Transcripts For CNBC Power Lunch 20151230

In 2015 on a separate payment that will not be paid. However, the vast majority of the more than 700 million that the island owes on monday by midnight on the 4th will be paid, including importantly the general Obligation Bonds that amount to about 330odd million dollars. Widely held by many mutual funds, Something Like 45 of mutual funds that invest in munis around the u. S. , melissa and brian, are exposed to some of that paper. And thats why were following the story. Kate, thanks so much. Well keep you posted on whats going on in puerto rico. This is power lunch. Im melissa lee along with brian sullivan. Oil is getting knocked around today, no surprise. In the last six months, crude is down almost 40 . What a tumble. Also, natural gas, did the nat gas trade just run out of energy . Its had a huge week but it is down again today. What is going on, melissa . And a year ago brian made some pretty brave and bold predictions about 2015. Today we will show you what he got right, what he got wrong, and why he should really Pay Attention to brian in 2016. No, no. As i write, put on your gloat coat because i blew it. I didnt make any predictions. Next year you will. Next year maybe. Next year you will be on the hook. Tyler is out. You just saw mandy on fast money so here we are and here is where we are in the news. Crude Oil Prices Plunging again, now back below 37 a barrel, and once again global crude prices, brent crude, have fallen back below the u. S. Traded price. It is hard to believe that just a year and a half ago oil was above 100 a barrel. We are down nearly 70 from those highs. Also on your radar, natural gas. Those prices have been on fire over the past week, but not today. Natural gas down about 6 at this hour, and they are also now down nearly 70 from their highs in 2014, and this should not only low iryoer your heating bit also give companies a break on their power bill. But here is your question heading into next year, will oil prices stabilize anytime soon . Joining us, tim evans, Energy Futures specialist. I guess, tim, coy si could say have stabilized in a way. They tumbled last year, started january in the 40s, were a little lower than where we started the year. Do you see any reversal higher for wti traded crude prices in 2016 or a continued move down . Well, i think theres vulnerability on the downside particularly for the first half of 2016. Were looking at a surplus that could be 1. 5 Million Barrels a day or so depending on how much Iranian Crude Oil comes back onto the market, and even under that scenario theres some additional Downside Risk if we see some fairly low probability events like a unity government taking hold in libya, a recovery in libyan production could add to the oversupply in the year ahead. I tell people all the time that the oil story literally may be the simplest story in the world, which is that theres too much of the stuff versus demand. Nobody weve talked to suggests demand is going to pick up anytime soon meaningfully. When you look out, do you see any meaningful, call it a Million Barrels a day, drop in production anytime in the next six months because if you dont, it is likely that that supply demand imbalance is going to continue. Well, thats right. Weve been talking for some time about a general theme of lower for longer, and that continues to be the dominant theme in the market. In the next six months, no, i dont see anything other than a geopolitical surprise that would quickly rebalance this market. And i think even beyond that horizon, what were really looking for is some kind of change in opec policy, some kind of change in saudi arabias aggressive competition for market share that would restrain output, rebalance the market, and help the market turn significantly higher. Failing that, were looking at a much longerterm process where its going to take a long time to draw down our surplus inventories. Inventory data for last week showed u. S. Commercial crude Oil Inventories 36 above the fiveyear average. Im sorry to break in, but the bottom line, it sounds like you think its going to be a long, drawn out bottoming process. The saudis showed no evidence of retreating from their policies. They made numerous comments they think the market should rebalance on their own and they should continue with their policy of unlimited output. Absolutely. Theyre doing a fine job of selling their policy, which is theyre going to beat the competition into submission through Lower Oil Prices, and we always want to take into account where the saudis want the price to be when we consider that outlook. So the bottom line here is a long, drawn out bottoming process for crude oil in the next, what, you said 12 to 18 months . Well, i mean, im focused more on the shorter term on these next six months that definitely look like theyre going to be weak. Depending on what the opec reaction is to these lower prices though, i do see some potential for them to, you know, look at the decline in their own reserves, look at the deficit that theyre running, and rethink whether this strategy is really working for them. So far theyre only getting a larger share of a weaker market, and their total revenues are down. Tim evans, citi futures. We appreciate that. The saudis have said recently they are not going to slow down their production. Tim evans, thank you. Well see new the new year. Appreciate it. Thanks, brooiian. Sevenyear notes up for auction. Rick santelli is tracking all the action at the cme. Hi, melissa lee. Its the last coupon auction of the year. 29 billion 7 year notes. The yield at auction, 2. 