In the year 1929, just before the crash, volatility was pretty low. Not as low as it is now, but actually volatility was pretty low. And then it just exploded after 1929 the crash kind of triggered itself well, shiller went on to wonder whether howard marks memo was a sign that the top of the market was, in fact, deer. Josh, if nothing else, the marks memo, the shiller comments and some other factors have rekindled the debate over where this market is, whether stocks are too expensive, and whether we should be paying much more attention to the fact that volatility is nowhere to be found. I mean, no offense to howard marks, who i think is a genius and bob shiller, obviously, i think is a genius. But bob shiller has been making cautious comments pretty much his entire career. And then hell, you know, say, oh, by the way, im just into it anyway im just owning the market anyway so put that aside. Number two on the volatility commentary, understand, we had low volatility through the 1990s, throughout the 1950s. The markets rose and you had these little punctuation marks where volatility would spike for whatever reason, political, geopolitical, but you can have a very long period of time with low vol. Thats not to say that we wont get volatility spikes. Nobody should be in the market that cant accept that and the last thing regarding howard marks he wrote a great memo, 11,000 words, basically saying something bad could happen better to be early than late. Well, heres whats interesting about that and warning about whether the stock market is too expensive, whether people are in a sense, too complacent, and whether its going to end badly let me finish my thought. In the third paragraph of what he wrote, he says, by the way, i said the same thing in 2011. So, its six years and 2013. Listen, its great to be cautious nobody should be uncautious. So heres the point i would make theres never a good time to be cautious its always a good time to be like, you should not be like, oh, now is the time to throw caution to the wind. Or, nows the time to swing to cash in the real world, no one should literally be investing that way. So i think its important to note that volatility is low, it could come back, we could have drawdowns. Okay, thats great but if you go into the market not expecting that, you really should find somebody who can manage your money for you. The question is, are investors are going to get this buying opportunity do we think that yesterdays selloff, which began almost exactly 24 hours ago, as we were having that conversation, about the marks memo and with shiller, are we going to get it look because people are afraid to buy if anybody this is yesterday was a selloff, they should be curled up in a fetal position with their baby blanket, somewhere in their mothers basement it was an interesting reversal, steve, it happened pretty quickly, especially in tech, right . It did a good portion of the marks memo question f. A. N. G. Look at how far its come from that was ant selloff. Amazon today, its not a selloff 3 3. 5 those arent selloffs you need volatility to make money. If you dont have volatility, your returns will suffer amazons up 35 yeartodate. Right and this has happened with amazon repeatedly. And anytime this has forced you out of amazon, you shouldnt be in amazon. Im not in amazon for other reasons, but this is his model this is what he does periodically, hell spend and the true believers stay there. But talking about the market, talking about howard marks, talking about shiller. Look, every investor has a discipline and a different strategy howard marks, a brilliant investor, built a great business, 100 million under management hes currently a Credit Investor and an excellent one this is what alarms him. He admits hes early i think you need humility in th market and that discipline but i think its also a mistake to market time the market. So im sitting about 30 cash, always looking for buying opportunity, i am never fully invested but i also have a particular time frame where im willing to look at it if youre a day trader, you time the market, 95 , maybe 98 , go broke. Can you think of anyone, either of you guys, can you think of anyone right now or in the last three months has been like, oh, dont worry about it, everythings going to be fine. This is the wall of worry i cant think of anyone whos saying the opposite of what marks is saying i cant think of any time where somebodys not saying, hey, something can go wrong. No matter what level the markets at. I think what were trying to get to the bottom of the issue, jim, as to whether theres going to be any kind of correction of magnitude, or whether the markets going to have little fits and starts here and there, but its going to continue to climb and people are going to continue to bank on the stocks that have gotten us to where we are now. Just observationally, where weve got right now, yesterday, those little fits and starts when we get a correction, of course were going to get a correction i dont know when, and none of us do. And probably the thing that catalyzes the correction something that the market ignored a month earlier. It is that random. Thats what im trying to say. And josh, i think, was making this point that if you cant withstand a correction, then your Asset Allocation is wrong, you shouldnt be in stocks steve said ait a little bit more colorfully let me be adamant about one point. And howard marks is fine to be early. Im choosing not to be early, because i dont see a bear market type of trash cocrash cog something that goes down 20 and is grinding day after day. Why . Because the Global Economy is Strong Enough that corporate profits should continue to grow. This market is a little expensive real quick, i think this is an important point to bring out. Youre not seeing what we had seen in the earlier stages of this bull market you can argue whether its bullish or bearish money is not leaving the market, its rotating. The bulls would say, this is healthy, this is what you want to see look at the xle this week. This is the best week for the oil stock sector that weve seen since november oils pushing 50 again. Fine. Since november 2016. Thats a long time since weve seen the oil market. Now weve broken out of a fairly welldefined downtrend, that doesnt mean youre going to get a vshaped, you know, rocket ship ride back up. But to have oil stocks, which are the cheapest area in the market start to see flows come out of some of it will more expensive sectors, i dont understand how you look at that and you say, this is a canary in the coal mine, this is bad then you take a look at where the euro is, you have the euro right now at a 2. 