime, heres whats sells coming up on fast. When the money is coming your way, you dont ask any questions. Thats how netflix shareholders feel. How will earnings bring more questions than answers . We got the details. Plus. On a daily basis, i consume enough drugs since manhattan, long island and kwoens for a month. Okay. Thats a lot of drugs. But whats the next billion dollar drug about to hit the market . We got the names and the stocks that could be about to take off. Much more fast money right after this. [ music playing ] think again. This is the new new york. We are building new airports all across the state. New roads and bridges. New mass transit. New business friendly environment. New lower taxes. And new University Partnerships to grow the businesses of tomorrow today. Learn more at esd. Ny. Gov whether its connecting one of or bringing wifi to 65,000 fans. Campuses. Businesses count on communication, and communication counts on centurylink. Welcome back to fast money we have a down day on wall street. The three lows of the session. The dow and s p hitting a twomonth low t. Nasdaq posted the worst week of 2017. Heres whats coming up, drugs and money, a new wave of medications could create a boom for drug stocks, which stands to be the big winners and losers. Netflix to huge highs, traders are expecting earnings monday after the bell. Well tell you how to play it. First we turn to a developing story on the worst week ever as it looks like the airline could land in court. Phil lebeau with the latest. Theyre supposed to be in court on monday, a hearing is scheduled for dr. David dao. We are talking about passenger manifests, videos, cockpit voice recordings. This is what its all about. What happened last sunday night. This is at the center of what will likely be a lawsuit against united. They have two years to file it. They will sue united. They say he suffered a broken nose, a concussion, lost two teeth. Heres the attorney talking about what happened and their perspective of it. Heres the law, real simple. If are you going to eject a passenger a up to date no circumstances can it be done with Unreasonable Force or violence. Thats the law. After the press conference today, united issued a statement saying we continue to express our sincerest apology to dr. Dao. We cannot stress enough we remain steadfast in our commitment to make this right. This horrible situation has provided a harsh learning experience from which we will take immediate concrete action. The afrl also issued a very clear statement that they did reach out to dr. Dao, oscar munoz, the ceo, did try to call him, as pointed out by the doctors attorney. He said, look, nobody called him. It pay be a case where the airline said we tried to call him. This is the number we had, clearly, there was no connection made there. Guys, monday is an important one, not only is this hearing preserved relating to this hearing. That is procedurally in court in chicago. After the bell, thats when united reported the quarterly earnings, then the Conference Call tuesday morning. You know analysts will be asking oscar munoz as well as other united executives, how much is this likely to potentially cost the airlines . Lets see if they got a ballpark figure by then. Other analysts out then or in terms of the market share believe that united could experience because of this . I think its too early on market share and too early in terms of what the potential legal settlement might be in this case. Most everybody said if you are smart, get it out of the way, pay whatever you have to pay, settle it. Efts all over the place, its premature to say whether it will be 3 million, 3458, 7 million. So small compared to the market cap that company has lost. Phil lebeau in chicago with the latest on the saga that keeps drip, drip, dripping away. We are talking to a marketing and brand expart today on power lunch. He says settle the thing no matter whatever it costs, every single day there is an incremental excues for the mediaco keep running that video. Thats what you tell anything, you dont think the lawyers arent pushing as hard as they possibly can . I feel very sorry for the injuries this guy has, if this is the worst week united has, down 3 on this move, this is not that big a deem. Delta is down 2. 5 . Its money, earnings, passenger revenue growth. Which is coming in flat. Its unfortunate. Its a nice thing for the media to play. I disagree. They dont want to see the inside of a him ceo, i think, in my opinion. I dont think you will want to bring it. Get it done, whatever. Not because of the legal costs, right . No no. Just get it out of the headlines. Make it go away. That is what they absolutely need to do. Is it going to affect . No, i dont think it has any adverse effect, necessarily long term on the health of United Airlines, whether thats good or bad. Im not commenting on. United airlines, valuation wise, 8. 