Commodities will join us. He sees a 40 rally in natural gas. Thats not great if you heat your home with it. He also expects a rally in oil. The northeast is bracing for a massive storm, folk. Could Hurricane Joaquin be another Superstorm Sandy . We certainly hope not but we are tracking it all for you. We begin with investors and theyre beginning the new quarter in the red. The latest disappointing manufacturing data from the ism is adding to the weakness. We have the dow down by 164 points. The s p 500 is currently down by 14 points. And the nasdaq off by 45. Were also watching very closely, folks, over the course of the next few hours yields on the 10year note because were sitting at 2. 032 . So close to dipping back to the 2 even mark, maybe even below it after that is m number. Bob pisani joins us from the floor of the Stock Exchange. Hey there, bob. Well, it started okay, mandy. We kind of gapped up in germany and in the u. S. Lets take a look at the s p 500. But that faded very, very fikly. We went into negative territory within ten minutes of the open and essentially other than a few moments have been negative all throughout the day. We are coming off the lows. Theres a bit of good news. The markets midday, you want to blame it on something . A couple problems. Germany started up 1 and ended down 1. 5 . 2. 5 range right near the bottom. The other problem was crude weakness. We were trading as high as 47, as low as 44, a wide range. Breadth has been 2 to 1 declining to advancing. Lets call it heavy volume on the first trading day of the Fourth Quarter. Normally you buy the losers in the prior quarter. Not today. Materials were losers in the last quarter and they are right now. Alcoa, cf industries, freeport, the usual names. And with oil bouncing around so much, energy has been on either side of positive or negative but largely on the negative side. Eog and apache are up, but exxon, schlumberger, Chesapeake Energy which laid off 15 of hits workforce also on the downside. Typically you get movements in etfs and we are getting that today. People are moving money between value and growth. This is very typical in the beginning of the month. Some people betting on more growth, some betting on more value. So the bottom line here, mandy and tyler, is were getting continued volatility. I think a lot of people are still positioning themselves for more volatility. Thats why were seeing a little bit of a selloff. Theres no big news, just people thinking october is going to be volatile, lets just keep playing that volatility. Right, right. Certainly that v word is the catchword for 2015. Lets head up to the nasdaq and find out what october the Fourth Quarter is going to look like. We have Bertha Coombs live from there. Certainly not an you a tishs start, mandy. Apple is lower. A report saying apple cutting its chip order. Thats weighing on the chips. As you take a look at the chipmakers, theyre among the biggest decliners today. The other usual suspects among the decliners today, the biotechs. Down for the ninth day in the past ten sessions. Sam stovall though over at s p says Health Care Third quarter earnings are expected to post a 28 growth despite the fact that those stocks got battered last quarter. And the s p is looking at 3 decline. Biotech earnings is expected to top that up 44 . There are new cholesterol drugs launched. The Current Quarter big for health i. T. Firms with that massive icd medical billing system overhaul. Hhs says it will take a couple weeks to know how its going. But so far they have seen everything okay and they have a war room thats going to be manned 24 7 for the next 10 days to really oversee this transition. Bertha, thank you very much. Automakers in high gear ford, gm, chrysler, latest Sales Numbers were good. Im sure phil is going to tell us a little bit about volkswagen. I do have volkswagen numbers and a look at what that stock has done today, tyler. You mentioned strong numbers from the major automakers. Take a look at how strong they were in september. Double digit gains for all of the major automakers. Ford leading the pack, up 23 . Almost all of these better than expected. One that really stands out there, general motorings s up 1. The expectation was a dagain of 7. 2 . What was driving sales in september . Labor day weekend was part of the september sales. Labor day is traditionally one of the strongest weekends of the year. Trucks and suvs remain in high demand and strong Consumer Confidence. Auto sales almost always go in tandem with Consumer Confidence and it remained high in september. Lets talk a little bit about volkswagen. Vw sales for the month up 0. 6 . Thats actually better than many people were expecting. The estimate was for a decline of 7. 3 and, remember, that includes basically the last two weeks of the month where vw dealers could not sell clean diesel models. Shares down 2 as they continue to deal with that investigation involving the rigging of emissions on clean diesel vehicles in the u. S. And europe as well. Lets take a look at the pace of annual auto sales. Well get the official numbers sometime in the next couple hours but when you look at this graphic, the thing to keep in mind is on the far right which was 2014, 16. 5 million, right now we are on pace for 2015 to be a 17. 26 million and at the bottom see what theyre saying there . 18 million. Thats the Monthly Sales pace projection right now for september. Just for september. And if that happens, guys, it will be only the eighth time ever that Monthly Sales come in at a pace above 18 million. The last time it happened, july of 2005. Guys, well get that number sometime in the next couple hours. Thank you very much. Well stick with transports more broadly speaking. New study showing an unprecedented labor shortage in the sector. This is demand for goods continues to grow and the Holiday Season just around the corner and some of those big carriers talking about the numbers of workers they need to fill. So what are they doing to fill the gap, Morgan Brennan . First of all, i have to say i cant believe the Holiday Season is right around the corner. Its blowing my mind right now, but you already bought my present. Iskof course i did. You were first on the list. You probably heard about the shortage of truck drivers. There are 40,000 needed immediately but Logistic Companies are having a hard Time Staffing the warehouses that make ecommerce possible. 50 said filling a specialized positions is an issue. 46 said hiring is taking a lot longer than expected. Also theyre having a hard time finding quality workers. According to this report, 32 of Logistics Companies are experiencing shortages among warehousing staff. That was last year. Thats expected to jump to 44 over the next five years. Its a very similar story for truck drivers, also Skilled Labor which could affect 75 of Logistics Companies over the next five years. So kurt salmons retail strategist frank leo agrees warehousing is one of the biggest pain points, particularly forklift drivers, supervisors with management skills, and temporary pick and pack workers. Now, he and others blame three factors. Overall improvement in the u. S. Labor market which means fewer applicants. The fact that warehouse work is difficult, its long hours, not the greatest pay, and, three, more competition from uber and other share economy startups that compete for the same labor and offer more flexibility. So this is beginning to pressure pay. We have prologistics saying starting warehouse wages which have been stagnant has increased by 1. 50 to 3 an hour in certain markets. Also some companies saying theyre making scheduling more attractive. Also boosting benefits and all of this could mean higher operating costs though. Analysts do say they expect companies to absorb those kobss at least coming into the this holiday peak season rather than push that out to consumers. So at least thats the bright spot. Uber competing for workers in the warehouses. Yeah. Yeah. Flexibility, pay. And especially when you think about the Holiday Season. U. P. S. Getting ready to hire 95,000 temporary workers, fed ex 55,000. Are you going to work there or drive a car and make your own hours . Probably follow the money. Brazils stock market plunged about 15 in the Third Quarter. Russia down almost 20 . India down 5 . Chinas shanghai index tanking 20 . So are we going to see a turnaround in the Fourth Quarter . Seema mody, you have q4 playbook. As you point out a rough quarter for the emerging markets. China, brazil, rush sharks all down more than 15 . The emerging market etf had its worst quarter in four years. The question is will we see a turnaround and could it start now . Well, according to mcquieacquea october has averaged about a 5 gain for the emerging markets total return etf. The best month on average in this fiveyear period. So if youre betting on history repeating itself, emerging markets could be a good bet. Those china pmi numbers boosting sentiment. Analysts pointing to valuation as a reason to start picking on ems currently trading at ten times earnings versus its five year average of 11 times. Interestingly enough, october is also the best month for asian currencies gaining nearly 1 against the u. S. Dollar. But there are still plenty of risks analysts are voicing concern over. Lower commodity prices, the negative impact of the stronger dollar weve seen over the past year and, of course, the feds looming rate hike. You have to Pay Attention to where the growth story is. Something we discussed earlier this week on power lunch. Perhaps looking at countries that have a strong economic backdrop when you take a look at the brics, india really the standout player there. It really is. Relatively speaking even though it was down in the Third Quarter. Compared to the others it was holding up as a bright spot. Thank you very much, seema mody. Tyler, over to you. All eyes or at least a weather eye on Hurricane Joaquin this afternoon. The storm strengthening to a category 3 hurricane as it moves north to threaten the east coast of the United States. Weather channels chris warren is tracking the storm for