Transcripts For CNBC Power Lunch 20150423

Performers in the s p and google and microsoft both reporting in three hours time from now. Plus the water crisis in california. Beverly hills making a big move in the last few hours. Were spending much of our time in the golden state covering the Economic Impact of this severe drought. By the way, that is where we find Brian Sullivan. Hes right off the 5 just northeast of los angeles in castaic castaic. How are you going . Reporter im going all right. I think im going better than this reservoir here. This is a major crisis in california and the Economic Impact too, not just environmental, cannot be overstated. Los angeles today saying it is going to rewrite the water rule book cutting landscape watering to two days a week from three. Officials are debating what parts of los angeles are worth spending water money on and which parts are simply not. Too far gone already. Beverly hills, the posh enclave issuing its open water rules. Fining Property Owners 1,000 each for water violations for things like filling swimming pools and washing cars with drinkable water. How do we solve this crisis and what is the exact cost . Difficult to calculate this drought, but this is into the multi billion dollar range. Certainly tens of thousands of agricultural jobs already cut due to the drought with likely more to come. California, of course not only has the biggest farming economy in the u. S. , it has the biggest manufacturing economy in the u. S. It is the biggest state economy in the u. S. And the eighth biggest economy in the entire world if it was its own country. Jane wells is live in San Diego County with a place, jane they are hoping might be able to help solve some of this crisis. Reporter hi brian. Right behind me is the largest desal nation plant ever constructed in the western hem fear. Were starting with big farma with an f. California farmers feed the world. There is a huge fight between them and residents because city dwellers have to cut back their water, farmers dont. People are going nuts over almonds. It takes one gallon of water to make one almond. What do the farmers say, especially sips most of those nuts are exported. If City Residents have to cut 25 , why dont you have to cut 25 . Unfortunately, were in the federal irrigation district. I know weve taken criticism in the last couple of weeks that the farmers arent doing their fair share. I will tell you two years ago we got 40 of our water allocation. Three years ago. Two years ago we got 20 . Last year we got zero. Reporter could some of your groundwater be pumped to go to cities . In other words, take it away from these trees and send it to people who need to drink water . Well ultimately people will always have the first call on water and in an extreme situation im sure that up and down the state, groundwater pumped resources would somehow be delivered to incorporated into the aqueducts and moved for people for not only health and safety but just for general consumption. Reporter do we need 6 billion in almonds . Wed love with fewer almonds. Everybody could live with fewer of every crop im sure. But almonds are in such demand not only in the u. S. But around the world. Its kind of ironic that now we are actually growing crops that are in great demand for the market around the world and that were being criticized because were growing crops that are now exported. Its a little frustrating. Reporter now mark borba is not going to pull out any trees but he is instead not growing other crops like lettuce. In fact farmers have fallowed a half million acres but thats only 2 of total cropland. Back to you. All right, jane thank you very much. Much more jane wells, throughout the next couple of hours. Weve got a live farmer will be joining us as well. Hell tell us what he thinks the problem is and how we can maybe solve this. Vertical farming is another way to deal with the drought. Traditionally this is done inside where crops are stacked on top of each other and grown with artificial light. Here in california one farm is taking the indoor idea outside. Eric cutter runs a vertical farm in irvine california where he says plants are thriving using 50 less fertilizer and just a fraction of the water. If we scaled it out to one acre it would actually hold about 100,000 plants versus 26,000 plants an acre in a typical orientation on a conventional farm. So what youre getting is about four times the yield. This is all hydroponic. Were using 70 to 80 less water. The strawberries are growing in coconut fiber. Were growing outside which makes it a little more difficult in the sense that we have all of what nature can throw at us but this system has a lot of promise. Reporter vertical farms also have lower initial capital costs as well. Think about it no need for tractors no need for other big heavy equipment. Well have much more from droughtstricken california coming up all through the next two hours of power lunch. Were talking to a fire guy, weve got a farmer well talk about the economics of water. And you know being from australia, all about droughts. You guys have had your fair share as well. We always have our fair share of everything like that. Right now of course massive flooding, the complete opposite of the drought problem going on in southeastern australia. Okay thanks very much brian. Thanks, jane. Well get back to you very shortly. Lets take a look at whats happening in the stock market. Theyre moving higher with the s p 500 currently sitting at 2118. The record close was 2117 actually were sitting right now so we have today surpassed that high. The nasdaq however, is the really big story here. Its near an alltime high going all the way back to the year 2000. Bertha coombs is tracking it at the nasdaq for us. This has been a story 15 years in the making which i would have never thought. Whats really moving things right now, biotechs the usual suspects are very strong. Biotech up nearly 1 . Apple up nearly 1 . Apple started to move higher ahead of its earnings next week. A lot of folks watching to see what kind of dividend payout it will do what kind of buy back it will do but the heavy lifter today are the big caps. Weve got alltime highs on like oreilly automotive, dollar not impacting them citrix also beating, ebay strong and comcast surprisingly strong today despite of the fact of potential headwinds with an fcc hearing looming. Also were seeing the chips today ironically being the big drag. Qualcomm texan, Texas Instruments disappointing thats dragging down the sector. Yet were seeing the nasdaq potentially at a new alltime high close today. Part of the reason is that this year the heavy lifters have been the big cap tech stocks. They are up about 6 or so. But small caps have started to catch up. In no small part because of biotechs. Take a look at the biotech gains year to date. That is one of the big drivers here. Of course mandy, the story there is all of the consolidation. Back to you. Thank you very much bertha. Well it is the busiest day of the earnings season so far. More than 50 companies in the s p 500 are coming out with their reports. Airlines among them. Southwest, united and alaska the big ones to watch today. United is down by 2 . The other two up by over 1 . Phil is our man on the job breaking down the latest results in the airlines. How are they looking . Despite the mixed reaction were seeing both earnpost earnings, the numbers exactly what you expect. Strong demand and lower jet fuel. Yes, we might look at the Airline Stocks and say, well sort of a mixed reaction people should be more excited about it. Remember, these guys have had a heck of a move already. Look at these First Quarter numbers. Three things driving it. Youve got strong demand. You look at revenue per available seat mile and its extremely strong. Youve got lower jet fuel costs. So on the cost side of the business things are looking good. The First Quarter is sometimes where the airlines can get trimmed up by major winter storms having big impacts on the bottom line. Yeah we saw some storms but it was not a huge impact. I want to show you the shares of american airlines. Why are we putting these up . Because tomorrow american will be reporting. If you look at american over the last year its had a heck of a move. This has been paying off for ceo doug parker. Now, mr. Parker has taken the unusual step of foregoing his Cash Compensation for next year and he instead will be paid in stock. Now, some people say, ive seen this before in the tech industry. Yes, when the stocks go crazy in the tech industry. We never see this in the airline industry. But doug parker has been a big believer in you know what you hit your performance targets investors will reward you. Thats what were going to be looking at tomorrow. American airlines when it reports earnings a big week for the airlines mandy. It is a very big week for the airlines. Coincidentally alaska air is the pick of one of our guests later on today. Okay. After three strong months of gains, new home sales are just running out of steam, posting a sharp drop today. A temporary blip or a sign of things to come . Thats all coming up. First, lets get back out to brian in california. Bri. Reporter all right, mandy, thank you very much. Folks, you can see the low water line behind us at castaic lake northeast of los angeles. Its a Recreation Area but also an important reservoir. You can see i dont know if you can see or not. We are a couple hundred feet below the normal level or the peak level as well. It just goes down down down. Big money, not just Environmental Issues are at stake, big money as well from agriculture, manufacturing, et cetera. Big money. Power lunch is live in the heart of the california drought, the worst in decades. What it means for everything from the upcoming wildfire season to the way people live their lives in the golden state. Plus the business side of the story. Where you find problems you find people searching for solutions and opportunity. More live from california coming up on power lunch. Female announcer sleep trains interest free for 3 event is ending soon get three years interestfree financing on beautyrest black, Stearns Foster Serta Icomfort even tempurpedic. Plus, get free delivery, free setup, and free removal of your old mattress and sleep trains 100day low price guarantee. But hurry sleep trains interest free for 3 event is ending soon. Guaranteed sleep train your ticket to a better nights sleep welcome back to power lunch. Comcast shares trading up 2 . Investors seem to like the idea of comcasts Time Warner Cable acquisition falling apart thanks to the potential regulatory roadblock. Why . Comcast faces for breakup fees. The cable tv business has become less appealing and opens the door for comcast to make other acquisitions. Now over to brian in castaic, california. Reporter thank you very much. All across california, Fire Agencies are now gearing up for what could prove to be a very long and a very challenging fire season because after years of drought, the states wildlands have plenty of fuel. Dead trees, bone dry grasses and shrubs. We visited a Ventura County Fire Department where theyre adding firefighters ahead of the wildfire season. Were going to sevenday staffing and bringing on those Additional Resources that we use to carry us out through the fire season. The large fire Growth Potential because of the drought and the reduction in snowpack all of those fuels at a Higher Elevation that are not normally available to burn are available now, because we dont have the moisture in there. Reporter and coming up in a few minutes, we are going to be speaking with a top firefighting official from this area right here in Southern California. Were going to get the game plan. Indeed, mandy, if there is one, because you also generally need water to fight fires. You absolutely do. Thank you very much, brian. Well get back to you shortly. Very scary times. Well shares of General Motors are falling about 3. 