5 forward earnings is a xaeling story w. That said, mr. Munoz first reaction to me was awful, reprehensible. For me, you can tell them, double, im not buying the stock. Because of that fact, thats why you have to get it done even quicker. The social media world created this into this unbelievable story. Its on the front page every single day. Its got to get done immediately. I completely agree with the analyst talking about that. This has to get behind them. Its not the dollars. I mean, if its 5 million or 10 million. What is that to a Company Actually when you talk about the billions of dollars. Say these guys wont recover from this. I dont think anybody will. The quick st way to recover is get it behind them. Im shocked that they let there press conference going today. I would have shown up at the back door with a lot of money and get it out of the way this company is suspected of 37 billion in sales and 6 billion in ebitda, bags of money. Get it out of the way. Im sure his toeshs arent working for sure. One big tech name is reporting as well, netflix the stock could be headed for new highs. Dan will head over to the plasma and tell us what the offshoot market is. This is a big one here. You know, this is one of the first big tech guys reporting the earnings. Its obviously somewhat disconnected. Some of the other stuff in the markets people are concerned about t. Options market is implying a move in either direction. On average, over the last 12 quarters or so, its moved greater than 10 over the last four quarters. Its moved about 12 . So the implied movement is not great for relative to its history a. Lot has to do with the broad market. It also had to do with the fact that stocks have been consolidating up in the 140 area for at least a couple months here. Lets quickly go to the chart. You got to remember how they do it for me. Thanks. This is not consolidation that i was talking about here. You know, in this kind of 135, 140 range. So you know, there is no overhead resistance. If you get a raise, this thing is going higher, who knows where it stops. On the flipside, lets go and look at the next chart here. This is a fiveyear chart. We all know where its been. Its obviously probably down here about 120. There is some room there to the down side. But i dont think this thing is coming apart at the seams, even if they were to disappoint. I think the secular shift is intact here. It looks like everybody is thinking about how to do what these guys are doing, whether it be in music or video or anything else. Steve, netflix . I have to tell you something, its a content company. All they do is dominate, dominate, dominate. Obviously, they have been moving more international overtime t. Bigger they can get obviously that will feed the bottom line. Is it a high valuation . Absolutely. When dan is talking about that movement of 7 . I tell you what, the stock is near that 148. Tells me you want to own options, that means the volatility is lower than its been in the past. Why not all that volatility going into this number. You get a great number, this thing is off to the races. You get a terrible number, its going down. Volatility will give you the opportunity to play that move. You made that call. I agree with that. This is not a content company, its other peoples content. They owe that content. I didnt say original content. You did. You did. I think that ought mountly, we get to a place it gets back to a transmission agent. This is a competition. I think theyre failing internationally in the sense that theyre not getting the kind, theyre not getting the inroads in a lot of different places very important to them. Theyre saturating in this company. At some point i think amazon will own them. The last quarter was great. The number you have to look for is International Streaming t. Street is looking for 3. 7 million. I remain a bum, you know what is interesting. So many things are. I didnt know whatever. Dan, we dont call it a smartboard . What is it . A plasma. We are all learning. We have Little Things in our ear. Its all ifb. I wont them what you that stands for. They were telling me to make fun of dan around his atrocious line drawing on that thing. But far be it from me. Its like the pot calling the kettle black. I tie this whole thing together. Its an options action segment. Pete made a point of owning volatility. Its a cheap historical movement. When we calculate that applied movement. We take the after money calm and the after money put. Thats 7 combined. If you have a view, if you are bullish and you buy if call, its half that 7 . So thats kind of the point. I think thats what petes saying. If you are bullish. You are really risking 3. 5, to have that move. This is a stock that has gains. You can go live on the options action show tomorrow. The options action game, we will be off tomorrow for the holiday weekend. You can meet us back here next friday at 5 30 p. M. Still ahead, looking for a way to beat the market . Yes, you are. There is one outperforming the s p 500 all year. Later, stocks have been on fire. This year, there are five new drugs that could bring billions of dollars to the industry. Well give you the names and who could be the big winners when fast money returns. Welcome back to fast money. A wave of new drugs are getting ready to hit the marks this year, they could potentially bring in billions of dollars in sales within the next five years him time for stocks therapy with meg terrell. Hi, meg. Hi, guys, people are trying to figure out which biostocks to watch. You want a list of the potential blockbusters list, popping that list is rosches old drug. A drug was priced under expectation. Interesting, theyre still expecting it to be quite a big