5 times year relative to the dollar you have the dollar, the index t the basket, hitting a low that we havent seen since april of 2016 think about what that could mean for earnings and think about what that means for the Global Economy. So take a yellow piece of paper, a white piece of paper, whatever, and draw a laine down the middle like with any important decision, go through the pros and cons. On the pro side, for the first time in a long, long time, we have italy growing, china growing, seems to be managing their situation better you even have greece issue debt for the first time in a long, long time, over subscribe, 6 million demand you guys are painting a scenario in which the danger of the risk is being out, right right, but thats what youre trying to sum it all up. Im not a permable by any stretch of the imagination i tend to be cautious. Then i look at the negs. What are the negatives weve got a presidency, who knows where its going, right . Weve lost some of that power. And we also have a situation where maybe nothing gets done because of that. We have al recovery thats long in the tooth, but its not been a riproaring recovery so we havent had those excesses and yes, we have valuations that are more than fair thats it. Then theres the black swan events, which is like, you know, after theres a terrorist attack, if you didnt ever go out because you expected a terrorist attack, youre market timing your life its the same thing here if you dont ever invest the market because you expect a correction, youll never make any money. Ask yourself why valuations are high youve got 69 million boomers trying to put together retirement portfolios. That can conceivably get them through the next 20 years. Bonds arent going to do the trick. And we have a shortage of stocks, quite frankly. The wilshire 5000 cant even fill the index theres like 3,700 stocks in there. We have ipos come out. Nobody wants them. The p in ipo stands for pinata blue apron, snap, you name it, these things come public and get demolished within a week thats not a bubble. The bubble is the opposite where you have issuance coming after issuance after issuance. You have more o of that in the credit markets than in the stock markets. Lets add another voice into the conversation an investor who thinks howard marks is 100 correct. Michael farr is the ceo of farr miller in washington has it helped color your own view of how you see the market i did like what i read from howard it makes a great deal of sense to be cautious but as i was listening to the guys talk, i think chuck prince was one of those guys years ago who said, when the musics playing, youve got to dance, and that was probably throwing caution to the wind near a market top you know, what i have been saying is, our job is to make sure that our clients are dancing, but very close to their chairs, so they do have a seat when the music stops and that caution, i think, is probably should be heeded by everyone so i think its a good warning i think its a healthy warning and its a time to check Asset Allocations. And also, your own risk parameters i mean, youre eight years closer to retirement than you were when this bull market began. So maybe your equity allocation shouldnt be quite as high but, you know, again, a lot of the warning signs have been with us for a long time they havent changed and the economy is sound so, this is not a sell signal for me i remain invested, but i think caution and becoming cautious about the sort of things youre buying makes a lot of sense for most investors you think stocks are too expensive . Do you think that the move during earnings season is justified . Shiller would suggest that its an overreaction to ternearningsa have, you know, obviously been good, but lets not run a carnival through downtown, as a result of it stocks are on the high end of valuations, historically, no question now, earnings are increasing and, look, when President Trump was elected, we saw markets start to advance in anticipation of policies and i was worried, because we saw prices advance, b and we didnt see the evidence of the policies. I look to fundamentals were beginning to see the fundamentals advance that gives me peace of mind. Im glad to see the fundamentals are increasing and that the financials, for most companies reporting, lack good you look at the dollar, look at some of the things that josh and jim and steve were just talking about. They give a lot of support to future Earnings Growth and strength i think the rate question is probably the most serious question we have to watch. As the fed takes rates higher, will that perhaps be the next real canary that could bring the market down. But markets go down. People forget, its normal when markets go down. Michael, its josh. Thanks for joining us. One of the things we did in january this year is we went to a slight underweight of u. S. Equities and a slight overweight of international you think about a market like japan, and just take a look at the yenhedged japanese index, so this is on the verge of a massive breakout its been consolidating for a while. Its pretty much