Transcripts For CNBC Power Lunch 20130722

Divide. As stocks soar much of the country is still in troubling straits. At what point does name pact the stock market, and at what point does it threaten capitalism . First though to sue at the new york stock exchange. Sue . Good to see you, ty. Gold is having a pretty big day after a pretty good week. Were back above the 1,300 mark in gold, right now its traded up 30 bucks and change. Everybody is watching the Interest Rate, tenyear note at 2. 48 and modest gains for stocks pretty much across the board with the dow up 14 points. The s p up 3 and the nasdaq up 11 and the russell up 3 points, but investors, us a mentioned, do remain focused on the fed. The fed holds a twoday meeting next tuesday and wednesday, taper talk and easing of the stimulus, if you will, will be the hot topic, so now to new insights on what the fed may be thinking ahead of next weeks twoday meeting. Heres senior economics reporter Steve Liesman. After two months of volatility surrounding the announcement of intentions to taper, fed officials now turn their attention to how it will actually taper if thats what they decide to do in september. Their hope doing it in a way that doesnt cause the market volatility that we saw the past two months. Fed officials are likely to discuss everything from how much to taper and most importantly how to communicate those intentions to the market. To answer all these questions including whether to taper at all will be tied to the economic outlook. Fed chairman suggested last week the fed still holds out hope of a second half rebound. That could prompt the fed to reduce its monthly purchases. If the fed does taper in september, amounts could range from 10 billion to 20 billion. You can see the fed has added 660 billion to the Balance Sheets since october. Its unlikely to believe the actual amount that matters very much for Interest Rates. Its the cumulative effect or Market Expectations that matter. How much the market believes the fed will reduce its purchasing over time so the fed is going to think hard about the signals sent by the amount of tapering and the frequency. For example, it could taper every other month and adjust the amount based on incoming data. Ultimately fed officials hope the act of tapering will be less dramatic than the announcement of tapering, but that is far from sure. Tyler . Netflix, as we were just mentioning, reporting after the bell today. The stock is up 221 in a year. Its been a wild ride if youve owned that stock for several years. Last three months the stock is up 50 . Got to like that. After the Company Reports like most companies, it will hold an analyst call. That is today, but this one is a little different. It is going to be hosted by our very own julia boorstin, unpaid, of course, at netflix request. Cnbc accepted the invitation to help make that call more accessible to the palate of investors. To ask the root question. Why do you think they invited you, of all people . They invited me an analyst, btig analyst rich greenfield. Ive been covering netflix for a decade now. Ive first interviewed Reed Hastings back when i was a reporter at fortune magazine, been covering the company for a long time and they asked me to do it because they wanted me to bring a different perspective. Typically in analyst calls, they consist of analysts calling in and having a very simple staged q a and limited to the wall street perspective, but weve been soliciting questions from any investors. Received emails from questions with a very broad range of investors, people who are interested in investing in the stock, to those who may have 10 or 100 or 200 shares, to institutional investors, even hedge funds who in an analyst call traditionally would be afraid to call in with their questions because they wouldnt want to reveal their position or what their approach is to the stock so the idea here is to real make it an open call and have a pretty wide range of represent perspectives represented . They have put no restrictions on anything can you ask, no restrictions on whom can you recognize and the questions you can bring into the conversation, is that true . Thats right, tyler. No restrictions at all. In fact, one of the reasons why they wanted me to do this is so we could ask followup questions. Traditionally with analyst calls, very much a question and answer format. Here i can ask as many followups as i like. Julia, good luck. Well be listening in and well live stream that call on cnbc. Com. Its the netflix analyst call. Thats this evening at 6 00 p. M. Eastern time. Meantime lets analyze as we do in earnings edition, welcome to j. J. Burns. Its funny how you found that name. Hes going to start with netflix. The, as we just mentioned, j. J. , coming out after the bell. Analysts expect 40 cents a share and 1. 027 billion in revenue. The company obviously an impressive year. The best performing stock in the s p 500. Do you like it . Theres the chart right behind you at 266. 