us. Hurricane joaquin, a category 3 hurricane. The latest information from the National Hurricane center as of 11 00, their 11 00 eastern update, up to 125mileanhour storm. It is increasing in strength. The big question is where is it going to go . Lets take a look at the possible path. What were looking at is the cone of uncertainty, and what this is focus on the word uncertainty. This is where the center of the storm could go. Now, it could go here, it could go here throughout the course of time. Keep in mind also that impacts will be beyond this. So you can have a line here, the center could be here, the center could be here but if the storm is this big, there will be impacts outside of this. So this right now again uncertain where exactly its going to go. If you live in these areas, you do need to be on alert for the possibility of some very heavy rain, dangerous surf as well because regardless, even if it goes out to sea, flooding will be a big issue from the southeast to the northeast. Back to you. Thank you very much. Commodities crushed in the Third Quarter. How do you trade the complex in q4 . Back of americas head of commodities will be joining us, and he sees a 40 rally in that from now to the end of call. A very bullish call. He also expects a rally in oil. Youre watching cnbc, first in business worldwide. Welcome back to power lunch, every. Im tyler mathisen. Here are this hours headlines. Conagra foods announcing a 300 million restructuring plan. The company will cut 1,500 jobs and relocate its headquarters to chicago from omaha. Shares of dunakin brands plummeting after disappointing guidance. The outlook also missing forecasts. Dunakin plans to close 100 stores. I open its not the one in oceanside, new york. Northrop grumman winning an air force contract developing and modernizing drones. Biotech illumina down 10 . The worst performing stock in the biotech index. A competitor game out with a fast faster sequence. Illumina cut to market perform from outperform based on uncertainty in the next generation is he queensing p Generation Sequencing products. Call it a commodity crunch. The index taking a hit so far this year down more than 15 , so as we kick off the Fourth Quarter, is there a turnaround in store. Its francisco blanch, thank you very much for joining us today. You have lots and lots of forecasts according to which commodity were talking about. The one i really noticed was nat gas. You have a bullish call, 40 upside between now and the end of the year. Is that predicated on a really freezing winter or Something Else you see . I think seasonally natural gas demand tends to pick up strongly into december and january, so we do see prices picking up seasonally. We think inventories will end up the injection season around 3. 9 trillion cubic feet in storage, and again under normal weather conditions we think probably gas gets back above 3 bucks. But is it normal to have that much upside between now and the end of the year . You know, you say its seasonal. We have winter every year but that much upside . Its normal to have some upside. We think that the market has been beaten up by a number of factors in recent months, but if you actually look at the demand picture over the course of the next few quarters, things are looking a lot better for gas. You have pretty large exports to mexico. You also have a big ramp up in industrial demand for gas. You have the retirement of coalfired generators which are going to reduce the ability to use gas switching, and then lastly you will have as well i think increasing demand from the liquid natural gas terminals being built in the south of the u. S. Okay. Lets talk about crude oil. Yeah. Youre seeing 4 to 5 upside between now and the end of the year. What are you seeing for crude . For crude oil, i have been saying this for a while. I think 20 a barrel is very unlikely. Of course, anything can happen, but i think its very unlikely scenario. We think inventories are going to be pretty balanced into year end because we see a pickup in demand, a seasonal pickup over around a Million Barrels a day just as supplies in the u. S. And elsewhere continue to decline into the end of the year. So we think that inventories globally will be roughly balanced for the first time, for the first time in about eight quarters. Thats going to be a big event which is going to support the price of oil into year end. We are worried about the first half of next year because we still see inventory builds in the next refinery maintenance season, but its something we will worry about once we go past december. But from here to the end of the year, we see a little bit of upside. You see a third the downside for gold prices. Is that predicated on your fed outlook and the dollar . Exactly right. We think the fed is going to hike this year, holding onto our call, and we are bearish gold. We think gold gets back down sub 1,000 per ounce. At some point the market will start to price in a flat lining of the fed hiking cycle and that probably lends some support to gold prices down the line, but i wouldnt fight the fed if they are, indeed, planning on hiking which they have telegraphed. So gold will be hit by that. Golds historic value that frankly offers no yield and i think is going to be hit as the fed hikes. A lot of dead money there. Thank you very much for joining us. You say a higher copper price as well. Tyler, over to you. Thank you, folks. It is the home of the booming tech industry, real estate through the roof, but has californias economy become too good for itself . Jane wells, who is never too good for haerz erself is live i. Hi, jane. Tech isnt the only thing going boom. You wont believe how much it costs to live here. We have the downside of the upside when power lunch returns. Can it make a dentist appointment when my teeth are ready . Can it tell the doctor how long you have to wear this thing . Can it tell the Flight Attendant to please not wake me this time . The answer is yes, it can. So, the question your customers are really asking is, can your business deliver . Back to power lunch. Im tyler mathisen. Biggest economy in the u. S. By far and if it were its own country and some people say it is, it would be in the top ten economies of the world. But a new report out raising real concerns about californias red hot economy and jane wells is live with the details in los angeles. Hi, jane. Several reports, tyler. California was hit hardest by the recession, but it has some roaring back. Its adding jobs faster than the national rate. Theres also been money coming into the state because there was a temporary state income tax hike, prop 30. Could there be too much of a good thing . In a slew of economic forecasts, well regarded forecasts looking at the eighth largest economy in the world, contributes 13 to u. S. Gdp, here are the problems. First, state taxes could very well take a hit because of the stock market according tou cla. California Lutheran University says the entire state Budget Surplus could be wiped out in large part because we continue to depend on our richest residents for tax income, especially their Capital Gains and Capital Gains are taxed as regular income. The stock market and other asset prices are critically important. Since prop 30 passed, its become even more important, so so far we have not seen a big drop, but theres a real risk there. Second, well, all the forecasters predict continuing job growth and falling unemployment, good luck buying a house out here. Weve got an affordability drought. The median price in San Francisco is over 1. 2 million. Its over 1 million bucks in berkeley. Down in l. A. Its closing in on a half million dollars. Ers say to get worst. 46 of the residents are renters and theyre paying more than 30 on average of their income towards rend. More than 30 . Guys, they even joked yesterday its been unaffordable to live in fresno where the median price of a house is 209 grand, up 13 from a year ago. Back to you. Something has got to give, jane. To the bond market where the yield on the 10year, what were watching. Rick santelli at the cme. How are we looking now, ricky . Intraday says it all. Weve been knocking on the door of 2 . Weve given it two solid drytri. When was the last time this occurred . The 25th of august as you see on the next chart. Why is it so important . Well, because so much of the weakness in equities that used to garner a more active, more high aggressive response to lower rates didnt seem to be doing what it normally does. And the last couple of days we see it starting to catch up. Weve talked many times that you could look at rates and look at the fed and think theres going to be some issues of normalization that could have risk to the upside in rates, but you always fuel back on the Global Economy and how it will keep them under wraps. Lets look at 10s to 2s. The flattest this curve has been since april. Makes sense when you look at the 10year but look at the 2year. Its down from 82 basis points in ten trading sessions, so dropping rates, flattening curve, maybe not correlated to the fed. We will see at the october meeting. Mandy, tyler, back to you. That meeting has some meaning, rick. Thank you very much. Lets talk about tech which has tanked last quarter, down 4 . So can you still bank on this sector . Why tech may be the place to be in the Fourth Quarter and the stocks you may want to snap up right now. All that and more when power returns in two minutes. Proud of you, son. Ge a manufacturer. Well thats why i dug this out for you. Its your grandpappys hammer and he would have wanted you to have it. It meant a lot to him. Yes, ge makes powerful machines. But ill be writing the code that will allow those machines to share information with each other. Ill be changing the way the world works. interrupting you cant pick it up, can you . Go ahead. He cant lift the hammer. Its okay though youre going to change the world. Hello. Im sue herera and here is your cnbc news update. Israeli Prime Minister ben. Ja minute netanyahu using a speech to slam the iran nuclear deal. Israel will not allow iran to break in, to sneak in, or to