right there i dont know what finally pushes it through japan is a market where all of the things that youd want to see about Corporate Governance and profitability that had ailed this market for 20 years are now starting to get fixed. And youve got a discount in valuations in large caps to u. S. Markets of Something Like 25 . So when we talk about our stocks expensive, u. S. Stocks are only 50 of the msci country world index. Why are we lumping all stocks in item clae clearly, there are huge markets around the world with better valuations, better dividend growth, and massive discounts to the s p 500. Would you agree with that statement . I think that there are certainly weve got to look at our stocks or u. S. Stocks as a relative to the rest of the world. And yes, there are certainly stocks around the world that are cheaper here you know, from a u. S. Kind of fred and ethel investor point of view, if the rule is to buy low and sell high, im not saying sell i didnt hear howard exactly saying sell, but this is not low. And thats important you have to be vigilant and anytime you can get ninindividul investors, when things are all going so well and people are feeling like nothing can really go wrong, its a time to stop and be vigil last nigant. Enjoy the rest of your friday go back to the beach or whatever you had going on thanks for having me. Fore all right, michael farr joining us on the phone. So the market would suggest, if there was a lot of concern over rapidly developed selloff yesterday, alls okay. Theres virtually no followthrough the s p, i look here, is down 5. I think that the indices are masking the underlying rotation thats going on. And josh, i think, touched on this earlier look, we can look at, you know, a company like amazon is off 3 today, starbucks is off 8, 9 . Other stocks are up. And the point is not, you know, to make something reflective of the whole market this is a stock pickers market. You can find stocks that are very, very expensive you can choose to sell them or at least not own them. You can find stocks that are relatively cheap, i mean, really cheep versus where the indices are on good dividends and cash balances things that give you a modicum of safety if the markets go down but this is a stock pickers market and maybe the indices arent showing whats going on underneath the surface lets talk about amazon and what happened after the earnings miss the concern about, you know, what the company is not only spending, but its lack of profitability, sort of coming to the surface and the forefront. They do this twice a year they do this twice a year. Its been happening forever its a spigot he can open and close it wherever he wants. And i dont know that he look, i dont know that amazons intent is to have a new alltime high in the stock price every day. I think the intent is to grow the economy based on the Strategic Plan theyve been doing this for 20 years. And twice a year, they put up a quarter or they announce guidance that is different from analyst expectations and they probably laugh when they see the commentary oh, this is it this is the peak so maybe it is, but at the end of the day, they candecide wha their earnings are going to be theyve got levers to pull i think they want to spend the year making investments. By the way, facebooks had the same thing they said, dont get too excited about the second half. All of that said, the stocks down nearly 28 bucks theyre not going to report earnings for another three months so in that preriod of time, are you going to get a better entry point . Is there going to be some continued follow through on the selling, regardless of what besos can do and what he cant when it comes to the spigot that josh mention qued i dont think you count on a better entry point he show what had the earnings power of the company could be, about a year, year and a half ago, when he broke it apart and said, heres what aws, heres essentially what retail is and you either buy into his grand vision and if youve done that, youve been rewarded. But he runs this like a private company. And he said, youre either with me or youre not and im going to invest in the company as i see fit and thats been the right move so so youre saying the 28 selloff today is a gift the stock is up 35 this year its already bounced back its already recovered and its where it was two weeks ago. Its just not much of a its meaningless. So i cant tell you where its going to be in three months. But its meaningful if the group of these f. A. N. G. S, which have obviously done incredibly well, are all right, well, ill answer for you. I dont think its the end i dont think its the end of amazon, even though im not a buyer, because i do look at valuations to some extent, i can find good Valuation Case to be made in facebook, as i look out this year, as i look out two years, three years, in google, even though i dont own it even in netflix win c, i can fie valuation. Alibaba, i think swb, is a compelling valuation apples off threeodd, fourodd percent from its high months ago but still, they have great fundamental stories coming up with the iphone 8. Google, facebook, im going to tell you, google and facebook are cheap, period. But, listen, facebook is up 48 this year. Are you going to tell me facebooks fundamentals have improved by 50 . So much of this is being driven by sentiment, by allocation. Its very difficult to say, is this a selloff that finally sticks look, to that point i dont think people should try to the pullout from the marks memo sort of talks about that. It says, im not saying that the f. A. N. G. S arent great or theyll suffer such a faith of having a major correction, but their evaluated status is the sign of investor optimism for which we must be on the lookout. Keep in mind his perspective. Hes a Value Investor. Youre never going to get a Value Investor to get onboard with that. Stephanie lee is a Value Investor and she got into amazon there are other Value Investors who are in that name, who dont want to miss out regardless of the valuation. Howard marks is right, hes right. The question is the timing here. What im saying is, i dont think yesterday to today is a blowoff top in the markets overall. And i certainly dont think, whether were talking about amazon or any of those names that youre seeing a breakdown in any of those names. You know, amazon and google have sold off in the past week, week and a half theyre right back to where they were, like july 18th,s after it was theres no value. When you have a company that can grow earnings, grow revenues at 26 to 28 at facebook. And youve got a market multiple where it is. What relative multiple should that be . Right . When youve got a honeywell growing where its growing, right . Just, you know, what is honeywell growing . 