8 on weak earnings. The auto giant missing on both the top and bottom lines. The company hurt by lower demand in russia and in south america. Dunkin brands is up 8 and on track for its best trading day since its ipo all the way back in 2011 not so far back. The doughnut chain beating its earnings expectations. Plus pepsi beat profit estimates thanks to growing demand for its free throwitolay snacks. New home sales dropping to their lowest level in more than one and a half levels. What happened, diana . These are actually contracts signed in march, not closings so warmer weather did not bring buyers down. Sales down 11 monthtomonth but that was after a pretty big upward revision to february. Sales are up over 19 from a year ago but last year was pretty awful for the builders so an easy comp there. Prices are the bigger story. The median price, 277,400. Thats a drop of a little less than 2 from a year ago. This is where the builders are stuck. They have been pricing high because they say thats their buyer base and their costs are also high. But todays buyers are becoming increasingly price sensitive. Even in a tight market for listings, they will not overpay. More online of course. Mandy. Thank you very much diana. Amazon and google are gearing up to report their earnings. Amazon stock is up 25 this year. Google is higher by only about 3 . Should you buy them ahead of the results . What you need to know before you make that trade. Power lunch is back with all the information you need in two. You used to sleep like a champ. Then boom. What happened . Stress, fun, bad habits kids, now what . Lets build a new, smarter bed using the dualair chambers to sense your movement, heartbeat, breathing. Introducing the sleep number bed with sleepiqtm technology. It tracks your sleep and tells you how to adjust for a good, better and an awesome night. The difference . Try adjusting up or down. Youll know cuz sleep iq™ tells you. Only at a sleep number store where youll find the best buy rated mattress with sleepiq technology. Know better sleep with sleep number. Welcome back to power lunch. Im Brian Sullivan at castaic lake. You look at the water usage. About half of it is used on landscaping. What if you could use your used water from your home the gray water that you use in the shower, and yes, even the toilet, and convert it to feed your landscape . Gray water is basically water in your home thats from the showers and from your laundry. You can reuse it on site for things like flushing your toilet or irdebating your landscaping. We call it for example, showers to flowers or laundry to landscape. Reporter the system is mostly used in the construction of new Single Family homes. Heres one simple way. Used washing machine water, they are converting that to feed the lawn. This is a system that everybody can use. It has just the water coming out of the wall and then it goes into a filter bag. It fills up the tank with filtered gray water. Controller turns on the pump and sends the gray water around to the irrigation valves and irrigates just like a regular irrigation system. This is extremely cost effective. Reporter a lot of people thinking, okay how can i do that . Youve got to switch over and the process costs about 2500 for installation and about 5,000 to install it in a newly built home. So the conversion is about half the new install. After the initial up front cost hes saving 40 a month so it adds up right . Well talk more about this gray water usage on dorms, commercial properties as well. We wont get as much into the toilet aspect just because this is a family program. Back to you. Well, for a very long time places like singapore, which believe it or not do have a shortage of water, Drinking Water despite the fact that its a tropical country, its been drinking reconstituted sewage for a very long time. I used to drink reconstituted sewage. Of course its been treated, its completely safe to drink. Its psychological when you think about it, oh my god, its reconstituted toilet water, but you know what, youve got to do what youve got to do. If you dont have enough water, thats what happens. Well get back to you very shortly. Dont screw up your nose brian. It was a scheme that prosecutors say netted hundreds of millions of dollars. 25 doctors have already pleaded guilty and many more may be charged. Andrea day is here with crime punishment. This is still a very active investigation and now the mastermind who is literally out for blood is about to learn his fate. Take a look. Youre watching some of the most soughtafter cars in the world go up for sale. The vintage lot raking in millions at auction. 400,000 but its the man behind them that has the feds on overdrive. He had a lot of money to throw around. According to court documents, david nick ol spent millions getting cars fancy homes, chartering jets buying football tickets, even shelling out 150,000 at one strip club. All that cash was literally blood money, coming in from illegally sticking it to medicare and private insurance companies. He found this fraud scheme very profitable. Health and Human Services special agent in charge Scott Lampert speaking exclusively with cnbc about the case thats still under investigation. This was in excess of 200 Million Health care fraud scheme. One of the largest ive seen. The scheme being run out of this blood lab in new jersey. David nicole at the top. A relatively small lab, seemed to be responsible for a large share of the business in the state of new jersey. Lampert says thats because bls was paying doctors thousands of dollars in kickbacks to send blood work to the lab. The corrupt physicians ordering tests for their patients whether they were needed or not. This lab was paying 150 to 200,000 in kickback payments. There were a dozen physicians that actively participated in this scheme. And he says nicole his brother scott and the bls team worked hard to keep the bribes under cover, in some cases creating sham lease agreements to make it look like bls was paying doctors for space in medical offices instead of for blood. He was very concerned with the amount of money he was bringing in. He did whatever he could to make sure that that money was a steady stream. According to court documents, bls took in more than 4 million in medicare and insurance reimbursements from this doctor alone. The physician making more than 700,000 in illegal kickbacks. But david nicole made it clear he had to keep it i cant afford the 40 to 50,000 a month if the girls arent going to be drawing any blood. Well take care of you when you get back. You can count on me. The scheme worked drip by drip with nicole at the top drawing in dozens of doctors. Bls gluerew a whopping 400 . Sending all their patients that needed blood work to one facility, you can imagine the amount of money thats billed and paid for. But he said greed brought nicole down. All fraud schemes will come to an end. Eventually it was davids time. David nicole and his brother, scott, pleaded guilty to conspiracy Money Laundering charges and more but to date have not been sentenced. Dr. Frank san tangelo committed in court he accepted nearly 2 million in bribes. He pleaded guilty to a slew of federal charges and is still waiting to hear his fate. Andrea day, good stuff. Over to Rick Santelli checking all the action at the cme. Whats going on with treasuries. Mandy, you know we have weak new home sales but yet stocks are up and rates are down seem a little counterintuitive. Maybe yes, maybe no. Look at it in the chart of tens. Maybe a twoday chart will give you a better reason. Were basically in a closing range for five weeks, 185 to 198. Were at the top of it. If you look at a twoday dollar index, look whats happening. Were trading below yesterdays lows. Always excites local Market Makers and the fx markets, whats the main culprit, its the strength nft euro number one, and number two, strength in the swiss but all of those impacting the dollar which is also in a range for the last five weeks. Maenld, back to you. A lot of things in a range for the last five weeks or so. Thank you very much, ricky. Couple of big boys amazon and google, set to report earnings later on today. What you need to know about before you trade those stocks and before they report. But now, lets head west once again to brian in california. Reporter when we come back more from california and this Los Angeles County reservoir and why this is spurring some serious calls to action. When the moments spontaneous, why pause to take a pill . Or stop to find a bathroom . Cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. Do not take cialis if you take nitrates for chest pain as it may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid longterm injury, get medical help right away for an erection lasting more than four hours. If you have any sudden decrease or loss in hearing or vision or any symptoms of an allergic reaction stop taking cialis and get medical help right away. Ask your doctor about cialis for daily use and a free 30tablet trial. [ male announcer ] legalzoom has helped start over 1 million businesses. If you have a business idea, we have a personalized legal solution thats right for you. With easy stepbystep guidance, were here to help you turn your dream into a reality. Start your Business Today with legalzoom. Hello, everyone. Im sue herera and here is your cnbc news update for this hour. A french prosecutor telling nbc news that a 25yearold woman has been detained in connection with a plot to attack churches in paris. A 24yearold algerian Computer Science student was arrested sunday after he accidentally shot himself and called an ambulance. French authorities announced yesterday that that call had thwarted a terrorist attack that was planned on a church. Italy and greece released new footage of their coast guard rescuing migrants in the mediterranean sea. Meanwhile European Union leaders arrived in belgium for an emergency meeting and said they will commit more resources to saving migrants at sea. Chelsea clinton praised her mother hillary, at the sixth annual women in the world summit in new york city saying she hopes her daughter feels the same about her when she grows up. The threeday summit highlights the struggles and triumphs of women and girls around the world. Some amazing pictures. A meteor shower turned the skies over northeastern china into a beautiful light show. Reports say there were about 15 meteors visible every hour. Cameras captured those amazing pictures. That is your cnbc news update this hour. Back to you, mandy. Of course there in china its not polluted as much. Theres no way you can see a sky like that in the night in beijing or shanghai but very beautiful. Thank you, sue. Okay well stocks pushing higher up by about 0. 