walk into the Nuclear Weapons club. The agreement which has the backing of the u. N. And the United States was reached in july. The eastern seaboard is preparing for Hurricane Joaquin. Cities from North Carolina to new york are activating emergency plans. The category 3 storm is over the bahamas and forecasters expect it to turn towards the United States tomorrow. Russian air strikes in syria are raising concern in the u. S. Pentagon Officials Say the bombings are not focusing on isis targets. Military representatives from both countries are supposed to meet today. And this turned out to be one pricey lunch. Take a look at that. Thats a menu from titanics last meal back on april 14th of 1912. It sold at auction online for 88,000. That menu was saved by a first class passenger who obviously survived the historic sinking. Thats your cnbc news update this hour. Back to you, mandy. Seems kind of a strange thing to save. Youre running for the boats and grab a menu . Maybe they were at dinner. I dont know. I think people just took whatever they could get and at least you survived. At least you survived. Thank you very much, sue herera. Lets look at gold prices which are closing right now. Were moving to the downside at 1,113. Silver, copper, palladium, platinum, flip over the board, a bit of a mixed picture. Palladium is holding up, actually gaining by 4 . Always choose the corned objection tongue on your last trip on the titanic. Bob pisani is at the new york Stock Exchange. It all started very promisingly. Take a look at the s p 500. We gapped up at the open, but very quickly slid into negative territory. Been there all day and you can see were just off the lows. If you want to blame something, we had a poor european performance. Gap up nicely in germany and then just slowly slid down throughout the day ending right at the day. This is germany intraday. Another big problem was oil which bounced around in a 4 range. We had oil stocks that started up, essentially moved to the downside. You could see a mixed day. Everybody is complaining about the lack of liquidity in the bond mark. Theres a new player and seth marin joins us. Liquid net is a dark pool that trades stock. But now youre launching a dark pool that trades bonds. How is launching a dark pool that trades bonds going to help liquidity in the bond market. What bonds dont have is a Stock Exchange. A dark pool is an institutional venue where all the buy side firms, large Asset Managers who manage money on behalf of pensionere pensioners, to go to one place to buy and sell goods without worrying about the price moving against them. Why has there never been a success Stock Exchange for bonds . Stocks have moved into the 21st century. Why dont bonds trade electronically . I agree with you. Technology has clearly bypassed the whole bond market. Previously the banks had enough capital to facilitate all the trades. Today the bond market itself has doubled over the last ten years and the amount of capital the deal verse to facilitate has declined by 75 to 95 . They no longer have the ability to facilitate the trades. It has to go electronic. It has to come into the 21st century. How does this work . How do you do trading in bonds like this . All these institutions that own 99 of the securities, but everything they want to buy and sell in the system and our system matches up a buyer and seller. Each bond has a specific number. And thats how you identify that bond. Is there a way you can trade more generically . Suppose i say i want to buy 100 million in bonds that are aaa rated, in the industrial space . Do you have to have a specific number . Thats a great question because Portfolio Managers for bonds generally look for characteristics. They want a certain industry, a certain yield, they want a certain maturity, and they can use our system to go out and find a whole slew of bonds that meet that criteria. Who is participating in this . We have 120 of the largest Asset Managers around the world on day one. But we have thats from a community of over 800 of the largest Asset Managers around the world that are already participants short terms, mutual funds, is that what youre talking about. Pension funds, mutual funds. Are there any High Frequency traders . We have no High Frequency traders on the system and our venue is for only institutions. It started on tuesday. Only three days operating. Any data you can give us on how its operating . So far so good but rome wasnt built in a day. Its going to take time to fix this market. Can you come back and give us some data in a month or so when you have it up and running . Id be happy to. Always a pleasure to see you. A new idea about how we can trade bonds and get more liquidity in the bond market. Pimcos mark kiesel will stop by live 2 15 eastern time. Lets zero in on the nasdaq. Bertha coombs is keeping an eye on the tech movers as we are down by 1 . Its really a story of the big and the very small. Apple down again today on rumors of it cutting back on chips and then the russell 2000 after moving back to the 1100 level at the open backsliding. Ironically small caps are down just as much as the dow, 9. 5 for the year, though they dont have the International Exposure of the blue chips, which now will include verisk analytics. It will replace joy global in the s p 500. Joy Global Shares down 70 . On a day when biotechs are down again, celgene is bucking the trend. Sandisk defying the big decline on an upgrade at morgan stanley. Analysts think others will see value in the storage chipmaker. And amazon today one of those f. A. N. G. Stocks inching higher. Mandy, the interesting thing is the online vendors are not going to have those problems with the new chip cards that brick and Mortar Stores will. Thats very true. Thank you very much Bertha Coombs. Lets get to seema mody for a market flash. Check out shares of fxcm down 7 . It says its systems were hacked and a small number of unauthorized wire transfers were made from customer accounts. All funds have been returned to the accounts that were compromised. Stocks are raising some early gains as we kick off the first trading day of october and the Fourth Quarter. Will it be noer bad quarter for the market . Joining us are nick colas and rob lutz. Lets start with the bull, that would be you, rob. You see 12 upside between now and the end of the year. Thats pretty bullish . Are we going to get there . Yeah, i think were going to get there because right now investors are kind of shell shocked. That last month has been quite volatile, quite unusual, but really the last 14 years many investors have really seen quite substantial decline this is the market. Two 50 declines. I think a lot of investors are acting like shortterm traders and theyre not taking the long view. I think thats going to reverse this quarter and the reason its going to reverse is you have a number of investors that need to achieve a 7 , 8 return. In order to do that they need to get into equities. If youre going to do try to do that with bonds today or other lowyielding alternative assess classes, youre not going to get there. We have a mandated participation by a lot of investors today. So i think they will be moving back in and thats going to be supported by a strong fundamentals in the economy. I think the third and Fourth Quarter are going to be stronger than what people are expecting. Robert, it almost feels like youre saying people are going to go into equities almost by default. What about all the things we worry about like china, earnings, strong dollar, debt ceiling, have they all been fully factored in . Earnings are i think are on pretty sound footing. Not a lot of growth but i think theyre pretty solid. Asset Balance Sheets of corporations that are very strong, i think the china story is overblown. I dont think china is going to implode. If you have ever gone over there, theyre a very big country and theyre doing a lot of things very well. They need to adjust to a different type of economy and that will take a little while to accomplish that, but i think investors need to take pullbacks like this of 10 and really use them to their advantage and get into the stronger areas of the market. If you use flat is the new up, nick, that would be you and your forecast. Year end 1950. Just a little higher than where were sitting right now. Were pretty concerned about october. I think rob raises the right longterm points but in the short term weve had a you have to year. Mutual Fund Managers have to take some losses to justify set earlier Capital Gains and corporate earnings respect going to be that good and were worried about guidance for q4 and for 2016. So for the near term we see a lot of volatility, down another 5 to 7 on the s p with perhaps a year end rally that take us to 1950. Basically you have to get in on the october dip to make any money by the end of the year . Absolutely. The areas we like, financials are a big area of focus on our desk. We agree with that trade, and technology is the other area that should continue to grow and actually deliver some of the earnings that rob mentioned everybody is looking for. Just quickly, have a lot of people been stung by europe, nick . Because remember when, you know, qe in europe was announced and people were saying you have Monetary Policy to back, europe is the place to be and it hasnt turned out quite the way people were expected. Were you stung as well . Great point. Everybody thought long europe, short the euro. That was the trade of the year. Down 2 yeartodate. I think that did surprise a lot of people. It did surprise me. Its not down as much as the sn but down is not up. Down is not up, that is very true. Nick, rob, thank you very much for joining us. Go to powerlunch. Cnbc. Com so see what rob is avoiding. The only sector higher today, materials. The only gainer,ewe and its no even built yet but its already selling. Luxury real estate in new york city is booming. Well take you across the hudson when power returns in two minutes. Jake reese, day to feel alive jake reese, day to feel alive jake reese, day to feel alive [engine revving] im mandy drury. Microsoft and google dismissing all outstanding patent disputes between them. There had been 20 patent cases outstanding between the two. Verisk analytics is replacing joy global in the s p 500 on october the 7th. They are up nearly 7 as a result. Walmart is planning to lay off hundreds of employees at its headquarters in arkansas. This as the retail giant tries to cut costs. The stock is down 25 yeartodate. Today its down by over 1 . Lets get another market flash with the very busy seema mody. Lets look at shares of Performance Food Group up half a percent in its market debut. The food service drkter priced its ipo at 19 a share, well below the expected range of 22 to 25 a share. They sold 14. 