39. I would really caution investors at this point that the challenging environment could be very much ahead of it. When you really take a look at netflix right now, youre looking at 85 times multiple. A pe of 88 is usually an invitation for trouble down the road. Certainly caution into the wind but more importantly you have to take a look at the real tax numbers of what netflix is going towards. Thats the customer base. 34 amount of people that are in the business already of broad band and 88 million subscribeers is what netflix has. 134 million broadband house holds out there so how much more is there on the upside . It will shock you and america to learn that my 20yearold son doesnt all the time watch cnbc. He watches netflix, and they have some hot series in addition to the arrested development and others that they are taking to the bank. Lets move on and taking to the bank mcdonalds, missing analyst estimates. We have to put in the fast food chain. People know what america is, they know its a fast food. 1. 38 per share. Analysts expected 1. 40 per share, a twopenny miss and stocks selling down, down 2. 75 . What do you think of mcdonalds . Like mcdonalds on a pullback. Own for longterm portfolios, pretty competitive with the s p. Not knowing whats going to happen with the fed taper and the slow growth environment, are we pushing into a rapid growth environment in the economy . Mcdonalds has performed handsomely well through a time growth and certainly something to buy on a pullback. And the last one, halliburton beatinging the street earning 73 cents a share. Exclusioning items. Take a look at the stock. What the halliburton is going on you . Like it . Its all that gum. Gum . Time. Their gum has gone down, the substance that they put into fracking, a substance which is in a lot of food. Gone up from 1 to 12 to get this substance to actually do fracking. Thats come down. Halliburton is a real big industry leader, also done very, very well to to crimp its costs. We think its a really good longterm buy and will outperform the markets. J. J. Burns, thank you very much. Sue, down to you. Apples main website for developers remains shut after hackers tried to steal sensitive information. The tech giant now forced to overhaul its database and its Server Software to prevent future breeches. Seeing more and more government agent significance under hack attacks. What is the real cost of the attacks to the American Economy . Eamon javers is here with the latest. What do they tell you . Reporter been one of the long running questions in the world of cyber crime. How much does it actually cost . A little bit like the drug trade. You know its out there and you know its bad, but you dont know exactly how much damage its doing because its illegal. Now the folks over at csi, the center for strategic and international studies, a think tank here in washington backed by money from mcafee have done a new study, and they calculated the number and here is the graphic. About 100 billion annual hit to the u. S. Economy, according to csis. They have done this by comparing cyber crime to other kind of crime. 508,000 jobs lost on an annual basis, and they say the Economic Impact here is similar to that have car crashes which they peg at 99 to 168 billion a year and pilferage, thats what happens when stuff falls off the back of the truck, 70 billion to 280 billion and these guys have rejected the survey model and have gone with a comparison model to try to come up with this number but even csis says its a rough guess, and their estimate is a little lower than some of the other estimate out there in other places. A very hard number to get your arm around, but they are saying around 100 billion. Tyler . Thanks very much, eamon javers. Still following a developing story involving the Amusement Park operator six flags. An investigation is continuing into the death of a woman who fell from a 14story roller coaster near dallas over the weekend. Separately six flags also missing wall street estimates on its profits this morning and the shares are under pressure, presumably from both of those matters. Jackie dangelis is following the story for us. Reporter good afternoon, tyler. A tragic accident on six flags friday evening. A 52yearold woman was thrown from the ride throwing her to her death. She expressed concern about her safety restraint to the attendant before the ride story, a 14story high roller coaster and right now the park is open but the texas giant is closed as six flags investigates the matter. James Reed Anderson addressed the issue up front as soon as the companys Earnings Call started this morning saying that management joined the call with heavy hearts as they are working through this tragic event. Now six flags Second Quarter earnings did miss the markets, the company citing bad weather in the east and also midwest as issues were dampening that attendance rate. Some analysts expressing concern that this accident could have a Chilling Effect for six flags and other theme parks next quarter. The International Association of Amusement Parks and attractions say the likelihood of being seriously injured on a ride is 1 in 24 million but this particular park saw an accident on a water ride that killed one person in 1999. Just this weekend at a Cedar Point Park in ohio seven