4 of a percent for the s p and the dow, raising their earlier losses. We got some pretty disappointing Earnings Report and soft data out of china, out of japan, out of europe and that was weighing on stocks in early trade. Now were moving up and the nasdaq is in fact trading above its record closing high. Joining us now, ed perks, chief Investment Officer and steve orth, equity cio at federated investors. Gentlemen, you know its been very low volume trade. Its been a little choppy but nonetheless here we are again. The midcaps nasdaq and s p sitting at or around record highs. Steve, where do we go from here . We think were going higher mandy. We think were really about to break out here. The market has been sideways the last four or five months worried about things like the dollar u. S. Interest rates, oil, earnings in the First Quarter and the economy in the First Quarter. All those things are now behind us. The oil is stabilizing, dollar is stabilizing, rates are stabilizing, bad economy is behind us. This earnings season has been forecast to be pretty poor. Actually on average were kind of beating reduced expectations. Would you even say, steve, youre more bullish now than the last time you were on power lunch. We are. We added to equities last week. We actually doubled our positions on overweights and we think between here and the end of the year markets dont go straight up. There will still be volatility but we think we end much higher by the end of the year. Youve got a 2315 target for the s p. Thats a pretty bullish stance. What about you, ed . Id agree with a lot of those points that were made. I think the old saying that the market loves to climb a wall of worry and i think to steves point, the reduced expectations that we had coming into this earnings season has set us up for that the actuality, and i think as you know today is one of the most significant days in terms of Companies Reporting First Quarter earnings. So we have a lot to kind of process. But in general i think were pretty constructive. In particular as we look at it in our multiasset portfolios relative to other options, to options in the fixed income markets. Equities and dividend paying equities in particular. You particularly like utilities, right, ed . Does it not worry you about the potential for higher rates down the line . Yeah it certainly is a concern, but in that sector we first of all, we have very low expectations among investors in that sector. Weve seen a nice pullback better than 10 correction in utilities. Now, we want to be very selective and not necessarily just buy a broad index, but there is an opportunity in utilities. Companies with very good Balance Sheets very reasonable payout ratios in terms of dividends. Thats important in a rising rate environment because were going to see them have the opportunity for Dividend Growth Going Forward and we think thats supportive. And there is this is clearly a kind of a hybrid sector so you also look at it relative to the opportunity in Investment Grade corporate debt. Steve, i see one of your picks is also alaska air, a stock we were talking about earlier on with phil lebeau. Go to powerlunch. Cnbc. Com and see why ed and steve say this may be a good yore for active managers and which of the stocks may do well. Well from conservation to new regulations, what will it take to solve californias water crisis . Jane wells has been looking for answers. Jane . Reporter mandy surfs up here in carlsbad. Look at all that water off california. The problem is its got salt in it. Up next, desallination finally comes to california but it aint cheap. Well have that story next. The city in todays powerhouse is home to the first pizzaria in america. This city has over 722 miles of subway tracks and 48 fortune 500 companies are headquartered here. Can you name that city . [intercom] drivers to your marks. 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With fidelitys new active trader pro investing platform, the information thats important to you is all in one place, so finding more insight is easier. Its your idea powered by active trader pro. Another way fidelity gives you a more powerful investing experience. Call our specialists today to get up and running. Honda getting into the jet business. Honda execs unveiled their latest project in tokyo, calling it quiet, quick and green. Hondas ceo saying the jet adheres to the latest Safety Standards and outperforms competitors like cessna both in fuel efficiency and altitude. The business jet seats seven and is priced starting at 4. 5 million. Okay time for the powerhouse, home to rockefeller center. Yep, were talking about new york city. Boy, oh boy, this is one of my favorite topics in the whole world talking about new york real estate. Lets check out some of the markets. The median sale price is about 387,000 with inventory of over 66,000 homes. Properties are listed on the market for an average of 159 days. So jeremy our first listing is 196 sixth avenue apartment 7a listed for 2 million. Maintenance fees of almost 4,000 but its one bedroom, one and a half bathrooms and 1,300 square feet of living space. Does it also give me a good view sir . Well this is a wonderful penthouse located really in the heart of soho. Its been very well renovated and the terrace is really what the apartment is all about. It offers views both north, south and west. From the terrace you get views of the Empire State Building and all of northern manhattan, which is pretty rare particularly for an apartment of this size. Yeah. Its all about the view all about the terrace, the outside living. Our second listing here is 66 leonard street apartment 6b on the market for 5,750,000. Monthly taxes of 3,034. Three bedrooms three and a half bathrooms and 2,800 square feet of living space. I believe it last sold for 3. 4 million in 2010 so whoever owns it has made a nice little packet on this one. Lets hope so. This is in the heart of tribeca, another very soughtafter neighborhood in lower manhattan. These owners did a very significant renovation to the property after buying it. It has 10foot ceilings its on a corner so it has 16 windows looking north and west. Wonderful light. They have redone the floors so theyre a bleached light ash wood. Very zen, very comma paurmtalm apartment. Its one of the most soughtafter buildings in tribeca. Beautiful finished kitchen, all right. But this is the powerhouse of the week 75 bedford street listed for a cool 12. 5 million, annual taxes just over 26,000 but its only two bedrooms and three and a half bathrooms with 3200 square feet of living space. Its in the village. Its a large property but only two bedrooms jeremy. You know its a very specific renovation. When you walk in you feel like youve just entered the annex to one of the finer fivestar hotels. It was actually designed by a gentleman who had also designed the chateau marmot in hollywood. It has a real hollywood charm to it. There could be a third bedroom converted really easily but as it is its an entertaining space with wonderful outdoors great views, great light. Its a very luxurious property. Its absolutely gorgeous. Look at that a little movie room as well. Thank you very much, jeremy stein. Im drooling i love property. Okay i know another gentleman who likes property is Brian Sullivan but right now hes in droughtstricken california. Brian. Reporter yeah, and heres the sick irony of this drought in california is youve got all this water shortage but off the coast, nearly 200 quadrillion gallons of water. Can woe use that to solve the problem . Jane wells at the first Desalination Plant in california to open up in a long time. Thats when power lunch returns from california. Stick around. Welcome back to power lunch. Im Brian Sullivan in california. One of the ironies of the drought is that the state faces a water shortage. You can see the low level of the reservoir behind us. Just off the coast is nearly 200 quintillion gallons of water. Its expensive and difficult to make that drinkable. Lets find out exactly what it takes with jane wells at a desal plant. Reporter california for years has failed to invest in any water infrastructure, but now everything is on the water table, including desal. This will be the largest Desalination Plant in the western hemisphere and pretty soon it will start sucking in 100 million gallons of sea water a day. Bone dry california sits next to the largest source of water in the world. The pacific ocean. Turning saltwater into fresh is expensive, requires a lot of energy and isnt good for nearby fish, but california is running out of choices. We are standing in the middle of the reverse osmosis plant. Reporter Jessica Jones is showing off the 1 billion Desalination Plant being built which will come online later this year and provide 7 of the water to San Diego County. Well be producing 50 million gallons per day. Behind me is the 72inch sea water feed line. Reporter san diego has agreed to buy the water at a fixed price for 30 years. Water from the Desalination Plant will be about double the cost of imported water. Reporter that means water bills will go up an estimated 6 a month per customer but the plants price will never change and it will never run out of water. The water coming through this pipe will be pushed through very fine filters to remove the salt at 900 pounds per square inch of pressure. If that pipe were to break, water would shoot one mile in the air. Reporter the plant hopes to recapture some of the energy discharged in the process and use it as a sort of tur biepbine to reduce costs. The carlsbad project has been under Development Since the year 2000. At that time we were not in a drought in san diego or in california, but that has changed. And we are coming online at the perfect time. Reporter now, this process does kill fish but jones says not as many as you think and as is often the case with these developments, the damage they do here they mitigate by restoring wetlands down the coast. This may be the first but wont be the last. At least a dozen such projects are being considered or already being planned. Back to you. Reporter all right, jane thank you very much. Lets bring in now two voices with some differing opinions on the