5 million shares and shares are trading at the new york Stock Exchange under the symbol pfgc. There you go. A new company to take a look at. Thank you very much. Lets take a pulse of the markets again. The dow down 150 points. The nasdaq off 50. S p down by roughly 15 points. Ben willis of princeton securities and Kenny Polcari of oneil securities join us from the new york Stock Exchange. Kenny, should investors read anything into the fact that after a very nice end to the Third Quarter, yesterday, things are selling off today . No because, listen, i think yesterdays action was just what we talked about yesterday. It was end of the quarter, window dressing, it was bargain hunting but today its the start of a new quarter. The slate is wiped clean. Three more months to go for performance. The issues weve been talking about for months continue to exist. Nothing has gone away. The fact is the market is going to churn. We broke down at 1860 in early august and the market needs to do some repair work and thats what you see going on. I think what investors should is theres not a sense of mpanic. Kenny makes the point basically that some of the same issues that have been beleaguered equities for the past couple months are still in place. Do you think that downtrend continues well into the Fourth Quarter or is there some catalyst that could turn it the other way . Theres plenty of catalysts to turn it and that catalyst most likely will be janet yellen to realize her obligation is to the United States, not china. We need to come off the mark. Any of the catalysts will be central bank driven but today is just one of the days where selling begot selling. The action was not strong out of the gate. We faded going into the opening and that continued. Selling begot selling. The nervousness theres a willingness to sell. We cant seem to get the buyers and sellers together on any given day. Thats the volatility. Kenny, you keep on saying theres no panic like its a good thing and i get it. No one wants panic but maybe we need panic to signify were close to a bat tottom, that capitulation moment. Thats true. Until that happens, you may not find a bottom. I agree with you at sop point they have to throw everything out the window including the kitchen sink and until they do the market is not going to find its bottom. All right. That will do it. Gentlemen, thank you very much. We appreciate it. Today is the deadline for banks and stores to convert to chip cards, but only 40 of cardholders have received them so far. Have you gotten yours . Well, how ready is the industry and how much is it costing the industry . How safe is your information as well . That is all ahead. Youre watching power lunch on cnbc, first in business worldwide. Can it make a dentist appointment when my teeth are ready . Can it tell the doctor how long you have to wear this thing . 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We have Pattern Recognition Technology on any chart, plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. For all the confidence you need. Td ameritrade. You got this. So wi got a job ews . Ill be programming at ge. Oh i got a job too, at zazzies. friends gasp the app where you put fruit hats on animals . I love that guys, ill be writing code that helps machines communicate. interrupting i just zazzied you. phone vibrates look at it friends giggle i can do dogs, hamsters, guinea pigs. You name it. Im going to transform the way the world works. proudly i programmed that hat. And i can do casaba melons. Ill be helping turbines power cities. I put a turbine on a cat. friends ooh and ahh i can make hospitals run more efficiently. This isnt a competition as oil and commodities fall and layoffs rise, some are now asking could america be in recession by this Time Next Year . We have a top economist on to predict the risk. Plus, the ceo of one of americas biggest Home Builders is here on what all of you viewers out west especially can expect from the housing market. And are there real signs of a bottom in stocks . Well lay out the pros and cons. All this ahead on this busy tuesday, tyler, ill send it back to you. Our chief washington correspondent john harwood sitting down with some of the most power people in politics. Been doing it all summer and part of the fall. You can go to cnbc. Com speakeasy and today we get to hear from the most outspoken and controversial republican candidate jim gilmore no, donald trump. Take a look. Jeb told me the other day that trumps strategy is to say things over and over loudly if youre loud and you repeat something over and over again, you think that that turns it into truth. What do you say about that . Well, i hadnt heard his statement. I think hes a very nice person. Hes doing very poorly. He maybe will do better. Hes going to spend a lot of money. Did you hear what jeb said about your tax plan . I did not. He suggested you copied yours and lowered the rates but he said he should have tried a little fiscal responsibility. I didnt do that. The last person i would wanted to copy is jeb. You talked about cutting expensive hammers and things in the budget, but if you dont touch medicare, medicaid, social security, and increase the military, there arent enough expensive hammers to cut. A big part of my plan is to take all of these different Government Agencies who which are totally out of control and to cut costs. Coupled with a very large tax decrease. And by the way, its not for the rich, although the rich will benefit especially if the economy takes off. They might be better off, including me. Huge benefits to the rich in your plan. Benefits, were getting rid of carried interest and certain things that make it too easy to people youre cutting the top rate almost 40 . If my plan takes off, even though were getting rid of carried interest because its been unfair but its tiny. But its psychologically very important. What happens is this. My plan is best for the middle income, for the middle class which has been decimated in this country. You know, they built this country, they have been lost with our politicians for the last 25 years. And i think my biggest impact is to the middle income people. I think were going to give them great incentive and i think its going to be a great plan. All right, john harwood joininjoins us live from washington. What is in his plan that would benefit the middle class . He would take an additional 31 million households off the tax rolls with a zero tax rate. 42 million households are off the rolls. That became a controversy in the 2012 campaign. Right. Mitt romney talking about the 47 and much of the mainstream republican argument was that everybody should have skin in the game. Now because theres such rising concern among voters about the squeeze on middle class voters, republicans are competing to try to provide some benefits to them as well as the marginal rate cuts that are so prized by people at the top end. And so donald trump has done both, which is why the plan is so expensive. Im going to ask you to speculate a little here, john. If today was the day before the debate, who do you think would squeak in . Who would be just on the snout. Lets take a look at the criteria for the two debates. The 8 00 p. M. Debate which people would refer to as the main debate, you have to have an average of 3 in six National Polls by major news organizations. If you look at what those averages are right now, it would be the same ten candidates that were on the stage in the cnn debate a couple weeks ago. Of course, scott walker has dropped out. He was the 11th. Youve got a couple on the bubble, rand paul, chris christie, both are close to falling below the cutoff line but theyre in on the criteria right now. The second group is in the earlier part of the debate, the with one that begins around 6 00 p. M. You have to have 1 in one of the National Polls and youve got to few people who meet that criter criteria. Theres a question will Lindsey Graham meet that criteria . New poll in usa today that showed he got 1 . Others, george pataki, bobby jindal, those would be other this is that debate but its still in flux, mandy, because the polls that are going to determine who makes that stage on october 28th in boulder havent been taken yet. What is the cutoff date for that decision, john, if you have it on the top of your head . One week before october 28th debate. So as of october 21st, thats when were going to know who qualifies. That takes place the same day as the fed will announce its next decision. Thank you. Cnbc is going to be hosting the next republican president ial debate. Its in colorado october 28th. As we were saying, the same day as the next fed meeting. Big day, indeed. That does it for the first hour of power lunch. Always fun. Always fun. Brian, carry on the fun for us. And tyler, you owe 1 for the fed jar. Tyler mathisen is on the hook. 2 00 on wall street, 11 00 in west lake village, california. Mortgages may be about to get a little cheaper. Hi, im brian sullivan. Melissa lee is at the nasdaq. The dow is down right now 119 points. Bond yields also down. The 10year scraping just above that 2 mark. Well, a whole lot to do today but we begin with housing because as the eagles sang, theres a new kid in town and its a big new kid, especially out west. Get to know cal atlantic homes. Thats the new name of the giant formed by the merger of ryland homes and standard pacific homes. With us first on cnbc, Larry Nicholson president and ceo. Congrats. Thanks for joining us. Great to be here. Now, the two mergers, how much geographic overlap . Any markets you will get out of because theres too much duplicative business . Very little overlap. 