people were injured when a boat flipped over due to a ride malfunction so clearly a lot of issues to look into, sue. Absolutely. Thank you so much, jackie. Appreciate it. Theres been flash flooding in arizona forcing rescue workers to be on their toes. Incredible video. More of it coming up in two minutes time. Plus, detroits bankrupt could have major ramifications for the art world, our wealth editor robert frank is on the story for us. Detroit owns some of the most valuable artworks in the world including pieces by diego riva and rodin, and some worry it could be sold after the bankruptcy and more on the collection, the controversy and the beautiful paintings after the break. At 1 30 eastern time, the great divide. Stocks are soaring, but unemployment and underemployment remain serious problems. At what point will that start to impact the markets . We want to hear from you today on that topic. Go to facebook. Com powerlunch and weigh in. In a world thats changing faster than ever, we believe outshining the competition tomorrow requires challenging your Business Inside and out today. At cognizant, we help forwardlooking Companies Run better and run different to give your customers every reason to keep looking for you. So if youre ready to see opportunities and see them through, we say lets get to work. Because the future belongs to those who challenge the present. Check out these amazing photos coming out of arizona. Two men plucked from a tree trying to escape floodwaters near phoenix. They were hanging on for their lives as the Rushing Waters streamed by. It appears they were in a dry creek riverbed which quickly filled with rain water from the mountains. Not the only ones that needed help. Crews across the area rescuing stranded drivers caught up in those fastmoving floodwaters. Sue . Wow, ty, amazing video. The economy is front and center for president obama this week as he hits the road in a campaignstyle tour of the midwest. It comes ahead of some key battles over the federal budget and the deficit ceiling. Wednesday the president will lay out his agenda to revive the u. S. Economy, and we have a very special edition of power lunch thats coming up in just a couple of minutes to address, that calling that the great divide because while stocks have been doing quite well hitting record highs, unemployment is still a huge problem and Many Americans are hurting. We have forever been split into two economies perhaps. Thats what some are saying, the investor class and everybody else and when will that hit stocks and perhaps capitalism. All of that is straight ahead . Ty, an interesting conversation at roughly half past the hour. By now you know that detroit has filed for bankruptcy protection and a fight is already forming and its going to be a furious one over one of the citys most prized collections of art in detroit. Robert frank has been covering the story for us. Robert . You know the art thats owned by the city of detroit, its estimated to be worth at least 1 billion. Some say it could be worth more than 2 billion. Collection of the Detroit Institute of art includes a van gogh that could be worth more than 100 million alone. Collection includes this rembrandt from 1640 called the visitation, very famous piece and a classic monet from 1886. The institute has works by picasso, matisse, you name, it they probably got t. Emergency manager kevyn orr asked for an indiana ven try of the museum saying everything is on table in this bankruptcy. Christys, the auction house, sent a team there in may and the talk of selling this has sparked an outrage from groups and museums. They say the collection is held in the public trust for the public and has to be protected. Ultimately this will be up for the courts to decide. A tough decision, do you want picassos or your pension . Thats what it may come down to, very interesting choice. Yes. The s p 500 has hit another alltime high and is Goldman Sachs artificially raising the price of aluminum . Stocks are near record highs, but unemployment and underemployment are serious issues weighing down the American Economy. Does the great divide threaten capitalism in the usa . Go vote in todays finance. Yahoo. Com poll. Results are coming up on power lunch. I want to make things more secure. [ whirring ] [ dog barks ] i want to treat more dogs. 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It grabbed the patients record before we even picked him up. It found out the doctor we needed was at st. Annes. Wiggle your toes. [ driver ] and it got his okay on treatment from miles away. It even pulled strings with the stoplights. My ambulance talks with smoke alarms and pilots and stadiums. But, of course, its a good listener too. [ female announcer ] today cisco is connecting the internet of everything. So everything works like never before. The s p 500 hit an alltime high a bit earlier. Bob pisani follows stocks down here on the floor of the new york stock exchange. For the bulls, a good way to start monday. And for all of the complaints about crummy earnings growth. Right. That nobody wants, 2 or 3 and slow global growth, we are seeing tremendous amount of