161. The highest yield in an auction since september of 2014 and it looked to me like around 2. 15 was trading in the one issue market. So higher yield at the dutch auction. They had to move it to get it to move, and definitely not a good sign, so it tailed a bit. But it gets a little worse from there. 2. 34 bid to cover. 2. 34 of investor money chasing every dollars worth of securities at the dutch auction. Thats the weakest since march of 15. Not that long ago. 47. 1 on indirects. Weakest since october of 14 and directs at 14. 1, the only bright spot. The best since january of 15, so almost a year. The grade, d plus, d as in dog plus. We had a rotten set of auctions. Maybe its the holiday week but something to Pay Attention to in next year as the lights went on and the supply is done. Melissa, sully, back to you. D pluses all this week. Rick, thank you. Not a good year for the hedge funds or individual investors or warren buffett. The oracle of omaha headed for his worst year since 2009. Shares of Berkshire Hathaway are down 11 in 2015 versus a slight gain for the s p 500. Whats behind the underperformance . Blame the commodities slump. Berkshires Railroad Business transport oil, coal, and Agricultural Products and its Manufacturing Business sells to the battered oil industry. A lot of the same bets a lot of other traders are making this year. Were going to go to seema mody for a market flash. Stocks are mostly lower but check out shares of tesla. Shares are up over 1 . A bullish analyst note from Global Equity Research Says tesla will deliver more than 18,000 cars in the fourth quarter. That means tesla is on track to meet the higher end of its quarterly guidance and latest annual forecast. Shares up 8 this year. Back to you. All right. Despite low oil prices, its been a bumpy ride for the airlines this year. Some up double digits, others dropping double digits. The xal is down 15 in 2015. The sector facing a major challenge in 2016 that may impact revenue growth. Well tell what you that is. Youre watching cnbc, first in business worldwide. Well tell what you that is. Announcer its time to make room for the new mattress models during sleep trains huge year end Clearance Sale. Get beautyrest, posturepedic, even tempurpedic mattress sets at low clearance prices save even more on floor samples, demonstrators, and closeout inventory plus, sameday delivery, setup and removal of your old set. Why wait for the new models . Sleep trains year end Clearance Sale is on now superior service, best selection, lowest price guaranteed your ticket to a better nights sleep kate kelly brought you the news about puerto rico saying it will default on part of its debt obligations on monday, although it will pay back even more. Still, on that default news, we are seeing shares of some of the bond Insurance Companies fall. The big ones are mbi and ambac, ambc, those shares are down. You also pointed out there is a third one, a smaller one but a third one. Assured guarantee. All worth watching here today. Meantime, here are the headlines were watching for you. Shares of Weight Watchers soaring 20 . Oprah winfrey making her debut as the companys spokeswoman. Pep boys is trading lower. Icon eyicahn enterprises agreei buy the company for 1 billion. Icahn enterprises hitting a new 52week low. Celgene named a top biotech pick. Look at three of the largest u. S. Airlines. Delta and united are down by double digits. The airline thats soaring in the stock market, jetblue up 45 . Southwest and Spirit Airlines are getting whacked. Theyre down about 45 . The three major carriers have usually shrugged off lowcost carrier competition but after rapid expansion, they are responding aggressively. One study showing that overall airfares for december are down as much as 24 this year. Thats some pretty good news. Seth kaplan is managing partner of airline weekly. Seth, listen, our viewers and listeners know what theyre paying for gasoline for their cars. Ive got to imagine that the airlines are just as happy about their prices at their pump, so to speak. Are we going to see ticket prices continue to fall because of low air fuel costs . Yeah. Now, the declines will probably slow down somewhat, brian. This year weve seen them really tumble, and the airlines are trying to get their hands around that because they realize at some point, you know, thats going to flatten up, and so if the fuel prices stop falling, they cant go below zero, and if the fares keep falling that can only mean one thing, lower profits in 2016 than 2015. Theyre trying to get their hands around the supply growth. But its an a race to the bottom between falling fuel prices and falling airfares. So far happily for the airlines the falling fuel prices have won the race. You know, seth, when i read this story and when we talked about it in the morning meeting, my first thought was where the heck are they falling . I fly a lot and they seem still very high to me and the airlines all seem completely full. Load factors, those are up, arent they . The airlines are still filling up their