26 markets only nine we overlapped. In the nine we overlapped, very little overlap from a product perspective. Thats still 30 , but when you look at those nine markets and you pull it apart, where we were selling homes, the other one wasnt selling homes. Today we can garner all that business. Where are we in the housing recovery . What inning . Fourth inning. Really . Were about 530,000 starts a year on a normalized basis about a million. So we have a ways to go. Who is going to drive that . Theres not a lot of population growth in the United States. The underpinnings in the industry are still there, right . If you think about we have a huge mill len yell group coming in and those kids will get out of school and buy a house. People will get married and have kids. Mom and dad are moving back in. So the foundation is still there and then you just have household formations. Were back over a million. All we hear larry, and all these studies, maybe theyre put out by millennials, is millennials dont want to own home. Its going to be a renter and leasing and sharing generation. I think theyre coming into the market later but i believe they want to own a house, and i think were starting to see that happen right now. One thing were also hearing from Home Builders is that, and i guess its the downside of the recovery, is that land values are now more expensive. Right. You guys have to buy land. How much more expensive is it and is it going to pinch Gross Margins . Well, i think affordability is still great in most markets. Were still not back to peak pricing so we still think theres room on the pricing side. Margins have not been affected so far. Weve seen continued growth. Weve been able to continue to grow our margins. We would expect to see that continue. Youre big in houston and weve done the show from houston. We talked about the risk to the oil downturn impacting everything from oil to real estate. Are you seeing a slowdown at all in the houston markets . Houston is our biggest market. Its your single biggest market. Is it slowing down then . Weve seen above 3350 get a little soft. Under 350 is still real strong. You will see employment growth outside the energy sector. But do you plan to scrap new projects that are not currently under way . Absolutely not. We have a great business in houston. Youre not worried about it . Not at all. You look at whats happened to oil and you think maybe the workers just wont move in because firms have been laying people off, larry. Dont you need population growth . Its not the whole economy. The economy of houston is still very vibrant outside of that sector. 65,000, 70,000 jobs we expect to see this year. That will fuel the housing industry. Larry, well leave it there. Cal Atlantic Group is the new name of the company of ryland and standard pacific. Thank you for having me. Thanks for coming in first. Demand for Luxury Real Estate is booming and theres no better example than new york city. Lets get to diana olick with more. Developer william zachen dorff says demand is better than ever on the luxury side and thats why hes, quote, confident he will get his 130 million asking price on that penthouse up there. 520 park avenue is his latest collaboration with architect robert a. M. Stern. They teamed on the 15 central park west. 520 is on east 60th street but they paid in the neighborhood of 40 million for the park avenue address and all the air rights. Units still wastart at 30 milln depending on the floor around the view. Thats for a full floor. 5100 square feet apartments with 360 degree views. There will be five duplex penthouses at 9100 square feet and then all the way up at the top again that 12,400 square foot penthouse with 1700 added square feet of outdoor space. He says he expected a middle eastern buyer for that potentially. I asked though if the latest swoon in Chinese Markets concerns him. Everything concerns me but very funny, we think weve seen more chinese buyers in the last 60 days than even before. I think, frankly, whats unsettled china a bit has made the u. S. That much more appealing. Now, weve seen record manhattan prices for condos and new reports out today. I also asked him about the thousands of units that are going up in manhattan right now. He said again hes not concerned about it. He says the market can handle it if there is still demand and he sees strong demand. Wow. Diana, thank you very much. Right now lets get some breaking news with sue herera. Thank you very much, brian. And basically at the 2 00 p. M. Eastern time update, the National Weather service and the National Hurricane center have upgraded Hurricane Joaquin. It has strengthened becoming an extremely dangerous, a quote from them, category 4 storm which means it has sustained winds between 131 Miles Per Hour all the way up to 151 Miles Per Hour. Its a very slowmoving storm that we got from our bill karins on msnbc this morning. Those islands its over right now are getting pummeled with high winds, a lot of rain, and a lot of flooding. At this point they expect that storm to stay offshore of the eastern United States. However within the hurricane cone. Which means there will be coastal flooding and very, very heavy rains all the way up the eastern seaboard. They do expect it to reach eastern long island sometime early in the week. We dont have an estimate yet as to what day, but it will probably hit eastern long island perhaps monday night into tuesday. Theyre going to try and refine that a little bit more, but definitely by tuesday eastern long island will be feeling the brunt of Hurricane Joaquin. However, they do not expect it to be a category 4 hurricane at that point. Its expected to weaken as it moves its way along parallel the eastern coast. So youre up to date, category 4 now. Scary situation and a big storm. Sue, thank you very much. Lets talk about the stock market. Certainly the Third Quarter was a quarter to absolutely forget with the dow down 8 . But its a new quarter so theres new optimism here. Lets find out from josh lipton who is in studio with us. Good to see you, josh. What groups historically tend to do well in the Fourth Quarter. Since im here, no surprise its actually technology that is the place to be if history is any guide. Since 1990 that sector has enjoyed an average jump of nearly 7 in q4. Thats according to sam stovall over at s p capital iq, and that is more than any other sector, and its jumped in price, by the way, nearly 80 of the time. And there are a number of reasons explaining techs outperformance. For one tech does tend to lead in up markets. In q4 tech benefits as Money Managers shift money to winners away from laggards before year end. A second reason strategists always mention, budget flush. In other words, if companies havent spent money on new technologies yet, then theyre likely to do so before the year comes to a close, and, finally, consumer technologies, all the latest, greatest smartphones, tablets, other gadgets always come into focus during the holidays. Paul hickey of Bespoke InvestmentGroup Recommends tech investors consider three names right now. Paul mentions facebook, amazon, and palo alto networks, but before committing capital to technology, stovall mentions one strong caveat. He says investors should always look to history as a guide but never take it as gospel. Hes, in fact, market weight in part because valuation for the sector as a whole isnt all that attractive he says at 14 times forward earnings. Brian, back to you. Good stuff. Thank you, sir. Melissa . Within technology lets look at the fang stocks. Facebook up 14 . Amazon up 66 . Netflix up an eyepopping 110 and goinging up 20 . Should you stick with these names into year end. Lets bring in Rob Sanderson for mkm partners. In a market like this we have seen a number of stocks have done well so far this year become source of fund stocks. Is that your primary concern for this group, that theyve done so well people want to lock in gains at this point . Yeah, i think the concern is more broader than that and just where are we in the Business Cycle and the Macro Economy and what does it mean for the markets in general. All of these names are off their highs, a little bit of source of fund, derisking type of selling since midaugust and they have been quite volatile but they are still some of the best secular growth stories certainly for large cap stocks. Theres often an element of seasonality to these sorts of trades. Amazon certainly would be one aspect. Does facebook, netflix, or google have any sort of seasonality for the Fourth Quarter . Sure they do, especially google with more ad subsidy, throw facebook into that as well. These stocks, the internet sector in general has been the leadership was really narrow in the first part of the year. It was really only netflix and amazon that were performing and it wasnt until july that leadership broadened out and google and facebook started their ascent into where we are now, but theres definitely seasonal sectors. Theres a big advertising spend to complement the retail consumption that happens around the holidays and many of these companies are beneficiaries there. How should we look at this group in terms of where you put your money . Would it be to the one thats a relative underperformer, a little more defensive going to the Fourth Quarter . It really depends on your view on the macro. I think if youre playing for defensive, then google has certainly got the best valuation support. Its been a bit of a laggard. It also has companyspecific catalyst this is the separation of the alphabet companies and, you know, hopes for a more shareholderfriendly google. So its a good story for defensive. Id say facebook has the best nearterm momentum with instagram ramping up and a lot of marketers really interested in that platform. I still think netflix has the longest or the biggest longterm upside potential in terms of market cap appreciation. So