money continuing to come into the stock market. Take a look at the dow industrials. My point here is last week we had numbers indicating that there was huge inflows into stocks and thats continuing, best weve had since the beginning of the year. Would be up even more if not for mcdonalds. Thats costing them 20 points. Take a look at Home Builders. People were disappointed on the existing home sales numbers. Lennox international, one of the biggest numbers of heating and air conditioning. Knock them out of the park numbers. Lennox international at an historic high. Pay more attention to a company like Lennox International than the existing home sale numbers. They said residential as well as commercial was strong and both in replacement and new construction as well. Weak dollar, gold stocks and commodity stocks, you can see the steel numbers, and bhp billiton. Regained almost all the losses from the month of june. Dont go out and sell everything because they are down. They are all coming back. True. Lets go uptown to the nasdaq where seema mody is following some of the big movers over there. Hi, seema. Tracking the moves in google and microsoft, both of which fell sharply on friday due to disappointing earnings. Analysts voicing attorney that the two giants have not been able to keep up with the fast evolving industry. Other winners are in the biotech space, moving to the upside. On the losing side, yahoo shares moving to the downside. Billionaire Hedge Fund Investor dan loeb is selling his stake and is resigning from its board of directors. Sue . Time to focus on the metals market. Prices getting set to close and Sharon Epperson is track the action for us at the nymex. Reporter risen pretty strongly in this session, up more than 40 and right near 1,338 an ounce, a pretty big move in the gold market. A lot has to do with, as bob mentioned, the weaker dollar and seeing some institutional buying and physical demand coming back in asia and not that much volume so this is on lighter volume if this runup has occurred. A lot of Short Covering in this marketplace and can you see that from the latest cftc commitment of trader report showing the number of net longs in this market and in terms of what were seeing here just in the last two weeks the rally really underscores the importance of Short Covering in the runup that weve seen. Sue, back to you. Sharon, before we let you go, the New York Times reporting over the weekend that Goldman Sachs is running a scheme to artificially inflate Aluminum Prices by basically buying up warehouses and most metal around between the warehouses, increasing, incremently, the delivery time to customers and the rent collected to store the metal. I assume they are talking about that on the floor today, and if so, what are they telling you . You assume correctly were talking about it today and have been for some time. Nothing new for the metals traders, something they know has been occurring and its very interesting that this article came out and the people are really focusing on this as the Senate Banking committee is about to hold hearing tomorrow looking at whether or not banks should actually own warehouses, oil refiners and power plants, so also the Federal Reserve reportedly looking into whether the 2003 rule that allowed them to have these warehouses, if thats even should still be in effect so all of this is coming at a very interesting time and metals traders are watching very carefully and Energy Traders as well. Thank you, sharon, very much. Lets take a look at the Interest Rate scenario in todays trading session because that is being watched very closely down here. The 2. 5 mark is really key to traders, watch that very carefully, dipped below it on todays housing data. The taper talk is out there once again, some saying perhaps that talk of tapering, not tightening, but tapering was premature last week. They will put a lot of emphasis on the fed meeting next week, a twoday meeting and we will, too, of course. Thats the bond market report. Ty, up to you. Thanks very much. A very special half hour of power lunch still ahead. At 1 30 eastern today the great divide. Stocks are soaring, but unemployment and underemployment remain serious problems. At what point will that start to impact the markets . We want to hear from you today on that topic. Go to facebook. Com powerlunch and weigh in. Ent and experience the connectivity of the available lexus enform, including the es and rx. This is the pursuit of perfection. If then schwab is the placeing your trato trade. Higher level, tdd 18003452550 call 18882849410 or visit schwab. 