desalination process. Robert is executive director and Heather Cooley says desalination is pricey and may be harmful to marine life. Lets join them now. Heather and robert, thank you for joining us. Hert heather, ill begin with you. I understand there are Environmental Concerns its expensive and they can pollute. But proponents would argue those are bad things but dehydration and having no water for jobs and agriculture would be worse. Talk about desalination and why you think its not the perfect solution. Fortunately those arent our two options. Its not desal or no water. We do have a lot of options for meeting our water needs. So desalination is a reliable supply of water. It is drought proof. It produces no matter if its wet or dry, but the challenges are that its expensive and it harms marine life. Its also Energy Intensive and contributes to Greenhouse Gas emissions. I hear you, heather, but i would suspect that a guy like robert and many other people here in california or elsewhere would say those are bad things but not having water is a much worse thing. Well actually but again im sorry. Those arent our two options. Those arent our two options. We have many opportunities or ways for meeting our water needs. So i would argue that we still have conservation and efficiency potential. We still have conservation and efficiency potential in california. We also have tremendous opportunity for recycling and reusing water and theres opportunities with storm water capture. We could be capturing water in our urban areas using that infiltrating groundwater and then using that again as Drinking Water. You know robert too, look at santa barbara. They build these expensive Desalination Plants and moth ball them once it rains. Sydney, australia, has a couple they spent a huge amount of money on they dont use as well and thats what a lot of people who are not for Desalination Plants would point to and say its big, its expensive, it pluts and pollutes and you may not use them. Is it for me . The only way to really talk about desalination is in the context of Climate Change, which is the game changer. Climate change brings severe drought and has us predicting a mega drought could last up to ten years. Our snowpack which is the source of our water in california, is at 5 of normal the lowest in history. A lot of the options that stephanie im sorry, that heather just mentioned are not available. You cant recycle water that doesnt exist and you cant capture water that doesnt exist. So were really in a quandary in california in that if you believe in Climate Change and if you accept that were into a mega drought, that water is not going to be available. Elected public officials, who are dealing with these issues have to make choices about how theyre going to provide water for a state whose population is going to grow to 50 million by 2049 and in Orange County where our organization is by 300,000 in 2020. And when you talk about the impacts and the cost the plant that you had in carlsbad its going to cost less than a penny a gallon for the water, its 0. 005 cents. And the electrical demands have to be compared to importing water north to south. Southern California Imports its water by 50 to Orange County and to San Diego County from Northern California assuming the water exists and the Colorado River, which is the most contested river in the country, i mean people own water in the Colorado River all the way to mexico. And the energy calcs on that can run up to 14,000 kilowatts and the energy costs at the plant is 15,000 kilowatts. So you have to in order to have this conversation, you have to do it in a broad context of Climate Change and what it takes to import water and other forms now, were for all forms of new water. Robert heather please. We are going to have to leave it there. The sad part is were having this debate probably a number of years too late. California, where i grew up down the road here apparently just likes to wait until they have a crisis to hit these hot topics. Heather, robert the debate will go on guys but weve got to leave it there. Thank you very much. All right. So watering lawns, like those green manuscape lawns out in Beverly Hills account for 30 to 60 of all urban water use according to the u. S. Government. But that well manicured lawn once an american status symbol may become a thing of the past at least out west. As governor browns new restrictions hit some of the homeowners, the landscaping business is booming as Property Owners are literally tearing up their lawns and being paid to do so in many cases and replacing them with gravel mulch and drought tolerant plants like cactuses. Eva coppell specializes in desert scapes. She says rebates are boosting business, which has tripled in just the past three years. My business is exploding. The phone is ringing off the hook and people are very eager to get their lawns replaced. If you look at the old gardens in italy and france and through asia, they dont have lawns. Theyre beautiful gardens. People need to realize we live in that climate. When ava told me she was going to put rocks in i thought she was crazy. But it ended up being great. Our bills have gone down for water. We arent wasting as much and now everything that we have in our yard is there for a purpose. You know its there to feed us or its there to bring bees or birds. It just makes us feel like were doing our part in the community to help alleviate some of the stress thats happening with the water drought. Reporter and some realtors say the new desertscapes or naturalscapes arent just about being green, theyre also a selling point for home buyers. A personal anecdote in the 80s one of the houses we lived in growing up had no yard green lava rocks. It was pretty it required no maintenance. Ill tell you this much you did not want to fall down. You did not want to play football or trip because it would tear your skin right off. Thanks a lot, brian. Startling new footage from chile. The volcano erupting for the first time in 42 years. Well bring you the very latest. Power lunch back in two. Honey, we need to talk. We do . I took the trash out. I know. And thank you so much for that. I think we should get a Medicare Supplement insurance plan. Right now . [ male announcer ] whether youre new to medicare or not, you may know it only covers about 80 of your part b medical expenses. Its up to you to pay the difference. So think about an aarp Medicare Supplement insurance plan, insured by unitedhealthcare insurance company. Like all standardized Medicare Supplement insurance plans they help cover some of what medicare doesnt pay and could really save you in outofpocket medical costs. Call now. With a Medicare Supplement plan, youll be able to stay with your doctor. Oh, you know, i love that guy. Mmhmm. [ male announcer ] these types of plans let you visit any doctor or hospital that accepts medicare patients. And there are no networks. You do your pushups today . Prepare to be amazed. [ male announcer ] dont wait. Call today to request your free decision guide and find the aarp Medicare Supplement plan to go the distance with you. Go long. Welcome back to power lunch. Im melissa lee. Take a look at shares of google up today but pretty flat in the last three months. Lets bring in the earnings squad. Tim seymour, john ford is waiting for the numbers and, john Revenue Growth is going to be key since the last quarter they posted 17 , below 20 for the first time in at least two years. Absolutely. And Revenue Growth particularly on google sites. We just saw a pretty big quarter from facebook yesterday. Fell a little bit short but their growth was strong. We want to see are they taking any share or how much share of the display market are they taking from google. And then paid clicks and cost per click. This is always something that we watch where google is concerned especially as a transition to mobile goes on. Analysts say they thought they saw a slowdown in paid clicks so well see if that shows up. If so that would be a concern. Finally, any color on expenses. Of course we know about these fx headwinds that everybody has been facing. Analysts want to see how significant is that. Also weve seen intel, qualcomm saying theyre going to cut back. Its not clear whether they would do the same. We have breaking news here. We want to go to eamon. The United States senate is voting as we speak on the nomination of Loretta Lynch. She is the u. S. Attorney for the Eastern District of new york to be the attorney general succeeding eric holder. She was nominated by president barack obama back in november. She cleared committee in february, but theres been some delay here in getting to this final vote. Where things stand right now, they do have 51 votes, thats the required amount to confirm Loretta Lynch as the next u. S. Attorney general. Well monitor the rest of this vote and see that it ends up the way that its trending but as of now there are enough votes to confirm Loretta Lynch as the next attorney general of the United States, melissa. Thank you so much. Lets go straight to tim seymour picking up on what john ford just talked about in terms of expenses. A lot of people are looking at the expense line, tim. Youve been long google correct . Yeah and the negativity going into this number is a setup. The capital intensity of the company has gone up. Last quarter you were 20 . People want to see if that was a blip or this company is spending a lot more money. Thats been one of the key arguments against google. We dont know what theyre spending their money on their growth is desell rating. If you look at the risk reward, i see 25 downside versus 5 upside. When i look at the company i think its anythingoverly negative. The eu probe will be something that lasts some time. Its another one of the headwinds along with fx and deceleration in paid clicks. Its in the price. The ad tech world is really exciting for google. Their scale and dominance will push a lot of money to those guys over facebook. Since its march 5th high which was 577 the stock is down about 5 and its been underperforming its peers as well as the nasdaq composite. So the expectations are kind of low. That is true. Youve also got a number of question marks coming up particularly whats the impact of a new cfo coming in. We expect to see that next month. Its an opportunity for google should they decide to say, hey, heres how were going to look at expenses Going Forward differently. Heres how we want to tell the story about growth differently. Dont know if that will happen or even if theyll elude to any of that, but its a opportunity. John, thanks so much. Tim, thanks as well. Meantime mandy will be back in just a bit for trading nation. I will indeed. See you at the bottom of the hour. Well get back to brian in florida california in a moment. But first to the markets. Take a look at stocks moving higher at the hour the dow, s p and midcaps in the grown. The nasdaq is where the action is at. Bertha coombs is at the nasdaq covering all the action there but lets kick it off with bob at the nyse. Bob. And the important thing melissa, is we are at essentially alltime highs on the major indices. Small, mid and big caps. Put up the s p, russell and s p midcap indices and thats where were at. If we stay at these levels wee essentially at historic highs. Were hitting this despite low volatility. This is a new low for the year, they unusual to hit new highs with volatility at new lows. Not much building but builders are weak new home Sales Numbers were below expectations. Pulte had disappointing earnings results. Earnings the dollar is killing revenues for a lot of big companies, 3m dr. Pepper lilly and hershey all reported their revenues were hurt due to the strong dollar. Look at these numbers. S p 500500 earnings down 3 . The small caps though melissa, up 3. 