drug there. Of course, another one from regeneron expected the approach 3 billion. Others on their astrazeneca immunotherapy. It could get sales up to 2021. And they did not yet approve Rheumatoid Arthritis from insight and eli lilly. That one we expect an fda decision on very soon. The pricing will be very interesting as well. Its an exciting class. A couple other drugs from from Smaller Companies tethera and kite. To get close to 2021 insight. These companies are really the Smaller Companies are hot takeover target prospects. A lot of companies talk about, analysts talk about these companies. They will target bigger pharma. The bigger pharma stocks i would imagine, the potential are either priced in or theyre such a small drop in the bucket it doesnt necessarily move the needle for them. Yeah, people have been decharting these drugs, so their potential approval is pretty well expected. Then the upside comes through the Smaller Companies, and potential mna. Most interesting one on that list, eli lilly had a monster move. Its getting rich, tesaro mentioned thats been the speculation on that stock the last couple of years. Ive we heard anywhere from 210 to 225. Its had a massive move off negative news. I think the risk reward, which is substantial, is 1 twiefr on the downside and a special to get a takeout anywhere from 210 to 255. Incyte, i like, they have late stage pipeline that absolutely is incredible with block busters here and there and everywhere. Thats a really impressive one that will be taken out sought soat some point, i dont know when. We talk gilead all the time. That will be the savior if they make that move. Bio tech had a nice performance. Its turned its fortunes around and been strong as a lot of other trade have gone weak. Have you been hearing from analysts that the tourists if space are coming back, there is a return to favor for biotech . Its certainly not a strong return to favor for biotech. The street. Com had an interesting article talking about the biotech. There is not a lot of volume, not a lot of interest. We are not seeing blockbuster may deals as they continue political pressure. People kind of waiting for big exciting data for a big deal, something for everybody to get jazzed about this space again. The resilience is surprising. It gets back to a place, its not every one of these companies, maybe there is megahigh growth at reasonable valuation, to me, its a proxy playoff, if anything, i would be betting against it. Betting against it, interesting. Mech, thank you. Major stock therapy. I have a long weekend. You cant have options actions, though. Thank you. Unless its mech. Still ahead, new data suggests it might be finally paying off. We will show you how you can make more cash. You are watching fast money on cnbc first in Business World cnbc first in Business World wide. You always pay your insurance on time. Tap one little bumper, and up go your rates. What good is having insurance if you get punished for using it . News flash nobodys perfect. For drivers with accident forgiveness, Liberty Mutual wont raise your rates due to your first accident. Switch and you could save 509 on auto insurance. Call for a free quote today. Liberty stands with you™ Liberty Mutual insurance. Welcome back to fast money. Its hard out there, flu data shows being passive is actually paying off, bob pisani is at the Stock Exchange with more. Hiing melissa. You we heard actively managed funds under perform benchmarks, recent data says longerterm trends are worse than the shorterterm trends. Lets look at large cap funds, for example, s p global, 88 under perform tear benchmark after five years, its just as bad after longer periods, after ten years, 85 under perform, it gets worse. Over 15 years, 92 under perform. It doesnt get any better for small or midcap stocks. Roughly 90 under perform over all periods. The markets have seen low volatility and some are arguing periods of higher volatility would benefit actsive management and that doesnt appear to be the case either. Its really hard for active managers to out perform. Hard but not impossible. Dan leader that runs a news paper, noted 14 of vanguards aptly managed funds outperform the index funds. But these returns were greatly helped by the low cost structure. This will only put low pressure on active managers to cut fees, close funds and mover to an etf structure, which is cheaper even if there an active management overlay. I think the bottom line is active funds arent actively managed. They hue closely to their benchmark. They lose because they charge too much. Back to you. Fine there, bob. Bob pisani, this could also lead to greater degrees of computerization for instance, in stock picking, which we have seen with blackbox recent afoundment. So you guys were active stock pickers. First of all, removing emotion from investing is an important thing. One of things people do is theyre doing. That thats important. Still eight years of a bull market made it fantastic. By the way, were having this conversation at a time when yes the industry is going through tremendous price pressure. Its a great topic to have. People are investing in wrong managers, its that simple. You cant tell me they cant outperform. Listen, a lot of us start in the Hedge Fund Business a long time ago. That whole Business Model