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Good afternoon, everybody, and welcome. Im Tyler Mattson along with sue here herera. Were looking outside the investor class to see how the rest of america is doing. And in some cases as you probably all know its not so good. Our question is at what point will that take a toll on the rising stock market . We have a series of reports today profiling different sectors where stocks are doing well but the people dependant upon those sectors are not. Diana olick is in washington reporting on the rise in Home Building stocks while many homeowners remain underwater on their mortgages. Jane wells is in el segundo, california, where stocks are at an alltime high but unemployment also remeans high. No sector represents the great divide though like the auto sector. Shares of gm and ford both up about 80 in the last year, but detroit just went bankrupt and thousands of jobs last in the auto sector during the downturn probably will never return. And thats where we begin, with phil lebeau in twinsburg, ohio, just outside of cleveland. Phil . Reporter sue, this rubble and old abandoned building, thats all thats left of a chrysler stamping plant that shut down in 2010. We are in the heart of auto alley, and here in the upper midwest a lot of cities have started to rebound with the Auto Industry, but here in twinsburg they are learning to adjust and to move on without the Auto Industry. Keith mcqueen is still a chrysler man even though hes no longer a chrysler employee. Three years after the automaker shut down its stamping plant in twinsburg, ohio, mcqueen hasnt forgotten the job he loved. Like a lifelong job to get in there and once he did i had made it. Reporter but mcqueen and 1,260 others lost their job when chrysler went bankrupt in 2009. We had some people that really got hurt by this. Reporter as twinsburg wrestled with higher unemployment chrysler went through chapter 11 and started adding jobs at its remaining plants. Were able to add a second shift. Were investing a total of 374 million. Were going to be adding 1,100 jobs more to this plant. Reporter while chrysler is running near capacity and is expected to continue adding jobs around the country, its unlikely the automaker will return to twinsburg with the new plant. As they ramp up production, they will hire additional workers in the plant but wont build new plants for the foreseeable future. Reporter so the city of 18,000 is trying to move on without chrysler. Were struggling. At once big is struggling. I could always look up my back door and see chrysler, and its not there now and devastating to me. Reporter pollutioning the plant meant losing income tax revenue of 2. 2 million, 12 of the citys annual revenue. To make up the loss twinsburg residents raised their income taxes and the city is redeveloping the old chrysler site with new companies. We have a ways to go yet to be completely recovered, but weve made great progress. Im tremendously optimistic. Im a planner. I have to be optimistic. Keith mcqueen is also optimistic. He started own company cleaning corporate offices. He estimate it will be three years before he earns what he made at chrysler, but hes no longer bitter about the Auto Industry leaving him and twinsburg behind. And so ive already run the gambit of being very angry, very bitter, to now im at a point to where ive got to move on with your life. Reporter another sign that twinsburg is moving on. A new Food Distribution company moved into a portion what have used to be the land for the chrysler stamping plant. The owners of this property, by the way, tyler and sue, saw all of this rubble and new businesses will start to move into this area by the end of this summer, slowly but surely twinsburg is getting back on its feet without the Auto Industry. Guys, back to you. Phil, thank you so much. Now to the aerospace and Defense Sector at record highs. The index is up 46 in the last year, and look at the gains for just this year for northrup, up 30 , lockheed up 25 and General Dynamics 21 , but for defense workers they are not doing as well. Automation and cuts by the pentagon taking its toll. Jane wells live outside el segundo outside of los angeles for us. Reporter el segundo was built on defense, a lot of history here. Ive had family who has worked in the industry but today defense secretary hagel saying the costs run sustainable. More cuts are coming and many fear they will join those who have no pay at all. The u. S. Defense industry is doing Amazing Things in the face of budget cuts, landing the first unmanned plane on an aircraft carrier. Building a jet so advance it had could dominate the skies for the next half century, stock prices are surging higher, boosting the market and making shareholders happy. Joseph thomas isnt one of them. Ive had to restrap the gas tank. It had a ratchet strap holding it up. Reporter hes the other side of the Defense Industry driving a beat up old truck on craigslist for 700 buck. I ended up here. Reporter at ft. Drum where he transitions into a job fixing computers and like all civilian employees on base this father of two is furloughed one day a week without pay. I tried to get a parttime job at local repair stairs. Nobody could take me saying they couldnt afford it. Reporter the cuts are being felt in the local community and one in five families are impacted. They will sometimes attach notes saying, you know, this is whats happening to me. Im a part of sequestration and can you help . Everyone says dont worry, youll ride it through. Maybe, maybe not. Reporter Darlene Jeffords is a medical administrator on base with a big gap to cover. Between 650 and 700 a month. I dont have that kind