it really depends on your risk appetite. Rob, great to speak with you. Thanks for your time. Are you hungry, america, for return in a low yield world . Coming up, our pimcos mark kiesel sees big opportunity. Also the one thing thats happening in the market that might be a bullish sign for your money and its probably not what you think. And later on, why one analyst sees some real opportunity in fake wood. Thats all ahead when power lunch rolls on. [announcer] youre on the right track to save big during sleep trains triple choice sale. For a limited time, you can choose up to 48 months interestfree financing on a huge selection of tempurpedic models. Or choose to save 300 on beautyrest and posturepedic mattress sets. You can even choose 300 in free gifts with sleep trains most popular Stearns Foster mattresses. The triple choice sale on now at sleep train. Sleep train your ticket to a better nights sleep welcome back to power lunch. Im melissa lee. All eyes on the 10year yield specifically because its just about at 2 . The last time it was below 2 was august 24th, the day we had that mini flash crash. Rick santelli is in chicago. Hi, melissa lee. Its been an exciting day. Lets look at price for a change. Lets look at the tlt, the 20plus treasury year bond etf. You can see on the twoday chart its flirting with 124. Here is where it gets interesting, melissa lee. Last time we closed with a 124 handle in the tlt etf, the 25th of august. Lets look at a 10year. When was the last time we closed at 2 or lower, you got it, the same. This is yield, so, of course, its going down. Tlts price going up. It was also the 25th, and if you look at an intraday of 10s get back to where you started the conversation, weve knocked on the door twice at 2 . Were a couple basis points above it. Remember, if youre a real technician, it matters where it closes, not necessarily the intraday path. Back to you. Rick santelli, ill pick it up there. Thank you very much. As you just heard rick say, government bonds are returning basically nothing when you factor in inflation. Stocks have stunk, and even gold is down this year. So where can a prudent investor find any relatively safe return . Pimcos mark kiesel says you have to look to credit. Hes here, literally here to make thecation. Good to see you on the east coast. Good to see you. In your latest piece, making the case for credit, you argue that likely higher Interest Rates should help credit spreads. Youre making an assumption Interest Rates will go higher. We just showed the 10year at 2 . Why are you so convinced theyre going to go up . Because the economy is doing quite well. Were looking at 2. 5 real growth, 4 nominal. Labor market is tightening dramatically and the decline in inflation we agree with chairman yellen, we think it is transitory. In a 2 inflation world, 10year treasuries should not be at 2 . But why are they . I think theyre there because people feel like theyre looking backwards and theyre not realizing whats happening Going Forward. Whats happening Going Forward is the u. S. Economy 70 of the economy is the consumer and doing very well. Labor market is tightening, fundamentals are strong in the u. S. Economy. It sems liems like the low l of yield have stumped everybody. What has been the greatest surprise in the bond market this year . Is it that yields in the 10 year are at 2 . I think the Biggest Surprise has really been the fact that yields have remained low. I think part of that is the Global Economy and the emerging markets. Inflation hasnt picked up yet but a lot of that i think is energy. And also theres been a big widening in credit spreads and thats been a function of really supply. Everyone has tried to issue ahead of the fed. So where, mark, do you stand on high yield credit because theres a lot of debate as to whether or not thats a train wreck thats going to hit the markets at this point. Hi, melissa. We see value in high yield. Our high yield portfolios are yielding basically just under 8 , and this is basically a low double b high single b yield. Outside of energy, metals, and mining, the fundamentals are quite strong in high yield. We see defaults actually outside of energy remaining relatively benign at 2 . Whats happened is the energy, metals, Mining Sector has spooked investors. Youve seen 1 trillion of new Investment Grade bonds hit the market this year. Thats up 15 . So basically its been a supply dynamic. Theres been too many bonds issued into a market where people are basically taking a step back waiting for the fed, and thats whats caused spreads to widen. It is not really been fundamentals. Its been purely technicals. I was just speaking to the head of credit strategy at bank ever America Merrill lynch and he makes the point that for five months in a row, more than 50 of the sectors in high yield have had negative price returns and thats the longest streak since 08. He makes the case weve seen this sort of i dont want to say con tatagio contagion, but its gone beyond that. Retail and telecom and now its actually starting to hit media as well as health care. And those are the signs of a late stage cycle within high yield. What will make you get more cautious about high yield as you have so many people sounding the alarm . Sure. I mean, what would make us more cautious actually is if inflation picked up dramatically and the fed had to hit the brakes and slam on the brakes on the u. S. Economy. What really causes defaults to pick up, melissa, is nominal gdp slowing, real gdp going negative and a recession. We dont see a recession. We see the u. S. Economy doing quite well. So, yes, it is true there are some issuers pushing the limits but the reality is the health of the overall high yield market, particularly the way pimco has managed it focused on the consumer, focused on housing is doing very well. Last thing, its a little wonky, mark, about you were hearing from bond traders and investors that theres this lack of liquidity in the market so the point where the government might be starting to sniff around at what the heck is going on. What do you see is going on . Part of the liquidity is shell shock of supply. You have had a trillion of new issuance hit the market. Youve had 120 billion of fallen angels this year. What does that mean . Companies that were Investment Grade, they were downgraded to high yield, and so whats happened is people are basically frozen right now on the sidelines because all these factors are hitting at once. The liquidity actually particularly in the Investment Grade market is still quite good. But you mentioned defaults and you said outside of energy which caught my ear. Do you expect a wave of defaults in oil and gas Company Bonds . We are expecting the wave to pick up, particularly in the next 12 to 18 months because banks are restricting credit and the Capital Markets are shut and the big thing, brian, is that capital will get tighter for companies Going Forward. That represents an opportunity for pimco. Okay. Mark kiesel, good it see you on the east coast. Safe travels. Thank you. Still ahead, the one thing thats happening in the stock market right now that might signal a bottom. Were going to let you know whats that. Plus i get paid for this. What it takes to be a u. S. Coast guard Helicopter Rescue swimmer coming up on power lunch. Welcome back to power lunch. Weve got some distressing breaking news coming out of oregon right now. Lets go to sue herera. Thank you very much. This is in Central Oregon at Umpqua Community college. There are unconfirmed reports of people who have been injured at that Community College. Originally it was thought to be an active shooter situation. We do not believe it is still an active shooter situation. Once again, unconfirmed report of multiple injuries at that particular college. Were working on trying to confirm whether or not people have been shot or not. Were just going with injuries at this point because we dont have confirmation on that. But at this point Umpqua Community college in Central Oregon has been hit by this incident. We will keep you posted. As soon as we can confirm whether or not multiple people have been injured, well get right back to you and what the nature of those injuries are. But it is a very fluid situation. Were watching it very closely and ill be back with you in a couple minutes with some more details. All right, sue herera. Thank you very much. Distressing there. Were going to take a short break and we will be right back on cnbc. Hello, everyone. Im sue herera with continuing breaking news on the situation out in oregon that we continue to monitor. Reports unconfirmed reports of multiple injuries at Umpqua Community college. We do not know what the nature of those injuries are. There are unconfirmed reports there was a shooter and the shooter is down and in custody. Were working to confirm what the nature is of what is reported to be multiple injuries at that particular site. So we are following that situation for you and well be back with you in just a few moments with more on that and more on what is really an active situation, brian. Were not going with some of these headlines because we cannot independently confirm them, and the estimates of how many injuries, brian, there are is pretty much all over the map. They go from unconfirmed ten to unconfirmed 17. Umpqua Community College is in Central Oregon. Its a very small community, and it is a college were working on the student population, but suffice it to say it is not a large Community College at this point. So im going to turn it back to you because were working very hard to confirm how many injuries there are and whether or not, indeed, as is reported, the shooter is in custody. Back to you. Yeah, its right off of interstate 5 going north, very popular some very popular tourist areas around that part of the country as well. Lets hope some of those reports, unfon kiconfirmed as y note, are wrong because the numbers are not good. Lets get back to business. Go to Jackie Deangelis at the nymex. Good afternoon. Oil closing right now but a dramatic reversal here after a very strong session hitting an intraday high of 47. 