planes. They are. And theyre filling them on average though, brian, with people paying less. Absolutely. It depends on the market. If youre sitting in seattle or the dallasft. Worth metroplex, you have intense battles. Airfares have dropped, other places less so. A year ago, you tried flying on a different date or making some inconvenient connection, you were going to pay a lot whereas now its kind of creeping back in there where maybe not the exact seat that you want, but you can get a good deal again and that wasnt necessarily the case a few years ago and im talking, brian, not just about if youre flying spirit but even flying delta, united, and american. Some very low fares out there right now. Lets talk about what is the root cause of this and thats capacity expansion. This is exactly what a lot of analysts were concerned about when fuel prices hit rock bottom. We had southwest, Spirit Airlines expand capacity tremendously. That caused them to start discounting prices. That caused the bigger carriers to then respond aggressively with discounted prices. That capacity expansion wont go away overnight. The root cause will be there . Who is in the toughest spot . Will we continue to see low airfares because that capacity is simply not going to evaporate overnight. Yeah. And ironically, melissa, its the airlines that, you know, the Legacy Airlines, delta, united, and american sort of blamed for what they see as excess capacity. Airlines like spirit and others, those airlines are feeling some pressure quite simply because when fuel is have cheap, the Legacy Airlines can profit with lower airfare. Everybody is growing and youre right, melissa, in the end this is supply and demand economics. You put more supply into the marketplace, prices fall. Thats what happens with airfares. Youve gotten to a point where American Airlines is out there with fares in some markets, not all, brian, but some markets of like 40. Well, where can spirit come in under 40 to get somebody to fly spirit which they might not prefer in terms of an airline. To be clear, spirit is one of the most Profitable Airlines in the world, theyre doing fine, about you it does put pressure on them. A year or two ago they were making money coming in at price points that were much lower than prevailing airfares and getting people to fly them who might not otherwise have done so and now its becoming harder to do. Seth kaplan, it was a pleasure. Well see you in the new year. Take care. Likewise. Happy new year, brian and melissa. Check this out, these are the latest pictures out of missouri. Massive flooding throughout parts of the state. Jay nixon has called in the National Guard to assist with flood fighting effort. Roads are closed in 500 locations. Thousands of homes in missouri are reportedly threatened by this flood. Wow. A rough year for the emerging markets. Look at the etf that tracks them, the eem, down almost 20 in 2015. What about next year . We will the commodities crush bring more pain. We have your 2016 playbook. Plus coming up, a startup delivering wine by the glass. Fine box allows members to discover new wines and explore their own taste preferences. Will the panel chink it dru . Stay tuned to find out. Youre late for work. You grab your 10gallon jug of coffee, and back out of the garage. Right into your wifes car. With your wife watching. She forgives you. Eventually. Your insurance company, not so much. They say you only have their basic policy. Dont basic policies cover basic accidents . Of course, they say. As long as you pay extra for it. With a Liberty Mutual base policy, new car replacement comes standard. And for drivers with accident forgiveness, Liberty Mutual wont raise your rates due to your first accident. Learn more by calling at Liberty Mutual, every policy is personal, with coverage and deductibles, customized just for you. Which is why we dont offer any offtheshelf policies. Switch to Liberty Mutual and you could save up to 509. Call Liberty Mutual for a free quote today at see Car Insurance in a whole new light. Liberty mutual insur. Time now for our regular series power pitch. Thats where entrepreneurs get just one minute to make their pitch and then a panel of experts weighs in, asks questions, and decides if they have got what it takes to become the next big thing. Hi. Im rachel. And im matt dukes. Were two former lawyers with a shared love of wine and travel and were bringing both to you with fine box. Were the first wine by the glass club. Every month members receive one of those delivered directly to their door. Inside are three individual glasses of wine curated from all over the world. We bring the tasting room to you, exceptional wines, simple tasting notes and the stories behind the wind. Both the novice and wine connoisseur in mind, you can explore your taste preference before committing to a fullsize bottle. When you find something you love, its easy to order more by the bottle or glass. The u. S. Is the Worlds Largest wine consuming country with over 100 million wine drinkers and this industry is ripe. You just saw matt and rachels pitch. Lets meet the panel. Joining us on set is alicia syrett. She advises and invests in over two dozen startups. Also on set is Nikhil Kalghatgi with vast ventures. He invests in 50 consumer and mobile startups. And also Nir Liberboim with investment in