4 because small caps mostly make their money in the United States. Strong dollar really hurting the multi nationals. Melissa. Bob, thanks for that. Now lets get to bertha at the nasdaq. Yeah, huge number today, melissa. If we were to close here it would be well above the alltime high close for the nasdaq. Only 70 points or so below the alltime intraday high. Ill show you that look that bob was showing you before in terms of where the strength is today. Were getting it from the bio biotechs, from the midcaps and the shop caps. The large caps are strong but the nasdaq 100 is the only major index that has not out its alltime high and is still about 5 below because weve been getting the big lift from these smaller names of late. Back to you. Thanks so much bertha coombs. Shares of microsoft moving higher ahead of its Earnings Report after the bell but the stock has been struggling this year, down nearly 7 . Josh lipton is looking at what microsoft needs to do to get its mojo back. Josh. Well melissa, when microsoft last reported earnings remember, on january 26th, executives did tell investors to expect challenges in the near term and those shareholders listened and bailed on the stock, which is firmly in the red so far in 2015. So what can the ceo do to win back the street . In the near term it could be tough, and thats because those same challenges remain in place, specifically a weaker pc market and a rising u. S. Dollar. Now, farther out, its important that windows 10 the new version of the operating system is a hit. Windows still does account for about 25 of the companys revenue. Microsoft also needs to keep the momentum going in its Cloud Business. Its commercial Cloud Business has boasted tripledigit growth for six straight quarters and investors are going to listen closely to what he has to say about controlling expenses. Are more cuts coming in order to boost profitability. So far in 2015 its been a tough year. What he says today on that Conference Call could set the stage for how the rest of the year now plays out. Melissa, back to you. Josh lipton thanks for that. Meantime amazon also reporting after the bell. Daniel with benchmark has a buy rating on amazon with a 425 price target. Guys, good to have you with us. Aram, lets start with you. Finally investors will get to see what Amazon Web Services the Cloud Business of amazon shall is actually doing because theyre going to be breaking that out. Explain what the sort of you know, a big loss is bad but its also sort of good in terms of a read on the Retail Business. Right. Well, what we would look for are three wishes that we have for the results tonight. The first one is that we would want to see aws be very capital intensive. Our concern about amazon is they throw out Free Cash Flow and have not been doing that lately. If aws is the source of the cash hog, then we know the Retail Business is more cash jen rafb than it appears so that would be good. The other thing to look for is ad revenue. Inside the same line item aws revenue shares that line item with ad revenue. That could give us new insight into a new profit stream. Danny, what are you expecting in thames of Amazon Web Services . You make a point in your note that amazon currently has about 30 of the Worldwide Market share of cloud, although cloud has been a business thats seen a lot of competitors get in and cut prices. What are you looking for . Yeah you know i dont think were expecting any major surprises tonight. Well probably get revenue, maybe gross margins. Im not exactly sure if were going to end up getting an operating income number which is the most heavily debated issue. You mentioned that competitors are willing to take losses in this space, but look what happened with paypal last night. Weve heard the same argument in that space as well and paypal reported 33 fx neutral total payment volume growth upon american anlts merchants. So we think the first mover advantage is really critical. Well be really interested to see the historic growth rates for amazon and hopefully theyll offer Forward Guidance so investors can feel a little more assured that amazon is making investments in high growth areas. Overall, do you think that jeff bezos will go back to his spending ways . For me to tell you what jeff bezos wants to do and doesnt want to do would probably be a little bit of pretend on my part. What i think were starting to hear from the company is a sense that theyre on the path towards a little more fiscal rigor and financial discipline. We think that would be a positive trajectory. Got to leave it there, guys thanks so much. Brian, out to you in california. Reporter all right melissa, thank you very much. Our coverage will continue of the california drought, including the impact that it is having on the economy. Stick with us. California is parched. Its the worst drought in decades. When power lunch rolls on more from the golden state as people there brace for the fire season. Plus where investors and entrepreneurs are finding opportunity in the midst of this longrunning california drought. Your moms got your back. Your friends have your back. Your dogs definitely got your back. But whos got your back when you need legal help . We do. Were legalzoom, and over the last 10 years, weve helped millions of people protect their families and run their businesses. We have the right people onhand to answer your questions backed by a trusted network of attorneys. So visit us today for legal help you can count on. Legalzoom. Legal help is here. My name is tony sartorio. Im a lineman for pg e out of the Concord Service center. I have lived here pretty much my whole life. I have been married for twelve years. I have 3 kids. I love living here and i love working in my hometown. At pg e we are always working to upgrade reliability to meet the demands of the customers. Im there to do the safest job possible not only for them, but everybody, myself included that lives in the community. Im very proud to do the work that i do and say that i am a lineman for pg e because its my hometown. Its a rewarding feeling. You see that car way up there . Somebody tried to hide that or drop it in the reservoir. Its been filled with water, its got sand and rocks. Look how far the water line has come down. You can see from the clear lines in the sand and the rock formation just how low the water has come. This was all under water not that long ago. This is now the water line and its only a few feet deep out that way. This is 28 capacity. This is a very important water source for all of Los Angeles County. And by the way, if thats your car, come get it. Im sure some people would like to talk to you. And by the way, there was no plates and the vin number was scratched off. Jane wells, that car has been under water for a long time. Theres all kinds of stuff thats appearing here. Lets continue our coverage of the california drought. Here we are at castaic lake north of los angeles. Lets go even further south here. Jane, youre in a place i went to Elementary School and junior high school, beautiful carlsbad california. Reporter its so beautiful down here. Brian, speaking of things being revealed Warren Buffett likes to say when the tide goes out, you find out who is swimming naked. When it comes to water rights, everybody is swimming naked. There is water in california but figuring out who owns it can be more complicated than a Silicon Valley algorithm. It is so engrained in the california story they naturally made a movie about it. The film chinatown talked about the water wars 80 years ago. 80 years later much of the city still has those original pipes. The infrastructure is collapsing and drought shaming is in full force. The runoff starts at the corner of medina and reporter but nothing may sound so wrong as the rights to water. There are 30,000 claims to it in california, granted to power companies, farms, ranches, agencies delivering water for residences, stanford lockheed george lucas ranch, disney. Up in the middle of the mountains are water rights granted in 1947 to abc. The system is so byzantine the rules are often ignored, and no wonder. There are two types of water in california, surface and ground each with its own rules. For surface water, People Living right next to lakes and rivers have first dibs until they divide their parcel of land and only the smallest remaining parcel has the original rights. Next are people who have rights to have surface water delivered to them and before 1914 have priority after 1914 unless they havent been losing their rights then they could lose them and become junior to the people junior to them. Got that . Me neither. For example, water from the Colorado River flows into california through Imperial County and farmers there have first rights. But this area of 180,000 people takes 70 of that water, leaving only 30 for the millions of people further away in san diego. Then theres groundwater. Before last year there were no state rules regulating groundwater, according to water rights attorney gary sawyers. Finally much of the water is sold to water agencies under contracts with the rights owners, though sometimes the water agencies are the rights owners, sometimes the owner is the federal government. Each contract is different. Get it . Actually forget it, jake. Its chinatown. Now, water rights attorney gary sawyers points out in the end, brian, there are only two universal truths about water rights. One, the water has to be used for reasonable and beneficial purposes and number two, you never own it. You may have the right to it, but the state can take that right away from you and give it to someone else. Back to you. Reporter all right jane wells, great stuff as always. Thank you very much, jane. Well see you in a bit. So just how bad is the Economic Impact of the drought and how bad might it get . Were joined by Richard Howett and jared desazo. Gentlemen, thank you very much. J. R. , is water priced efficiently right now . Absolutely not. At best water reflects some of the local cost of delivering it but none of the true social value of water. What do you mean by that the true social value. What wed like to see is