10 this morning. Looks like were going to close just under 45 a barrel. Still hugging that line because this trade doesnt know which way to wants to go. A couple reasons we were bullish this morning, of course, deeper in that eia report yesterday but also traders watching the headlines are that coming out about russian strikes in syria. Syria not producing oil but wondering who may get involved in conflicts like this. Also watching the storm very closely. The reason we fell out of bed, traders say its when equities fell out of bed, that we, crude oil, tracked with the equity market. It looks like well close just under 45 a barrel. Back to you. All right, jackie, thank you. An investigation of a leak at the Federal Reserve has now turned into an inside trading probe and the accused company is using an interest defense. Eamon javers is following that story. The wall street journal reporting this morning that medley global advisers, the firm at the center of this investigation, is arguing that it is, in fact, a news gathering organization and, therefore, whatever happened in terms of the leak of the details of a fed meeting back in 2012 was not Insider Trading. Thats going to make it very difficult for investigators to figure out what exactly happened here because as you guys know from long experience, Insider Trading law itself is relatively vague, and under u. S. Laws and regulations here in washington, d. C. , its always been very tricky and deliberately tricky to say who is and who is not a journalist, even if they work for a firm whose main product goes to a Subscriber Base thats largely hedge funds and financial folks up on wall street. So the question here is what is news and what is not news, and are journalists exempt from Insider Trading in the way this firm seems to be arguing that it is. Its a fascinating conversation, melissa. Or maybe not what is news and what is not news, but what constitutes a news gathering organization. I would imagine this case, eamon, will be a very closely watched one for the precedent it could set. Yeah, absolutely. I mean, the question seems to me to be all about the size of the audience youre disseminating the information to. In general it has been the case that its not Insider Trading if a journalist obtains some information and broadcasts it to the widest possible audience, for example the wall street journal itself broadcasting information to all of its millions of readers around the world. Thats not considered Insider Trading even if they get Sensitive Information and put it out that moves the markets because everybody in theory has the opportunity to go out and buy the journal that morning. The question is with these Niche Hedge FundResearch Firm in washington, does it count as journalism, too . It seems to be what this firm is arguing. It will be fascinating because these areas are very gray and they have been left gray deliberately because of the sensitivities involved in protecting the first amendment. Eamon, thank you. You bet. Back to the economy and things seem pretty good in most parts of the economy, but we came across a report that suggested perhaps recession might be on the horizon. Lets bring in stan shipley, senior managing director and economist at evercore isi. Great to see you back on cnbc. Thank you very much for joining us. How much of a risk do you put on the economy falling into recession in, say, the next 12 months . As your show has highlighted, credit is being really crushed here over the last six months. Credit is down sharply here. This has been a precursor of problems before. Look at 2007, 2008, when credit started being crushed. This kind of portend the whole 2007 to 2009 recession. I would say, however, this has been a flawed indicator, that its given many false signals here. I think when you start to look at the fundamental case for recession, you would have to say its a little bit questionable. Usually as you slide into recession, you have speculation on the rise. You have the price of credit going up. You have the availability of credit going down. You have inflation tightening, and probably you also have some sort of macroshock. So some combination of that gives you a recession. Thats arent in place now, so we think that the risk of recession near term is probably pretty low. Its funny because our audience that are not professional traders or investors, they see their house price going up, maybe they got a better job, the stock market until recently has done pretty well. Credit is one of these things that unless you have got a bloomberg terminal or some high dollar computer software, you dont really know whats happening. And so tell us whats going on there that might later infect the stuff that we do see everyday. Well, when you look at credit, which is either junk bonds or low grade Investment Grade bonds, those yields are going up relative to treasuries. So the credit spread is definitely widened here. Historically when that tends to widen here, ultimately issuance will tend to slow. As talk aboed about earlier, issuance has been very strong in the first half of this year, but its now starting slow. If issuance starts to slow here, then youre going to see less stock buybacks, youre going to see less capital expenditures, and that will ultimately slowovslow overall growth. Thats the concern. Is this a false signal like we saw in 2011 or is this a real signal like we saw in 2007 . When will we know, stan . I think youll have to look at other indicators. You will have to look at index leading indicators. Youll have to look at inflation, cpi that comes out. Youre going to have to look at job growth that you will get tomorrow here. If job growth is solid, if inflation remains low, then its unlikely youre going to have any sort of nearterm recession. All right. Stan shipley, evercore sis. Thank you. Only one s p sector rose in the Third Quarter and that was boring utilities but what sector might perform best this quarter . Larry, what do you think . What sector might look good over the last three months . This global negative feedback loop is so powerful and its been dollar driven, and you have to ask yourself is all this negative Global Economic activity coming back to the u. S. And could that do something to fed policy . And if that happens, the commodity space will be the big, big winner in the Fourth Quarter and the First Quarter of next year. You think energy, oil, like glencore . The commodity space as a whole, oil. And the dollar is up 27 over the last 18 months. Its been its created weakness in the emerging markets, and that weakness is now impacting if you look at the middle of america, the ism today, if you look at the milwaukee fed numbers and the fed the middle of america is being is very close to 50 in the ism. Below 50 is a recession. The fed will have to do something about the strength in the dollar and if they do, commodities are the big winner. They should buy a trillion dollars worth of oil. That will help. Ari wald, you look at technicals what is your top pick . I think you want to play the domestic consumer and i think you want to stick with leadership and the Consumer Discretionary space has been and continues to be one of our favorite areas. The seconder made yet another new relative high this week so its got some good relative momentum behind it. And seasonals are in its favor as well. Going back to 1990, Consumer Discretionary has been the second best performing sector in the s p for the Fourth Quarter. So looking at the spdr, looking at xly, i think markets as a whole continue to correct and maybe in the near term, but i think you get a little test of the august lows for the discretionary spdr around 70, 72. I think thats a terrific entry point. Thank you very much. As always folks, you know, go to tradingnation. Cnbc. Com to see more. That shooting at Umpqua Community college, brian, our affiliate there kgw as well as the Douglas County fire commissioner who was just quoted on msnbc citing that there have been multiple patients that were hit in multiple classrooms. He says there are multiple deceased. The estimate from kgw is between 7 to 10. 10 is the highest number that we have heard at this point. He also is reporting, as is kgw, that the shooter is down and in custody. Earlier estimates had, and they were unconfirmed, injured between 15 and 20. Now were hearing possible fatalities between 7 and 10, but once again multiple patients from multiple classrooms. The Community College is about 180 miles south of portland off of i5 there. About 3,000 students. The commissioner telling msnbc and nbc that they have evacuated a mile and a half perimeter around that Community College because of the nature of this particular event. We will keep you posted as this situation is certainly fluid. Power lunch will be back in just a moment. Good. Very good. You see something moving off the shelves and your first thought is to investigate the company. You are type e. Yes, Investment Opportunities can be anywhere. Or not. But you know the difference. E trades bar code scanner. Shorten the distance between intuition and action. E trade opportunity is everywhere. Dentist appointment when my teeth are ready . Can it tell the doctor how long you have to wear this thing . Can it tell the Flight Attendant to please not wake me this time . The answer is yes, it can. So, the question your customers are really asking is, can your business deliver . Welcome back to power lunch. Im brian sullivan. Retail investors pulled out 63 billion from mutual funds over the past three months. That, my friends, is the biggest exodus in 30 years. Now, pessimism about the markets also at a twomonth high among individual investments. Thats according to a survey by the aai i and bullish sentiment is down for the 30th consecutive week, the longest streak in the surveys history. One strategist says all this type of bearishness might actually be a good sign. Lets bring him in. Hes roberto freed lander of Breen Capital and he joins us now. The old saying its always darkest right before the dawn roberto, does that sum up how you feel about the markets right