was predicated on picking, generatingal fast. When you look at hedge funds performance during this whole market, its latin for all intents and purposes, its paying high fees. I dont think you can make the great architect for active management given the fee structure. We all know how hard it is on a daytoday basis just to get things right, direction wise, magnitude, movement, all that stuff. The computers are taking over, its a hard game. The way i see it, treat it like a hobby, you kite, surf, you knit or whatever. If you were off camera, we could get out of here. These structures, i think thats come down so much, i think it will continue to come down. You go to the prove it. You got to have that track record. Right . The herd mentality is what i see. When you look at hedge funds, how much do they have the exact same stocks. They will all be grouped together. They will under perform. You are right, it depends on what the market givers you. A lot of times are you right. A lot of times not so much. Im telling you, you need to be active. I think active is where it is. You have to find the right ones moving in the active way. And taking advantage of dislocations generating bypassive managers, totally just responding to the market and following the market. One way to beat the market is by following cnbcs iq 100 index powered by mcam. Since the the election, david martin, founder of m cam, he joins us here at the nasdaq. Good to see you. Great to be back. Why do you think its beating the s p . Very simply, it is a very interesting problem. Its an old School Problem of classification. Most active managements are looking for pairs inside known an established networks. As the markets mover more towards utility consumption, utility supply, utility responsiveness the networks showing up happened outside of classified traditional ways in which people view stock. So what you used to think was a world of industrials or consumer, sick liquor anything else, dont actually live in the same place anymore. So you have to look across industry. Thats where computers have brought in advantages that a lot of active managers cant think of. A lot of active managers are proxys for the commodities that underlie their businesses and this is a way to start thinking about interdependencys the markets cand see. So iq 100 specifically deals with technology, patents, intlek dhul property. There is one that illustrates your points you have to think outside the classifications, that is adding targets. Yes. Most people think of target as a retailer . Yes, all of a sudden what you have is, this is a wonderful example of where the value of point of sale is, in fact, important across a whole lot of industries. But the value of secure point of sale, the idea of make, sure we have identity protect, clearance of identities, throughout the Customer Experience is absolutely critical and target has realized the two compete. They have to be a security firm, not just a retail firm. Now you wouldnt look at them as necessarily somebody whos in that kind of security or in space. They wouldnt have a cyber bend to them. If you thought about them as a classic retailer. Because of the cyber attack they had, they took a step back and said we got to change the game. We got to think differently. Thats how they did. Thats why its in the iq because of the Cyber Security the Technology Layer to this retailer . Exactly. What you got there is a commitment that says that their business has to change. Its not just about stocking shelves, its not just about supplie supplies. Can cnbc iq index . This is a machine the machine is reading it. Low cost . Super low cost. Ap earlier point. A very interesting way to look at the overall intersections of the market. The reason why the index is important, it starts mapping out where those Network Effects are. David, thank you. Mcam. Whats interesting, we talk about what is the right multiple for stocks . Tesla, is it a technology or auto company . I think this is case in point. Up next, tim here says its time to fade this one hot trump trade. More fast money straight ahead. Its time for the final transfer on the horn, pete. Most importantly, happy birthday to my 23yearold daughter alexis. I love you, the very best. Citi, i think the train is ready to move up to the upside. Tim she more. A happy weekend. You got to defend yourself in the market. Ibm, small caps, if theyre breaking down. Nathan. We had a go chart yourself earlier in the week. I think you will see entry on the banks and 22 is the level. We had a call, g swiss. Tuesday steel, ten permanent down. Another 5 today, news i didnt see coming. Or i wouldnt have said it. That said ibb held in there really well. I think ibb is okay here. Im melissa lee. Thank you so much for watching. See you back her here on monday. Have a good weekend. Mad money with jim cramer starts right now. My mission is simple. To make you money. Im here to level the Playing Field for all investors. Theres always a bull market somewhere. And i promise to help you mifin it. Mad money starts now hey, im cramer. Welcome to mad money. Welcome to crea mer kai. Just trying to make you some money. My job is fot no just to entertain, but to teach or tweet me at jim cramer. Sometimes, sometimes we have what i call a bad set up. And the market, it just wants