water moved to where its most valued by those who are going to use it. And currently the system of water rights gives water to those who have a legal claim to it but really cant use it to produce things and to enjoy it the most. And so one of the goals that we would have is to create and improve the water markets here in california so that farmers can sell to farmers, farmers to sell to cities and the people that are going to most value the water can express that through the market. You know richard, heres the problem. Again, this comes back to the income inequality debate in large part because water, they say, its simply too expensive to go get it produce it and ship it where you need to go is expensive so water is too cheap. But you cant raise water prices because oftentimes the people who need it the most are the ones who can afford the cost increase the least. Yes, but we need to recognize that water is a commodity. But as j. R. Pointed out and i agree completely there isnt a commodity market. So we needdont change the price but allow people the rights to sell them so they go to more efficient places. We look at power and lets go back to the enron days in california. Were all about free markets here on cnbc but a lot of time you get get disparity and have price spikes. Should water be in more of a free market but yet have some caps so it doesnt go up 500 in price over a year . Absolutely. For instance, in the post enron days we now have an outside called an iso that runs our electric power. Those of us who lived in california since those days noted theres no brownouts. We need an iso for water and its got lots of similarities. You know j. R. If you are going to make one change to the way that california prices water and moves water, what would it be . Well it would be to expand our market framework again. And i think improving the conveyance system so one, theyre more efficient but, two, we can trade water across the state and get it to those who need it most and can use it most productively. That would be the key thing. Ill just point out that if we do that farmers who have the largest rights to water right now will have an incentive not only to potentially share that water but to conserve water by making Irrigation Systems that are more efficient. Many of the folks that study this suggest that farmers without cutting their production, their yields at all could reduce water use by 15 to 20 , which could give cities almost 50 increases in the amount of water they have. Richard, jared, guys thank you very much. By the way, we do have a farmer coming up on the program in a few minutes. I know they feel like they have been scapegoated a bit. Well talk about that. Plus much more ahead on the california drought, including that toll on farmers. Dont forget about the markets, folks. Were at record highs. The price of oil also back above 58. And one mustsee video as one of chiles most active volcanos roars back to life. Youve got to see the video to believe it. Were back with that right after this. Stick around. Before i had the shooting, burning, pinsandneedles of diabetic nerve pain, these feet. Served my country. Carried the weight of a family. And walked a daughter down the aisle. But i couldnt bear my diabetic nerve pain any longer. So i talked to my doctor and he prescribed lyrica. Nerve damage from diabetes causes diabetic nerve pain. Lyrica is fdaapproved to treat this pain. Lyrica may cause serious allergic reactions or suicidal thoughts or actions. Tell your doctor right away if you have these, new, or worsening depression or unusual changes in mood or behavior. Or swelling, trouble breathing rash, hives, blisters, muscle pain with fever, tired feeling, or blurry vision. Common side effects are dizziness, sleepiness, weight gain and swelling of hands, legs and feet. Dont drink alcohol while taking lyrica. Dont drive or use machinery until you know how lyrica affects you. Those who have had a drug or alcohol problem may be more likely to misuse lyrica. Now i have less diabetic nerve pain. And my biggest reason to walk. Calls me grandpa. Ask your doctor about lyrica. Check out this spectacular video coming out of southern chile. Thats the calbuco volcano. Evacuations were ordered for some 1500 People Living nearby. The 6500foot volcano last erupted in 1972. Its considered one of chiles most active volcanos. Brian. Reporter between volcanos and lack of water here im getting a little depressed. Time now for street talk folks. Just because were talking about water does not mean were ignoring stocks. Lets get the Analyst Recommendations of the stocks you must know about that. Stock number one, sketchers. Strong earnings. A lot of analyst comments on skechers. They bumped their target on the stock to 92. Revenue was about 60 million more than the consensus. And there was 50 growth in order bagcklog. This with the 14. 5 pop in todays session, this is a fresh record high. You have to wonder if theres read through to the likes of a finish line. F5 networks dow rating this to neutral. Solid quarter but guidance below expectations on currency. The analyst is concerned about lower guidance and lower growth rate on top of growing secular concerns about the cloud and the ceo change. The valuation does not support a buy rating at this point. The stock is up bri. You know its interesting too because currency now is trickling through. One wonders if currency will bow an excuse but its a large focus in almost every report we have talked about. Stock three, st. Jude medical. This was upgraded to outperform from a neutral. Their target 84 a share. Its about 13 upside. Heres their thesis. They think that st. Jude is going to have a little bit of an easier time because they believe that medtronics recent market share gains are going to eventually taper back off. Speaking of currency they just reported earnings and had to take down their full year guidance because of a bigger impact from currency than expected. So yeah, its going to be a running theme here. Stock number four texas capital. This is an oilrelated downgrade of a texas bank from raymond james. R. J. Cutting it to an outperform from strong buy. First quarter earnings match consensus but fall short of this analyst estimates and said the provision build related to participated downgrades of Energy Credits may spook investors. Given the energy teams recent cut in its ole forecast it is prudent to take chips off the table, especially considering this stock has done decently since february. Yeah and theres been a lot of concern about all the bank debt thats out there. I guess one wonders with oil back above 58 a barrel if the resurgence in the price of oil, up 27 in just three months will ease some of the concerns around the banks and the bank debt. Our fifth stock is an under the radar name. Today that stock is sangamo biosciences. Starting coverage with an outperform. They have a 19 target. Thats about 30 upside. Second day in a row that our under the radar name has been a smaller biotech, biopharmaceutical stock. This is interesting. They are developing treatments for alzheimers, hemophilia and hiv aids. We should note this one has been an underperformer both year to date as well as the past 12 months but a night outperformer today, up 11 . Macys shares action, take a look up higher right now. Coming up next were speaking with macys ceo. But first final oil trades, the crude close coming up when with the power lunch comes back. E financial noise financial noise financial noise financial noise thank you for being a sailor, and my daddy. Thank you mom, for protecting my future. Thank you for being my hero and my dad. Military families are thankful for many things. The legacy of usaa Auto Insurance could be one of them. Our worldclass service earned usaa the top spot in a study of the most recommended Large Companies in america. If youre current or former military or their family, see if youre eligible to get an Auto Insurance quote. Hello, everyone im sue herera and here is your cnbc news update at this hour. By a 5643 vote the senate has confirmed Loretta Lynch as the countrys next attorney general. This ends a fivemonth deadlock that made her wait longer for confirmation than the last seven attorneys general combined. Lynch becomes the first africanamerican woman to be the nations top Law Enforcement official. She replaces eric holder. Federal prosecutors have rested their case in the penalty phase of the trial of Boston Marathon bomber dzhokhar tsarnaev, this after calling a victim to the witness stand who lost a leg in the bombing. The defense is expected to begin presenting its witnesses on monday. Baseball commissioner rob manfred says that pete rose will play some role during the allstar game this summer in cincinnati. Rose has applied to end his lifetime ban from baseball for betting on games. A second oil slick has been found just a couple of miles off the coast of the grand canary island. Last week a russian crawler full of fuel sank off the coast. The original spill was four miles long and is said to be heading southwest into the atlantic. That is the cnbc news update at this hour. Lets go to jackie deangeles at the nimex for the close of oil trading. Thanks. Oil closing just under 58 but we did hit an intraday high today, the highest level that weve seen since last december. Geopolitics certainly in focus. The situation in yemen continues to concern traders but we looked into the eia data the production data and for the first time we saw two straight weeks of production declines. Albeit very small but traders think we may see bigger declines also. Also gasoline up 3 . National average for regular is 2. 49 but tom thinks well pop over the 2. 