online subscription businesses. Hello to everybody. Great to have you with us. Would you like to throw the first question out . Lets say a consumer comes to your site to discover. How do you keep them as a customer paying 35 a month for a few glasses of wine after theyve already discovered their tastes . Thats something thats great about wine is you are constantly discovering new tastes, discovering new regions. So maybe you know you like a right bank bordeaux, but then were going to introduce you to italy. So even if you know you like your taste preferences, its always changing and theres always room to grow. I love wine. I like wine with dinner. Wine with lunch sometimes, maybe even a little breakfast wine. But the problem i have is that its always one directional. Its always me buying it. I never get to indicate to the seller what i like. How do you engage with consumers after the purchase . So this is going to be the first platform that can really learn from your own tastes. So after you have three glasses of wine each month, were able to learn about your taste preferences and you can make indications on what you liked, what you didnt like through your online account and then we can cater more towards your taste. You mentioned in your pitch you have both the wine novice and the wine connoisseur in mind. How are you selling the same product to two different seg snments. With the wine novice its more of an educational aspect. It gives you the opportunity to learn about wines and discover your own taste preferences. With the connoisseur, were giving them access to wines they wouldnt otherwise have access to. So these are wines you cant traditionally find in the u. S. And they can explore smaller, more niche vineyards. Alicia. Talk to me about distribution. Right now youre selling direct to consumer on your website, but when can people get your product through retail distribution . So we are direct to Consumer Product and the core model revolves around delivering three individual glasses directly to their door. We envision retail applications in mid to late 2016 so you will see them in stores as well. So the wine category is strong and growing but it has historically had very little brand loyalty. How do you ensure consumer convert from sampling to loyally buying full bottles. Creating a memory experience is important to creating brand loyalty. You dont just get a glass of wind. Well tell the stories, transport them to a little town in france or italy and explore not just those external regions but also help them learn about wine and their own preferences. We all heard what matt and rachel had to say. Now we need to know if the panel is in or out. I was initially concerned whether this was going to be a big enough Business Opportunity given the droirect to consumer model but the fact theyre eventually going into retail i think is a really big deal. Theres a big opportunity around single serve premium wines and its a really smart team and a huge market. So im going to go in. Weve got one in. What about you . I tried chateau and i actually thought it was delicious breakfast wine, but the most important thing for me is about discovery and really understanding if these are exactly what you want to try, and id like to try it, so im in. Okay. Nir. I tried a vine box and i discovered a couple wines i really liked and i like the packaging and branding. Im concerned its a highly regulated category but i think youre onto something big. I think this is destructive so im in. Three ins. These actually quite rare. Were focused on growing vine box and stay tuned for more in the future. Thank you to matt and rachel of vine box and to our panelists. And that, folks, is todays power pitch. All right. Einstein was wrong. Mandy was in two places at the same time and had longer hair and a different outfit. Are you in or out on vine box . Melissa and i were just talking, we were both way out. Not even close. Said no way. Three glasses of wine is a night, not a month. For you. Youre a big person. You can consume that much. It seems expensive. It seems expensive. Were out. What do you think, america . Tweet us using powerpitch in or out of vine box. And for more power pitch visit powerlunch. Cnbc. Com. We are full of power. Braff zil down, russia down, india down, china up. Despite a big selloff. With oil and other commodities in a slump, how do you play or invest in because its not you dont play with money, you invest it. The commodity dependent regions in 2016. Were going to find out. Stick around. Its hard to find time to keep up on my shows. Thats why i switched from uverse to xfinity. Now i can download my dvr recordings and take them anywhere. Ready or not, here i come whispers now hideandseek time can also be catchuponmyshows time. Here i come cant find you anywhere dont settle for uverse. X1 from xfinity will change the way you experience tv. Hi, everyone. Im sue herera, here is your cnbc news update. Turkish Police Say Two men suspected of planning a new years day proper attack are in custody. Authorities seizing a suicide vest and an explosive device containing ball bearings. Californias fouryear drought may be coming to an end or at least easing a bit. Os are expecting good news later today when they get the First Official snow pack reading of the year. The Sierra Nevada snow pack makes up 30 of