10 . Just keep going. And selling at a multiple, a market multiple, whatever it is, where should facebook sell, right . So you have to look at that, also we did this we did that comparison about a week ago wherever google came out with earnings and we looked at same day mcdonalds did googles and mcdonalds grade school and mcdonalds were trading at the exact same forward multiple is that right . Im going to say no. I think google has better Growth Prospects you almost said mcgoogle. Marks is talking about these periods of times weve gotten into in the late 1960s and the late 1990s, there was this market meme that went around, it doesnt really matter what you pay for these companies. And when you look back at those nifty fifty list from the 60s, almost none of them are around its laughable that we thought polaroid and kodak would be the winners of the next 20 years so that is essentially whats going on with facebook we look at their ad model and their grasp of the user base, the internet, and we say, this can never be stopped thats probably not true, but who knows. So i think, marks point on the glamour stocks is probably the most important thing he said in that letter. And thats the part, i think, people should focus on are we getting to the point where weve anointed 50 stocks where it doesnt matter at all what you pay for it, because theyre so great i agree on two respects hes correct and early we have some breaking news on martin shkreli. Meg terrell is live at the federal courthouse in brooklyn with that. Reporter closing arguments in the shkreli trial have now wrapped up going into the fifth week of this trial, expected to be six weeks. Well see if well get that jury today. The judge is now charging the jury, explaining to them their duties and how the law applies to each charge he faces. He has been charged with eight counts of conspirasecurities fr conspiracy to commit securities fraud. So in the defenses closing argument, really trying to paint shkreli as this kind of loveably weird boy genius who is so obsessed with developing medicines for rare childhood diseases that he just sometimes didnt respond to investors when they were seeking to get their money back from him. But saying, overall, he did repay them and then some the prosecution in its rebuttal saying, that doesnt matter. Using the analogy, if you rob a bank and then rob another bank to pay back that first bank, you still robbed that first bank, guy. Well see what resonates most with the jury. We expect they will go to deliberations probably this afternoon. Dont know yet when theyll return a verdict guys, well, of course, bring you anymore news and well jump back to you as we need to meg terrell in brooklyn for us thanks so much heres what else is coming up on the Halftime Report. Next, the call of the day two analysts saying, enough is enough on starbucks. Theyre pulling back on their ratings. Is it time to pour this stock out of your portfolio . Plus, American Airlines ceo, doug parker, fired up and ready to do battle with Qatar Airways, after that Company Announced a move to invest in his company. His first oncamera interview since that news broke is coming up, exclusively on the halftime repor report. Scott wapner and the traders are back in two minutes. I think that shes a very nice girl. You never got the brakes looked at . Oh yeah. No. At cognizant, were helping todays leading manufacturers make things that think and do automatically. Imagine that, a world of new Digital Products and services all working together for you. Can i borrow the car when its back . Get ready, because were helping leading companies see it and see it throughwith digital. Tthats why at comcast,t to be connected 24 7. Were always working to make our services more reliable. With technology that can update itself. And advanced Fiber Network infrastructure. New, more Reliable Equipment for your home. And a new culture built around customer service. It all adds up to our most Reliable Network ever. One that keeps you connected to what matters most. Starbucks taking a hit after posting earnings last night. Our partners at kensho show the stock has dropped 7 or more 11 times since 2005 when sold a month later, its up 10. 