of Discretionary Spending in my budget. Tomorrow is my first furlough day. Reporter the police chief heads the union here and is taking on a second job checking i. D. S at a local bar and asked his Mortgage Company for a break. I have a secret security clearance. If my Credit Rating drops too far it could impact, that and if i lose my clearance i lose my job. Furlough friday reporter some are trying to vent through humor. One group at the pentagon even held a furlough friday fivemile run that only went four due to budget cuts. Furloughs are better than layoffs which are happening in small batches at almost every defense contractor in the country. The cuts are needed to keep the companies healthy and profitable, though at a price. This is just going to hurt everybody. Its not going to be nice. Reporter of course, sometimes have you to cut jobs to save jobs. The brunt of this is being borne by the public sector. Defense contractors tell us they have made minimal cuts so far and expect to do more. We should get information on that with this weeks Earnings Call. Lockheed martin reports tomorrow and lockheed stocks he hadding a new 52week high. Back to you thank you so much. Every day we hear housing is coming back. The segment is hyenas Mortgage Rates are rising and many Home Building stocks are on a tear in the last year. Diana olick, as you know, covers real estate for cnbc and joins us live now in washington. Diana . Reporter well, sue, youre right, the housing bulls are out in force. Even if the numbers dont always support them. We learned today existing home sales in june full unexpectedly due to still tight supply. Why are there so few listings out there . Because so many potential homeowners, buyers who might want to move up are stuck in place, owing more on their mortgages than their homes are worth. This as the big banks and big build remembers back to bringing in big profits for wall street. David and heather built their oregon home in 2005 at the height of the housing boom. Were under water because our timing is outstanding. Reporter value of their home was cut in half by the housing crisis. As their family grows, so, too, does their need for more space, so they are now adding extra principal to their monthly mortgage payment. Were doing what we can to dig our way out of the hole the oldfashioned way. Reporter they thought about walking away. I think from a character standpoint thats not an option for us. Reporter as littlejohns dig the stocks of the nations Home Builders soar, up over 200 from the bottom in the spring of 2009. Even with Housing Starts still well below normal levels, wall street is buying into the builders. I think were in nirvana for housing. I feel buying a home the best investment that any individual can make. Reporter about 10 million underwater borrowers and millions more in a near negative equity position dont have that option and every day david littlejohn, a financial planner, watches wall street beaming all the way from oregon. Pretty clear, emphasize repeatedly, that when rates go up youll make a ton of money. I have a bit of animosity towards the way the situation was handled at times. I do think the taxpayer bailed out a lot of banks, im a taxpayer. In many respects ive honored my contract the entire time through, and i look at it and go, well, wait a second here, why am i left with my nose against the glass . Why dont i get the puppy . Reporter its not just the underwater borrowers, the first time home buyers as well. Usually make up between 40 and 45 of the market. Today they are just at 29 because of tight lending and all that cash competition. Back to you, sue. Thank you very much, diana, and thank you to phil and jane as well. At this point, although there are some hopeful signs which phil gave us, its really clear, ty, theres a lot of economic pain in the country right now. Absolutely the case, and a lot of economists who tell us more and more were becoming a country with basically two economies, so our question today in this half hour is how sustainable in the long term is that because were all part of the same economy really when you get right down to t. Former chairman of the Federal Reserve, sue, alan greenspan, warned about this several times while he was in office. In 2007 he said, quote, income inequality is where the capitalist system is most vulnerable. You cant have the capitalist system if an increasing number of people think it is unjust. Next on this special half hour edition of power lunch, two economists with answers on what will happen to the stock market and to the social fabric if the great divide divides the country even further. Plus, you cant have a show like this but the our senior economics reporter Steve Liesman who is reporting on the great divide between capital and labor and what history tells us. Steve . Thats right, tyler. Used to be this kind of divide selfcorrected but we might be writing a new piece of history here. Thats next on power lunch. Stocks are near record highs and unemployment and underemployment are serious issues weighing down the American Economy. Does the great divide threaten capitalism in the usa . Go vote in todays finance. Yahoo. Com poll. Results are coming up on power lunch. Weekdays are for rising to the challenge. Theyre the days to take care of business. When possibilities become reality. With centurylink as your trusted partner, our visionary Cloud Infrastructure and Global Broadband network free you to focus on what matters. With Custom Communications solutions and responsive, dedicated support, we constantly evolve to meet your needs. Every day of the week. Centurylink® your link to whats next. [ lighter flicking ] [ male announcer ] youve reached the age where giving up isnt who you are. This is the age of knowing how to make things happen. 