50 and head higher as we go into the summer driving season. Back over to you. Jackie one quick thing here. You know in los angeles they do love their cars. You might have been on the 405 and probably been at a dead stop. Gasoline a major part of the economy. I noticed Something Interesting this morning. Oil prices are up 27 in the past three months but wholesale gasoline futures are up 45 , so america takes a couple of weeks to trickle through. I guess, jackie we should say goodbye to these super low gas prices in many parts of the country. Yeah. What im hearing brian is that were definitely going higher from here. It might not get over 3 this summer, which would be a great thing to see for a lot of consumers because with oil at these levels its still relatively lower than 100 oil. So there will be a little bit of a balance, but youre right, were going up from here. California certainly taking it the worst. Reporter theyre going to be theyre probably already over 3 a gallon in california. I know they will be soon as well. Thanks so much brian. Weve got breaking news. Lets get right to chief International Correspondent michelle kbrarcarusocabrera. Reporter we just sat down with the cfo of petrobras who was trying to give a message that petrobras is going to be far more attuned to investors desires and needs, shareholders needs in the wake of the huge scandal that has rocked this company for the last year which led them to announce last night a very large loss and also a write down of worth nearly 2 billion. He said they are going to be far more focused now on transparency . You announced a 2 billion charge roughly related to the corruption investigation, but the investigation is still ongoing. How confident are you that that number is accurate and that it wont grow . This number is related to a period of time contracts and related to the companies that are mentioned on these agreements. Thats the best information that we have at this moment. But its impossible to say that you that this number will cover everything because information that we dont have access to be available, only in the future. Its impossible to know about that. So its possible there could be more down the road . Or or more or less. We really dont know. What do you say to investors who might be worried about the culture here at petrobras and whether or not theres an endemic problem with corruption . We are talking about a small number of employees. In petrobras we have 86,000 employees and we are talking about four or six persons. The culture here is not a culture. Its a culture for a company that do business in brazil an business all over the world in a correct way. That was a criminal scheme and we need to approach this as a criminal scheme. Last night the ceo said very specifically that petrobras guarantees a normal relationship with the market and that the company has regained the capacity to create value for investors. What did he mean by that . He mean that it was so important to release the Financial Statements that without that its impossible to have a normal relationship with investors because there is no transparency without the numbers. You could expect more and more governance and more and more transparency from the company. We also spoke about the mission of the company now to reduce the large amount of leverage that it faces. Remember, it is perhaps the most Indebted Company in the world and the most Leveraged Oil company in the world at this point. Investors have been very concerned about that with the decline in oil prices their ability to pay that back. Well air some of that coming up later on in the closing bell. Weve got to ask you about the broader implications because analysts are saying its not just a petrobras story but its actually a brazil story and could actually tip brazil deeper into recession. We asked about that. He couldnt speak hes not an economist and not a brazilian economist, but i did ask him about that related to the idea that because the government is a major shareholder, is the government going to allow all these things them to do these things, allow them to deleverage because all of those are negative for growth for the country. And he said he was confident that the company would be allowed to do that. But youre right, melissa, its going to have much broader implications for brazil as a result because petrobras represents 10 of brazils investments. Michelle carusocabrera thanks for that exclusive interview with the cfo of petrobras which is 5. 8 in todays session, just off of session highs. The biggest names in retail gathering for a meeting at the university of arizona today. Courtney reagan is with the man behind all of it macys ceo, Terry Lundgren. Thats right, thank you very much melissa. I am joined by Terry Lundgren the ceo of macys and of course spearheading this conference. Weve been talking a lot about the future of retail so i have to ask you about the future of macys. Whats your outlook for the next six months . What would make you happy, what would make you unhappy . Courtney first of all, good to see you. Im glad youre here to cover this great conference. What i feel is that the consumer is in pretty good shape, right . They have had a big raise, if you will due to oil prices. Theyre saving more than they have in the past. Lately i think they have been spending money on things like cars and technology. But theyre in good shape. And so what i would suspect would happen is over time particularly in the back half that theyll be spending more and more on discretionary products that we would sell. So im pretty optimistic about how i look toward for the consumer in 2015. 2 growth per comps. Were very proud of that. Theres not many retailers in the world, in Department Store sector in the world actually who have made 14 and we finally echooefde achieved it. I predicted wed do it in ten years and we did it in nine. Now its about Top Line Sales with that high level of profitability. Macys has been testing off price. You have said at least as much as that. Is it still on track for the fall . What are we going to see and how do you know its not going to cannibalize. Weve grown boy 5 billion in the last five years so like all companies, you have these paths for growth and you have to look for the next one. For us were not in the off price business. A lot of the growth is coming in that category. And so weve got 13 bloomingdales stores which has made sense. Well grow that. Weve had zero macys stores. Thats on the basis of 775 fullline stores so we see lots of opportunity there. We put an organization in place in february. You will see actual physical stores by the fall season of this year so well begin that test and continue it through 2016. Im thinking were going to get some of our share there. Then were also talking about international. Were barely in this business of international. Ive said to the company ive been sort of the chief International Officer for the last ten years and weve opened one store and its in dubai, bloomingdales, so i need to make a little more progress in that. Ive now got a team in place thats going to do that. Youll hear more about international opportunities. Abu dhabi will open our first macys and bloomingdales there. Macys has stores all across the country. Were sitting here in arizona. Most of the show has been focused on the drought in california. Brian sullivan is in california. Is that impacting macys operations at all . How do you look at that . I think this is just going to be something were all going to have to face and deal with. Its just part of the whole sustainability efforts that all Companies Like ours are making. Its important for us to be part of that and of course so yes, it does impact us. Its not necessarily impacting consumers at this point in time but definitely Impacts Companies so were all very aware of us. Thank you for joining us, terry. Thats all of the time we have because of the breaking news but thank you to Terry Lundgren ceo of macys. Shares of macys up 1 today, up 16 in the year. It has been an underperformer versus the s p retail index on yeartosdat as well as a 12month basis. Is the American Consumer back in business . Dunkin pepsi all beating estimates. A macro strategist david, what did you take away from the earnings numbers . Look in general i think like look at yesterday. Coke pepsi, the beverage names really werent that fantastic when you peel back the onion. The numbers werent super great. So i look at the restaurant names today, really outperforming. Dominos obviously good numbers, dunkin donuts, very solid across the board. It really shows you a trend thats really changed with millennials and the way the eating habits are. Convenience is a real focus right now as well as you know cost. I think gas has obviously helped out, lower fuel prices. The economy definitely is helping. But i think its just a matter of convenience for them. So i think that trend is going to continue and i think these names are names over the long term are going to do really well. Mcdonalds weve talked about that in the past. Wasnt a great quarter. They have got some structural issues theyre going to look into but outside a think a lot of other names are poised to go higher. What do you think, boris, what do you think it says about the American Consumer more specifically, the american eater . I think from a macro point of view, maybe its the first green shoots of lower prices and higher wages. We finally see the consumer begin to spend. Generally the reaction of spending goes restaurants, food cars and housing. So as we start to see the progression going further, that would be the validation to the strong recovery of the consumer and of course the growth in the u. S. Economy. Thats what were going to be watching Going Forward, just to see if they start to spend more on the upper level items. Now that they clearly start to spend a little more in the restaurants, it Shows Consumers finally starting to feel confident enough to go out and eat. Okay, were watching the American Consumer. Never doubt the parity of the American Consumer. For more trading nation head to our website, tradingnation. Cnbc. Com. Melissa, back to you. Mandy, thanks so much. You cant put out fires without water so what are Fire Agencies doing during the drought . Golf is a big business in california but they need water to keep those greens green. Power lunch is back in two. And now the latest from tradingnation. Cnbc. Com and a word from our sponsor. Technical traders often look at volume as confirmation of a market trending. While volume can be important, opportunities exist in every market. So if youve got a sound investing plan dont let low volume keep you out of the market. For trading never stops tdd 18003452550 even on the go. Tdd 18003452550 open a schwab account, and you could earn tdd 18003452550 300 commissionfree online trades. Tdd 18003452550 so if you get a trade idea schwab can help you take it on. Tdd 18003452550 were getting a lot of questions tdd 18003452550 about organic food stocks. Tdd 18003452550 [ male announcer ] sharpen your instincts tdd 18003452550 with indepth analysis by schwab experts. 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When youre living with diabetes steady is exciting. Only glucerna has carbsteady clinically proven to help minimize blood sugar spikes. Im a bull rider make it part of your daily diabetes plan. So you stay steady ahead. Reporter well the drought is impacting and really beginning to impact every business and every sector of california. But it is especially hurting the golf industry because it takes a lot of water to keep a golf course green and beautiful. So how exactly do they do it . Lets go back to jane wells with that. Jane. Reporter brian you know golf directly contributed 6 billion to the california economy in 2011 directly. That was as the drought was starting up. Now with this fight over water, people are saying, hey keeping greens green has got to go and the golf industry is saying hey, wait a minute, were way ahead of you. Golf and Southern California go together like botox and silicone. Both create a stunning mirage which can only be sustained through a lot of work. We want people 100 years from now to enjoy this property the way we enjoy it today. Reporter steve freedlander operates pelican hill in newport beach. They are replacing turf with warm weather grass that uses less water, ripping out acres of sod and putting in drought tolerant plants. Installing a stateoftheart irrigation system and in a twist building underground cisterns to capture rainwater. Nobody that has a coastal Golf Property like this has done this. Nobody. Reporter the result, a savings of 50 million gallons a year. Down the coast, another country club is spending 2. 