22 on average. Tripling the average s p gain. For more kensho, go to cnbc. Com kensho. Now back to scott wapner and the halftime traders all right, stifel and guggenheim both caugutting starbucks today to a hold. Mark is the the analyst behind that call. He joins us now for our call of the day. Mark, welcome to half. Thanks for having me. Were you surprised what starbucks had to say yesterday i guess we werent entirely surprised, considering theyve mussed the expectations they laid out or had trouble, at least, hitting the low end of the last call at four or five quarters now so the fact that the quarter was actually better or at least better than people were expecting and the guidance is even more surprising, but their view of things getting worse suggested that perhaps it was a little bit too good and there were things that they may have pulled forward and the fact that they did what they said around the guidance for the Fourth Quarter suggests a pretty material weakening of trends, depending on how you want to look at it, Fourth Quarter or fifth straight quarter on a yeeyear on year basis. Whats the issue, though . Are we talking, you know, residual mall damage thats hurting starbucks, because of its exposure there i mean, Consumer Sentiments good whats the problem the company would tell you its general retail trends, general restaurant trends, and that theyre still outperforming those, but that overall weakness there is negatively impacting their business and that its not specific to other things that they can control, like share loss or maturation of their business, which is more of where we fall the other point is that u. S. Comps were up 5 you know, mobile accounts for 30 of the business. There were, you know, large concerns, for many, many months about the ability of starbucks to deliver on its mobile orders. Get rid of the mosh pits, et cetera, and some of the traffic jams that were taking place in stores and its taken them a long time to figure it out dont those numbers not suggest that theyve figured it out . I would look at those metrics as a positive im somewhat surprised that the stock reacted as negatively as it did to the comments that the company made well, maybe take a step back, before the mobile transactions comment. So my starbucks reward users, which is effectively a leading indicator of growth for the business, has decelerated in growth and the 8 growth that you saw in those active users this most recent quarter was the lowest rate of growth ever. With a subsection of those, those that are using mobile order, youve actually seen similar trends which is that mobile transactions per story have also continued to decelerate. So it would suggest, perhaps, that those more productive my starbucks rewards members, which are the mobile users, are actually using it less than they have in fact, if you look at those that are not using mobile, the rate of deceleration there has actually accelerated so it would sort of suggest that maybe there is more going on here, perhaps they deny this, but perhaps that there is a share shift going on, if you look at markets line new york or san francisco, perhaps, where there are more independent coffee shops, the people are just simply choosing somewhere else or the fact that theyve simply thrown in the towel on what has been a subpar experience in many ways, in that part of the business mark, i appreciate your time very much. Thanks for calling in. Thanks. All right, what do you do with starbucks i dont think you buy it. Down 8 yeah, i dont think you buy it look, their acquisitions have been horrendous. This is the latest one theyre shutting it down its money thrown out. They recognize that they have to buy some growth and they have failed at buying growth. Coffee shops are eubiquitous everywhere so sometimes people look for new experiences well, not everywhere, but particularly, as mark says, in new york and san francisco, independent coffee shops are literally on every block right i was talking to someone who had 250 locations in the midwest and he was telling me that traffic is way down. Theyre making up on tickets you can only do that for so long so i just dont think that this company that continues to disappoint is worth the multiple that it has. I think if youre going to be a bull on this stock, and this is what the bulls are saying is, look, china is the Growth Opportunity. Fidd if i had to go with that, i would much rather be in Dunkin Donuts where the Growth Opportunity is the entire western half of the United States a lot easier to expand into and understand and thats dunkin brands, not just donuts okay. Great, why dunkin up very different business really . Yeah. Starbucks is Corporate Stores dunkin is an assetlight, almost a royalty business the same product, complete franchise business right so its night and day from that standpoint dunkin got very popular over the last couple of years because theres this new thing where people want to own these types of recurring, assetlight i dont want to use the term tollbooth, but these reliable businesses where not a lot of cash has to go in, and theres this like royalty stream and thats basically what dunkin is youve got the growth kicker, which is where they only have like 20 stores in california theres a huge amount of potential for them to both go overseas and out west, way more than starbucks has, in terms of potential opportunity. Doesnt mean theyll execute well but if they dont, theres always room for an activist to come into this sort of thing theres always a chance for a private equity firm comes into this sort of thing so i think you have that put below the stock, and i think you buy this recent dip in dunkin. Ive been long it for years, ive done well, and im not selling. All right lets go to tobacco stocks today in our blitz tobacco is falling and those stocks are falling after the fda announced plans the to reduce nicotine levels in cigarettes. Theres the space. Altria phillip morris, and eti, all down British American pardon me. Im glad to see it. I dont even know why cigarettes are still legal. Yeah. The costs that they put in society from health care costs, from time lost, its a legal death blow so im glad to see it. Hopefully it does remove the you know, the addiction of nicotine i wouldnt own these stocks havent owned them forever this is why you dont own stocks for yields okay, jimmy intel . Youve got to be happy actually win ham. Regardless of the stock price response, this was a blowout earnings report. They beat on just about everything and guided up fundamentally, the business is doing a lot better now, a couple of thoughts here people are going to say competition from amd, from nvidia, one of those is a