now . Pretty much so, yeah. I think weve hit an extreme here. Ici just reported that august outflows alone were 17 billion. For june, july, and august we had 63 billion come out of domestic funds. Thats comparable to the end of 2012. Mark who runs a fund to funds in North Carolina had a tweet this morning i loved. He said investoriing is the onl industry he knows when things go on sale everybody runs out of the store. Why do we do that . Right. Like many things on wall street, overshoots to the upside and downsi downside. At the end of the 2012, awed market correction. The market dropped about 9 . And what preceded that period was a sustained period of very bearish news, negative headlines, negative mainstream. And that led to the selloff about 9 , 10 into the end of 2012 and so that led to basically the lagging indicator is the Mutual Fund Outflows which was 63 billion for that threemonth period for october, november, and december. Whats very relevant here is if you look at the three concerns and the anxiety that was caused for those three months, it was caused by the euro debt crisis, concerns about slowing china economy, and concerns about the u. S. Budget and the fiscal cliff. So that sounds eerily familiar to what were going through now, and just after that period, call it beginning of january, the fiscal cliff, that got resolved. The ecb stood behind the euro, and chinas domestic gdp picked up a little bit because the emerging markets picked up and you had a fivemonth run from jan 2013 to may of 20 . Thats really relevant to what were seeing now, very xacompar. Do we need to see a pick up in small caps and theyve been flat on their back. Dont we need to see that turn around . Very, very good point. The russell 2000 bag a small cap is a barometer for growth and leads in and out. Whats interesting here is if you looked at all of the four major indices that made death crosses recently, the russell just made it as the s p was pulling out. So i think at this point we have kind of the tail wagging the dog type thing and i think that weve overshot to the downside. We had a successful test of the august 24 low. While price action structure is not the greatest, and i like to see another test of that august 24 low and maybe get to the 1870ish area on the s p and then bounce higher from there, but should all these kind of macros get, you know, fixed up, called by jan 1st, we could have a significant run in the early part of next year. Roberto, great stuff. We appreciate it. Thank you. Thank you. The Retail Industry spending 9 billion to get ready for new credit cards, but what are they getting in return . Apparently not much. Were going to explain that coming up. And lets take a look at the dow industrials. Ibm, apple, and travelers the biggest drags on the indetion. We are down, 76, well off the lows. Youre watching cnbc, we are first in business worldwide, and we are back right after this. You wouldnt order szechuan without checking the spice level. It really opens the passages. Waiter. Water. So why would you invest without checking brokercheck . Check your broker with brokercheck. Retailers have spent an estimated 9 billion to get the proper equipment for new credit cards that have chips embedded in them. Some of you may already have them. One of the retailers getting for their money . Court think reagan is at a target store for us for that. Courtney. Hi, brian. It is a big expense. That expense will vary for different size retailers. Take target where we are now. The retailer is ready with the new chip embedded technology. All of the readers, the softwares, the stores fully integrated. This integration didnt come cheap. For target it took about 100 million to upgrade the stores. The branded cards and all the systems. Its more about what merchants are avoiding than what theyre getting in return. The cost of being liable for any physical fraudulent transaction with a credit card. One lexis nexis survey says that type of fraund is the most rampant. It is expected to fall as a result of the chip. And retailers like target, like walmart, like home depot that have met the deadline, for them that means the banks will be responsible for that type of fraud. We call it card present fraud, if indeed it does occur after today. So that 100 million price tag is a hefty price tag to basically keep things status quo. Now, many other smaller merchants may not be ready for todays deadline. Upgrading systems can cost anywhere from a couple hundred dollars to about a grand. If you take that cost, multiply it by 20 lanes and then the number of stores, that cost does begin to add up. Melissa . Courtney reagan, thanks for that. Despite todays deadline one new survey finds only 40 of card holders have gotten the new chips. The cards with the chips. Those with annual incomes over 75,000 are twice as likely as lower income bracket card holders to have their new cards. Matt shultz is a senior industry analyst for creditcards. Com. It seems like this is a deadline nobody is really observing. Its not only the card issuers that are behind on the deadline, its also the retailers because if you have the new card chances are your retailer hasnt upgraded their point of sale terminal. Exactly. The important thing for the consumers to know is their old Magnetic Stripe credit card is going to work now and is going to work for the foreseeable future because even those new chip cards are still going to have that Magnetic Stripe on the back. In terms of the actual chip, why is that much more secure than a striped card if it is stolen . Well, its a big deal because it makes the actual physical card harder to counterfeit and also when you use the card in a chip enabled terminal it passes along, instead of all of that credit card information, it passes along a unique transaction code that can only be used once and if a bad guy guess it by hacking into a database and tries to use it again, it wont work. Its like stealing an expired pass word. The u. S. Is at the forefront of a lot of technology but it does seem like when it comes to this particular technology were behind because other parts of the world already have this. Yeah, its been overseas for about a decade as a lot of foreign travelers would know. Its really a lot about money because coming out of the Great Recession the last thing a lot of banks and retailers wanted to do was spend money on this technology that people cant really use just yet. All right. Matt, were going to leave it there. Thankses for tips. Appreciate it. The Fourth Quarter is off to a down note for stocks. Major indices are lower. Take a look at how the most widely held stocks are trading right now. Keep it here. Youre watching cnbc. [ male announcer ] eligible for medicare . Thats a good thing, but it doesnt cover everything. Only about 80 of your part b medical expenses. The rest is up to you. So consider an aarp Medicare Supplement insurance plan, insured by unitedhealthcare insurance company. 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We should note tonight on fast money eve got an exclusive with the companys ceo tonight. We will talk about utilitys efforts to end net metering. Lyndon rive tonight. If i produce excess energy from solar panels, i want to keep that mop any. Of course. You want to sell it back to the grid. Right. Stick it to the man. Stick it to the man. Am i the man . Youre the man. Time for street talk. Analysts recommendations on stocks you need to know about. A call on the global payment groub. Cowen and company, two topic, Global Payments, they like the potential for eps and margin expansion. Out perform, 124 target, 30 upside. They also like vantiv, they call it best in class and revenue gross side of the story, out performing of 15 upside. More bullish on Global Payments than vantiv. You know the tap and pay technology. These guys are active in that. That is a growing area. Global payments just announcing it is supporting u. S. Samsung tap and pay transactions. Thats an interesting one. Stock number two is 8. 3 energy. The ticker is cap d 8. 3 of sun power and ate solar. Cowen today saying persons of financing liquidity concerns are ov overblown. Given access to Additional Capital and allow them to offset Interest Rate movements. I. E. , higher rates. The buggest threat to the solar energy is dust. The cleaning . Yeah. They have automatic depends on the size of the solar installation. A large solar installation will have an automatic ro boot, sort of like a roomba, that goes across and cleans the panels. There you go. Rosy the robot. Third stock, adco, cut it from a sell to a neutral. Concerned about commodity weakness. The target goes to 39. Its about 10 below where the stock is now and its down 5 1 2 today. Yeah. Lets move on here to celegene. 152 price target. 1 higher than yesterdays close. Cut the analysts on the sidelines but it is one of the most fundamentally sound biotech, according to the analysts, and its cheap. By the way, its up month to date. Up month to date . October 1st. Good one, brian. Thank you. Clever. This is a homer, i admit it. Its trex. Based in winchester, virginia. Fake wood decking company. Down 20 year to date. Today c. L. King upgraded it to a strong buy. Jim barrett, the analyst, thinks it could be bought it out by a larger company. Thats interesting, especially because the Home Building trade has been such a good one. This has been an underperformer. Interesting call right there. Yeah. There you go. Trex, complete homer. See you tomorrow. Look forward to fast tonight. At 5 00. The s p just turned positive just in time for the most important hour of the trading day. That is the next hour. Well see you tomorrow. Take care. Hi, everybody. Welcome to the closing bell. Im kelly evans at the new york Stock Exchange. Im bill griffeth. Yes, were kicking it off with big swings in the market. The dow still in the red. I have to keep checking to see if its going to hold. Coming back from a deficit of 211 points earlier in the session. Were going to take you through all the action in the final hour of trading. The s p has turned positive. We show you how in of the sectors. Materials