4 million to relandscape, repipe and computerize its irrigation. So this is before. This is before. And if you see theres a head right here. Reporter jade work used to build golf courses. These days he mostly remodels them to use less water. Its a 90 reduction. A lot of areas where its pure mulch, its obviously 100 reduction. Were going to save about 16 million gallons a year. Reporter general manager eric troll says the entire cost of this project is being covered by turf removal rebates from the local water agency. Should golf courses get any water when were in a severe drought . Its not necessary. Its leisure. Its fun. Well thats part of life also is having some fun. We look at the parks and the other areas out there and its part of what california is about. Its recreation. I like it. I mean i think it makes the course more interesting. Reporter members like jeff olson say the new landscaping actually frames the course better. Has it improved your game . No. Reporter its important to note, brian, that many golf courses are using reclaimed water. In fact at pelican hill its all reclaimed. This is water that has been treated. You cant drink it and if it doesnt go in the ground its just going to go out in the ocean. Back to you. Reporter all right, jane thank you very much. Well, the drought is also making it extra difficult for california firefighters. In just the first three months of the year so far, cal fire has responded to more than 850 wildfires across the state. Everything is brown, everything is dry. That is roughly twice as many wildfires as normal. Lets bring in now captain tom porter assistant Southern Region chief with cal fire. Come over here captain porter. Thank you for joining us. Obviously everything is dry so the risk of fires goes up. But talk about how reservoirs at this level make it more difficult to fight fires. Brian, when reservoirs are low, it makes it harder to find sufficient areas to dip for helicopter to get water. It also makes it very difficult to get our engines down to where we can pump water into the engines and be able to fill fire engines and water tenders to fight fire. Reporter yeah, because if youre fighting fire in a neighborhood, you may have hydrants, you hook into there. If youre out in the woods or a wildfire in the brush, you guys need places like this to fill up the trucks the helicopter or even the super scooper airplanes. Thats absolutely right. Across the state, standing water sources are our primary way of gathering water for wildland firefighting. And in some cases, we have ranches that we will dip out of their stock ponds. Those stock ponds have been dry all year long and they are not going to refill. So were having to go out and reassess where our water points are and make sure that we have a good plan of where were going to get that water to fight fire. Reporter and you think about how if reservoirs like this and i dont know if this is one of the reservoirs for the super scooper airplanes that we see come in and fly and dip up but if they get too low, its easy to sense that they wouldnt be able to do it. I pilot couldnt come in at this low with the hills like this and be able to scoop up water. Sounds like youre also having that problem with helicopters . Thats true. Super scoopers, they need a long stretch of open water that doesnt have any onbstructions and they have to be able to climb out of the other end of their approach. And our helicopters will be dipping out of very small sources, sometimes rivers up in the sierras theyll be able to dip but we arent even having enough water in those rivers to do that. So honestly what are you going to do . Like i said we have been developing plans to identify those water sources that are available to us. Weve been in some cases building new roads down to reservoirs that are very low in order to get to the water source. And were working with our local water departments to identify where were going to take how much water off those systems to bring to our fires. Reporter just very quickly to wrap it up how high is the fire risk right now . Its pretty extreme. For this time of year its unprecedented. We have staffed up in order to maintain our initial attack capability and weve kept engines on all winter. Reporter captain porter you and your guys have been here for a while being very patient. We appreciate that sir. Appreciate the work that youre doing. Good luck and be safe. It sounds like its going to be a tough summer. Thank you, brian. Well be ready to go. Reporter well, it has been a bumpy ride for the Dow Jones Industrial average. Coming back, well get back to the markets and talk about what companies have been youll forgive this chugging along and which are hitting the skids. Plus how are farmers dealing with the drought here and are they feeling like theyre a bit of a scapegoat in this situation . Well talk to a guy whos a sixth generation california farmer. That is all coming up when power lunch returns. Saving money is as simple as making small changes in your routine. If you make coffee at home instead of buying it every day you can save over 1,000 a year. Trust me no coffees that good. The more you know. Take a quick market check here. S p and nasdaq near record highs. The s p up. 4 . The nasdaq higher by 28 points. Dow off its high of the day. Russell 2,000 measure, Small Cap Index up about half a percent. Texas insurance, big under performer here really dragging down the entire Semiconductor Index overall, down 7 . Weak Second Quarter guidance. Rbc says even though it is a broad portfolio of chips it is not a read on the entire sector yet the entire sector is being dragged down on the results that were released last night. Trains versus trucks. One group has had good earnings this year so far, the other not so much. Whats going on . Its a tale of two earnings stories within the transport sector. Were going to start with railroads. U. S. Railroad earnings have been largely disappointing due to the falling demand and rising costs. Missed analyst estimates by 7 cents with volumes falling 2 . Kansas city southern reported results even more disappointing than previously lowered guidance. On the flip side trucking demand is increasing as fuel costs fall. Companies like knight transportation westerner enterprises, jb hunt and marten all posting big year over year growth. Rail earnings have averaged a 12 increase this quarter. That marks a deceleration in Earnings Growth for the group. But trucking earnings have surged 45 . You got names like knight upping guidance. This is expected to continue. Basically the dollar is as the dollar strengthens and oil stays weak weve got growth shifting from transportation commodities which is what really trains haul to more consumer related products which is really truckings bread and butter. Morgan brennan, thanks for that. Next how one of the Biggest Industries in california is battling the drought and staying profitable. Stay tuned. The job jugglers. The up allnighters. And the ones who turn ideas into action. 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If Hp Security Solutions can help keep the Worlds Largest organizations safe they can keep yours safe, too. Make it matter. Lets bring in a farmer now to talk about it. Sixth generation California Family farmer. You farm tomatoes and melon. Thanks for coming. Welcome. Do you feel like farmers are being scapegoated a bit . I do. Its been difficult. Because theres been the idea we havent had any cutbacks and weve had more than 2 million acres that have had zero surface allocation for two years now. Two million acres of productive farmland with no surface water. How much of your farm is unfarmable . We have onethird of our farm either unfarmable. We are laying off people or having a tough year. But our case is better than some. There is actually some talk of rain tonight but how much water would you need to bring the lapped back to being farmable . With no snowpack this year and reservoir levels where they are, were in deep trouble. It is going to take above average precipitation for maybe one or two years. So really just a couple days of nice heavy rain would do nothing for you. Not going to do anything no. What are you guys talking about doing . Obviously were going to need Mother Nature to help us out with some of the rain and bring back some of the snow. We have issues with environmental regulations holding up a lot of water deliveries. We have a myriad of issues. Doing business in california is tough for any type of company. Do you feel like the bureaucratic and weather you cant control the weather. Weve just seen a lot less flexibility in the system. L. A. , san francisco, they cant be there without Design System which this all is engineered. Farmers get hit with well you shouldnt be farming there because it doesnt rain enough. Well it is a perfect system if you get the water from the northern part of the state to the southern part. Thats where were seeing the bottleneck now, you cant do that. These interviews go quick. Good luck to you and your family an the bowles family farm. Jane wells, i know youve been up there on the Central Coast and talked about this. Right now it feels like the l. A. Region maybe is not feeling it yet. But if this keeps up they certainly will. I just got my new water restriction rules in the mail last night. If we do get rain tonight im not allowed to water my grass for 48 hours. Following measurable precipitation. Or ill have to pay 500. But theres two guys down the cliff here smoking pot. Thats perhaps californias number one crop and thats very water intensive. Nobodys talking about that. All right, jane wells, good way to end it there. Great stuff as always. Eamon javers breaking news out of d. C. The department of justice announced its filed a lawsuit against quicken loans. In the lawsuit the department of justice says quicken improperly originated and improperly wrote or caused submission of claims for hundreds of improperly underwritten fha insured loans. Interestingly this comes on the heels of quicken filing its own complaint last week against the department of justice. Quickens ceo said that the department of justices investigation here is a shame. Melissa, back to you. Thank you so much eamon javers. Great job, brian. Ill see you all tonight on fast money. Straight over to closing bell. Hi everybody and welcome to the closing bell on this thursday, bill. As we eye new highs across the major indexes, im kelly evans down here at the new york stock exchange. Im bill griffeth