true competitor nvidia is a true competitor, but theres room for both companies to exist amd, amd has been shooting blanks at intel for over 20 years miami not worried about that look, at this valuation, with how theyre performing, intel has got a lot more room to run josh, expedia stocks up quite nicely now. Yeah, so, it was kind of a mixed quarter, but they were in the mood to react positively, rather than negatively to this name i would basically say, its in a pretty welldefined up trend it had the opportunity to roll over and break down, but it didnt the buyers came in i dont see if youre long this name, i dont know why you would want to get out of it. It continues to chug along and makes a new high almost every month. Just ahead, retail analyst dana telsey on her top pick among the Department Store stocks oh, boy, jim lebenthall will finally get a little love on this desk. Finally overdue not really. Dont miss, a cnbc exclusive interview with that gentlemen right there, doug parker heres the American Airlines ceo. It is his first interview between the battle between his company and Qatar Airways broke out la mthston whats he going to say twoo well tell you when we come back on halftime. Hey gary, whatd you got here . This bad boy is a mobile trading desk so that i can take my Trading Platform wherever i go. You know that thinkorswim seamlessly syncs across all your devices, right . Oh, so my custom studies will go with me . Anywhere you want to go the markets hot sync your platform on any device with thinkorswim. Only at Td Ameritrade hello, everybody heres whats happening at this hour the pentagon confirming it has detected the launch of a Ballistic Missile from north korea and is assessing the situation. Earlier, japan reported that launch, saying the missile may have landed in japans exclusive Economic Zone in the sea Prime Minister shinzo abe convening an emergency session to discuss that incident the food and Drug Administration says it will explore plans to make cigarettes less addictive by targeting its levels of nicotine fda commissioner Scott Gottlieb making that announcement we need to take a fresh lack at nicotine itself and how the addiction that it causes relates to the potential harm of its delivery mechanism nicotine is by no maeans completely safe and benign as a compound, but a family and populationfocused approach to reducing tobaccocaused disease and death much start with the premise that as far as nicotine is concerned, the problem isnt just the nicotine. The problem is the delivery mechanism. Israels military says that a palestinian was shot and killed after brandishing a knife and running at troops in the west bank. It said no soldiers were injured in that attack it came amid tensions at a jerusalem holy site over enhanced security. Thats the cnbc news update this hour. Scotty, back to you. Sue, thank you so much, sue herrera. Switching gears to American Airlines now shares lower despite a beat on the top and bottom line. Our phil lebeau is live in dallas now with the ceo of American Airlines, doug parker phil thank you very much, scott. Doug, thanks for joining us here absolutely. Thanks for being here. On Halftime Report. Lets start off with q2 numbers. You beat the street on the top of the bottom line, 1. 82 compared to 1. 87. What stood out to you in the Second Quarter we had unit Revenue Growth of almost 6 . Its evidence to us that the investments were making in our product and our people are working. And the customers are showing up, 6 Revenue Growth was, i think, the highlight what i think is interesting is basic fares when you guys introduce these, a lot of people said, here you go. Youre undercutting yourself, youre going to be hurting your margins in the end but youre noticing that about half of the people who buy one of these basic fairs have decided, im going to upgrade to the main cabin seating where there are more options for me. Did that surprise you that you were getting so much traction there . Not so much about what we expected indeed, that product is there for truly pricesensitive customers who only care about price and there are other products that people are willing to pay a little more for were trying to meet the customers needs and desires, so we do have a product that is, you know, really, to match the ultralow Cost Carriers that you can buy. Our product would be better when you get on them. But if you want assigned seating a day in advance or things like that, you buy up and a lot of our customers prefer that. Weve got more questions about your financials. Weh well get to those in a bit, but a lot of people want to find out, where do things stand when it comes to qatar airports and its desire to take up to a 5 stake. Where do things stand right now . Nothings changed since the last time we talked on this. We got an indication of interest from them. They need to go through hsr, to get approval all we know is that they had a 30day they had a filing with 30 days notice at the end of 30 days, they filed yet again. I suspect that means that the doj hasnt yet given them authority, but we dont know so we havent heard anything from them since. Not to beat a dead horse, but your position hasnt changed regarding these guys and the subsidies they receive from their government, not just them, but other persian gulf carriers and the impact it has. How infuriating is this for you, as you run a company battling these guys its not infuriating, its not fair and our job is to make sure that we point out that its not fair and do everything we can to stop them from being able to expand into our markets and take away american jobs. So, were fighting like crazy and well continue to fight. We terminated our cochair with them since the last time we talked, because even though that was helpful to some of our customers, we didnt think it was helpful to American Airlines so, anyway, we didnt see where