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We are farmers bum pa dum, bum bum bum bum earlier we asked with stocks near record highs and unemployment still serious issues, does the great divide threaten capitalism in the United States . 29 of you say, yes, it does. 34 say no. Capitalism will always be the american way and 37 i guess splice the difference saying something must be done to help the middle class. An impolicist criticism of the way the economy is working today. Welcome back to the special edition of power lunch. The great divide. Reporting on how well wall street is doing and how poorly some parts of the American Economy are faring and were asking the question at what point will that affect the stock market and social fabric. Two economists who have done a lot of work on that question and they will be with us in a moment. First though Steve Liesman on what to learn from the history of economics in this way. Why wall street seems to be doing well and why this has been going on for a while. Globalization is one of them. Had a massive edition of labor. Hundreds of millions and no increase in consumer demand. Decline of onions year. Capital holds all the cards and why the returns to capital have been greater than the returns to labor. Workers do not seem to be training for the veil jobs. Technology, weve always had Technological Development but if really different. Let me give you an example. They each had, come over here, five workers and produces one widget. Lets see what happens if sue has a right idea. What happens. She can now create three widgets with her five workers and tyler, youre out of. Business. Sue might have taken two people over from tylers company. And the other three ties would find a job somewhere else and whats happening now is a step change. A massive change in technology. And this is something weve never seen before so what happens is we dont know what happens to the other workers when you have a step change. Lets move on now and take a look at what i just showed you graphically because it does show up in the data. They all moved together. Lets look at sort of post2,000. Productivity and gdp are going up and employment stagnant. You can go back further and argue theres a step change going on in technology and the effect it has on workers and income. Tyler . Steve. Joining this conversation. Welcome to both of you and welcome to you, steve. Youve done some work on whether objectively there is a great divide economically in this country. Steve just laid out some of the reasons that he sees it. What do you think . Is the divide as deep as we seem to think and what caused it . Definitely as stark as steve presented it, regardless of whether you just look at income before taxes, income after taxes, whether you look at consumption and what people are actually consuming. You know, weve seen income inequality and expand to record historical levels and steve cited some sort of traditional economic and market force type of examples but also very good to point out the institutions, that institutions such as organized labor unions or institutions such as government, where you are raising the minimum wage to keep it up at pace with living standards, right, that we have pulled back on this. Weve made conscious decisions on those of creating income inequality and the latest example where weve made a conscious decision on letting the gap and chas many get rigger. Peter, not only do we have all of these globalization that steve pointed to and that professor rogers just painted to. Basically boils down to the idea that this economy is not generating the kind of growth that would sustain employment growth at the level that we need to employ fully all of those workers. Weve got lots of social fabric promises now inconvenient to keep, see detroit, michigan, and, third, a social safety net that has in part been cut back. Cutbacks in welfare payments, women and children and head start and things like that. Are all of these things coming together to make things worse . Two things to keep inmileperhour. Number up, even though weve not seen the kind of recovery in the labor market than weve seen in the stock market, labor and capital do not necessarily need to be in conflict. This is not a zero sum game and what we have to remember is the thing thats really driving all of this, as steve pointed out, is technological advantagement and globalization. You can do more with less, with fewer. No, no, no, can i correct you. You can do an