this all ends up, but the reality is, those three carriers are subsidized by their governments and competing against American Airlines and other u. S. Carriers in an unfair way and it shouldnt be allowed. Ive got one last question and stevewi weiss has a questio for you. This question has come up on the Conference Call today. So many people have looked at the airlines and say, do i look at prasm as being the metric that tells me the strength of an airline. You believe its time that wall street and investors move on beyond that. That there are more important ways to Value Airlines and look at the health of the business. Tell me about that i think we should be valued like other businesses. Look at future cash flows. And value on our expected future cash flows i think if you do that, what youll see is, were very much under value. Wh it feels like to us, the markets still remember the airlines of old and is a little skittish, and not quite ready to believe what were producing today well be ready to produce in the future, so they look at signals, and focus on nearterm signals and overreact to they will, it seems, to us so, thats fine pip mean, those tend to be buying opportunities. We thought we were undervalued before yesterday so now we feel really undervalued over the last couple of days, because the market seems to be reacting to shortterm revenue issues, as opposed to longterm clothes doug, i know steve weiss has got a question for you steve, go ahead. Yes, doug, ive owned your stock since it went into bankruptcy and have stayed there. And that was actually a question that i had, because i agree theres still a tendency to value it on the old metrics and get two skittish around capacity issues, which are temporary. But let me ask you about hedging. Hedging used to be a big thing, almost every airline did it. Now its less of an issue. That means you have to have a view on jet fuel so what would cause you to go out and really hedge again and where do you see your fuel prices going, since its such an important input into your profitability . Well, look, its an important input into our cost into delivering the product and again, we now have a business, unlike the old business, that reacts as other businesses would if our costs of production goes up, you should see fares go up, if our cost of production falls, you would see fares fall thats largely what happened over the last couple of years, weve seen a decline in yields and if they increase, i think you would see an increase in fares, as we should. Its a much more rationale business now we dont feel the need to hedge, because we think we have a natural hedge in our revenue stream and it turns out, in most cases, airlines have gotten themselves burnt pretty badly by hedging, because you end up not matching it with your revenue stream. So were comfortable with where we are we do feel pretty good about the prospect for fuel prices and were not the experts, but we certainly are interested and, you know, it definitely feels like, you know, once Oil Prices Start to rise a libt, more capacity comes on, that pulse them back down hopefully that remains the case, but if it doesnt, what youll see is higher fares from airline customers. Doug parker, the chairman and ceo of American Airlines, thank you for joining us exclusively. Hey, guys, he doesnt have it on, but later ill have him show me his newest piece of jewelry, a world series ring from the chicago cubs nice to be the official airline of the cubs. Nice little perk. Every shareholder should get one of those rings, by the way dont bet on that now to Michelle Carusocabrera with a look at whats coming up on power. Which starts in about 16 minutes, scott battle royal in the white house, health care failing on capitol hill, steve bannon is talking about higher taxes on rich people, really higher. 44 . Whats all the d. C. Drama going to do to your money . Well debate and d. C. Stocks tanking on the news that the fda wants to cut nicotine in cigarettes plus, the ceo of todays redhot ipo red fin is going to join us live that stock popping today its up over 30 right now big show on tap when we see you at the top of the hour on power t dont move, because that haveti Halftime Report is bra right after this for your heart. Your joints. Or your digestion. So why wouldnt you take something for the most important part of you. Your brain. With an ingredient originally found in jellyfish, prevagen is now the number one selling brain Health Supplement in drug stores nationwide. Prevagen. The name to remember. Wear back on the Halftime Report. Troubled retailer jcpenney down more than 30 this year. It is on a tear over the past month, though, up 19 . Today, a bullish call for that company. Telsey advisorys, dana telsey, calling it her top pick among traditional Department Stores. Shes with us on the phone dana, welcome back thank you very much nice to be here. If you could see jim lebenthals face right now, its like eartoear smile on this mans face ill give it to you in just a second why jcpenney and why now hes an investor and weve given him such a hard time on this name weve just put our backtoschool piece, and its the second most important time for the Holiday Season and they have a lot of catalysts for the this backtoschool season whether its the initiative they have with storeephorasephora, w, certainly, theyve revamped their private label brand, city streets, which is now more fashion focused. Their backtoschool promotions just began and certainly, what weve been seeing from our feet on the street checks, it is been nus g encouraging. So the stocks been down and i have catalysts ahead and i think a lot of the Department Stores, weve seen pressure on them, whether its macys, obviously, nordstrom had to go private catalyst thats going on but i certainly have a stock thats come down in jcpenney, thats improving apeae ining ap optimizing their base. Jim, the