unbelievable a lot more than you could do before. We used to have incremental changes, but you have and the other point about the move from manufacturing into services, Something Like 1 million secretarial jobs are just gone. Yeah. The number of meter readers, they are gone. Used to be 65,000 in the country and now its down in the tens of thousands. Creative destruction. So its right to say that unless we have some top line growth thats the hope of the future, the continued rise in profitability will not continue and the stock Market Recovery will be soft, but the key question is how are you going to generate the kind of investment that you need to see recovered in jobs and wages . You led me right to the second question. So how can you have a stock market that keeps going up, up and up if a big hunk of the economy isnt . Well, in the short run you can have that, but the question is, as youve pointed out, is this sustainable . And what we need to remember is a rising stock market isnt necessarily good for workers, but a falling stock market isnt good for anybody, and historically whats happened, right, is when the cost of capital falls as the stock market rises we see employment pick up as firms start to invest. Weve not seen investment in the early 2000s one small thing. These things are supposed to correct over time. It may yet happen. It may yet happen. I dont know that we can do it without the help of institutions. Theres a split between capital and labor for every extra dollar of productive and thats been more favor of capital than it has been over many years. Is the social fabric of this country at risk because of what were talking about right here . Big demonstrations in athens and spain and in france. We so far have not seen that because we havent had the kind of us a state imposed there. Is the social fabric in danger . Being stretched at a lot of levels, whether at the lockeral level and up to our state and federal level, very much stretched and whats happening is you have families, many people with the children. The believe was my kid, i myself we play by the rules and we work hard and we can advance. But were not and im getting angry and hurt. And people are very nervous they will fall out of middle class, right, and so this will translate into political chaos, into cultural chaos. One of the things, through my work with united way, we have not seen in the past was just this increase in the number of people who are seeking clinical support in terms of counseling. Well have to leave it there. Mr. Rogers, thank you very much and, peter, always great to see you and steve, pretty god to see you. Your company went out of business. I did, i saw that. Fascinating conversation, guys. Appreciate it, and we have a lot more coming up on power lunch. Well take a quick break and be right back at you. 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Because they know i dont trade like everybody. I trade like me. Im with scottrade. announcer scottrade. Ranked highest in Customer Loyalty for brokerage and investment companies. Coming up on street signs, you just heard tyler and company talk about detroit. Were going to ask if chicago may be the next detroit with its financial concerns. Everybody blaming Mortgage Rates for that dropoff on existing home sales, but no, no, no, no, no. We have what is like will you the real reason home sales fell. Plus, the next big thing which is already a big thing but may become a bigger thing soon. The answer to that mysterious tease and more when street signs comes up in just a couple of minute. More power lunch next. [ kitt ] you know whats impressive . A talking car. But ill tell you what impresses me. A talking train. This ge locomotive can tell you exactly where it is, what its carrying, while using less fuel. Delivering whatever the world needs, when it needs it. After all, whats the point of talking if you dont have something important to say . If you dont have something important to say . We replaced people with a machine. R, what . Customers didnt like it. So why do banks do it . Hello . Hello . if your bank doesnt let you talk to a real person 24 7, you need an ally. Hello . Ally bank. Your money needs an ally. The most Free Research reports, customizable charts, powerful screening tools, and guaranteed 1second trades. And at the center of it all is a surprisingly low price just 7. 95. Ask a. Okay. Well, the modest advances in the dow anyway have led to a decline of about nine points. Were in the negative on the dow but the s p, nasdaq and russell on the plus side. Biggest s p 500 winner is newmont mining. Back over to you. That does it for this edition of power lunch. Street signs begins now. Should you boy, sell or hold the Housing Market . Well dig into the real reason home sales dropped and why it may not be a bad thing. The latest on the fight to stop detroits bankruptcy from going forward. Will it work, and the adds that another big midwestern city, chicago, could follow in detroits path. Plus, the next big thing thats already a big thing but may become a bigger thing, and what everybody is doing that has some market watchers getting a little rv