floor is yours you do your channel checks, i do my channel checks it may sound a little silly, but i love doing them. I was in a Jcpenney Store this past weekend in michigan and ive got to say, i was really pleasantly surprised at the amount of traffic. But one area in particular, which has been ground zero for the amazon effect, has shown signs of coming back, at least in what im seeing and thats womens apparel and handbags of all things look, im just observing there were a lot of people in that area. Im curious, number one, in youre seeing that and number two, if you think thats real or maybe just an aberration lets just take it lets tak space . You can be broader than Department Stores. When youre talking about handbags, take a look at what coach has been doing the innovation weve seen in coach sim preis impressive. Theyve been able to add to their portfolio with kate spade. I dont its all handbags companies because weve been seeing troubles. Yes, i do think theres improvement there. When you talk about womens a fairly, guess what little bit high waisted denim jeans or jackets, there as couple new trends out there. What do you think of management the new cfo, thats kind of a big hire coming from walmart and darden its a big hire i know him weve spent time with him in the past extremely capable. I think very focused on enhancing the business i think the sense of urgency is there. Dana, thank you so muchfor calling in ill save jim the thank you from him as well. Well talk to you again soon i know weve ridiculed you a lot. But you got some backup and some good back pup. Stocks up let me make one final comment from me. I im sure steve is chomping at the bit because hes steve you have no idea. You look at what analysts are saying this year theyre calling for 2. 8 decline in same store sales. The company is saying same store sales minus one to positive one. Thats of the last Earnings Call the verbage from marv ellison is a lot more positive than this. If you get a positive same store sales and the street is calling for down 2. 8 , this thing is going to spring back like youre not going to believe i dont know if youre shorted or you want to make fun of me, but this is not the place to be short the stock. Jim, seriously, getting dana, you know, behind a stock thats gotten banged up has to mean something. I know how much you respect the work that she does i have huge respect for dana, but right now im going to turn it over to josh. Im trying to come to grips with the vision of jim hanging out on the weekend in michigan in the womens section of jc penney i cant so josh, ive got to turn it over to you. Ive got to give him props for doing channel checks im assuming it was a channel check. I saw there across officer, you dont understand, this is a channel check, im on the Halftime Report. Stocks ripping. Thats good for half of a percent. Theres nothing going on here its going to rollover Sears Holdings had the same exact bounce this is covering the entire retail sector. Hit a low in june. Somebody came out and said were going to do a triple short of retail stocks. That probably was a short term low. Sentiment was out of control negative now youre seeing Short CoveringSears Holdings is up were look at fundamental stuff and were making up the story to price action here we go right now before you do that. If by the end of the year s a stock above 6 or below it i would say its shy of danas 7 target so 7 is the line in the sand for us then im an idiot and it was a 5. 5 stock and you could have ridden to 7. To me thats not worth the risk. Below 6 and jim has a whole new wardrobe hey, real quick, on the sears commentary, because those two stocks get lumped together and theyre really not i agree one is not as bad as the other. Just to distinguish it, three year debt on jc penney trades a 5 1 2 scott has had enough. That was good stuff. Well take a quick break. Well come back. Were drowning in information. Where, in all of this, is the stuff that matters . The stakes are so high, your finances, your future. How do you solve this . You dont. You partner with a firm that advises governments and the fortune 500, and, can deliver insight person to person, on what matters to you. Morgan stanley. Theextreme risk of burstd a pipes and water damage. Y. Soon, Insurance Companies wont pay for damages. That is, not if they can help prevent damages from happening in the first place. At cognizant, were turning the industry known for processing claims into one focused on prevention with predictive analytics, helping them proactively protect the things that matter most. Get ready, because were helping leading companies see it and see it throughwith digital. Welcome back this is it there is snap down 2 . Its your last chance to trade this stock before mondays lockup expiration. Ive owned for a little while now. You never know how this goes you would think that its been so well advertised that its in the stock. But on the other hand, you know, maybe some selling comes out so i sell things to fundamentally flawed company advertisers know that the stocks been trading down, that the sentiments been negative on it, so maybe they dont buy time on it. Give me a final trade, josh i would say watch this red thin ipo im not buying it today but i want to be in. Pfizer can get a little pop on earnings. Good stuff, guys. Great we could all of you as well thanks, scott heres what is on your friday menu from Great Expectations to no expectations. Wall street no longer holding out hope that d. C. Can do anything but chase its tail, point fingers and curse up a storm. But could that be good for the market meantime, a developing story north korea firing a missile that appears to have been launched in the direction of japan and may have landed in their Economic Zone offshore crude oil closing back in on 50 bucks a barrel will breaking news send oil back down well find out a