californias water supply. Electronic cigarettes may not be as safe as you think. Scientists with the va in san diego treating human cells with the vapor of two brands of e cigarettes and they found those cells were more likely to show dna damage and die. Bill cosby faces up to ten years in prison if found guilty of aggravated indecent Assault Charges filed today in a case from 12 years ago. Cosby is expected to be arraigned within the next hour. And that is the cnbc news update at this hour. Brian, back to you. Sue, just quickly here, i dont know if you know this, are we going to see bill cosby in court anywhere later today . We do not know that. I dont know if theres a requirement that he be present or not, so were not sure, but we will be covering the story. Well be all over it for you right here. Sue herera, thank you very much. Thank you. Gold prices are doing what they have done for much of the year, falling. Here is your metals close right now. You can see comex gold. Aside from copper, silver, palladium are down. Lets get some investment advi advice. Rob morgan, chief investment officer, and jim key, president and chief economist at south texas money management. Rob, first to you. What, if any, major changes to your strategy and recommendations to your clients are you making heading into january 1 . Yeah, brian. I was prior to the feds rate Hike Campaign initiation is few weeks ago, i was very aggressive recommending an overweight on stocks and the sectors i was recommends were cyclically oriented but prior to that all happening, i pulled some of my equity chips off the table. I went to a market weight on stocks and rotated into some more defensive sectors. We can get into the details of that, but from a broad standpoint, that is what im recommending going into 2016. Jim, you are at south texas money management. Oil has been the driver for the stock market this year. So what do you see happening with oil and what do you see happening with relationships between oil and stocks next year . More of the same . Well, im afraid so. Weve been Underweight Energy for about two years. We have an Energy Symposium with a lot of speakers. The underlying economics still point to lower oil. Unfortunately, about 80 of the worlds oil supplies are owned by state directed economies, so the Lower Oil Prices and the volatile oil prices kind of can destabilize those regions. I think thats why markets are reacting in a negative way. Anytime you see oil fre fae falg below 40. Another year of the same . Well, the underlying economics would say yes. Theres just a supply glut out there that would probably take at least 6 to 12 months to work off regardless of what Global Demand might do. All right. I might point out that were not really commodity forecasters, so the gist of that is i would expect that the oil market anytime you see it plummeting or falling below 40 a barrel, just expect more volatility in stocks, but our advice to clients is always to lift your gaze and think longer term in a market thats a little more shortterm focused. Yeah, and so, rob, obviously oil has been a big theme for power lunch. Weve talked about it for really a year now. Whats going to be a surprise in or around oil or anything else, a surprise maybe that youre hoping for, not looking for, but hoping for next year . Well, i think, you know, people this whole year have been hoping the financials would do well in a rising rate environment. And now we finally have that, and so i think that that outlook is going to be rewarded next year. I think financials should do well, but i share jims views on the commodities from the standpoint of the dollar is going to continue nudging up. Have an underweight on materials. I dont actually have an underweight on oil because i think cuts in production are going to catch up here soon with cuts in rig counts, so im a little more neutral there. Financials is i think that will be a nice surprise for 2016. I know a lot of investors hope you are right. Rob morgan and jim key, guys, thank you. Have a happy new year. See you in 2016. Thank you. So go to powerlunch. Cnbc. Com to see what else jim likes next year. Melissa . Brian, its been a tough year for the emerging markets in part due to plunging oil and commodities prices. Check out russia. The ruble in todays session hitting a new low for the year against the u. S. Dollar. With all these new lows in the emerging markets, is there opportunity in 2016 or is it really all about oil and commodities . Seema mody joins us with that story. And its clear that investors will have to be selective on where they find opportunity given the number of macroeconomic and political factors at play. Take a look at brazil. Not only being hurt by the drop in Commodity Prices and slowing growth but high Political Uncertainty as its president deals with rising backlash from citizens and heightened concerns regarding her involvement with the petrobras scandal. Two key collectielections in th will determine modis effectiveness. Ve investors are becoming more bullish on russia barring political surprises and if relations improve the west and putin, sanctions could be lifted sooner than expected so that may be one market to focus on next year. Seema, stay right here. Were joined by ron insana. We have the ruble hitting 1 1 2 year lows. Whats the outlook . Unless youre a crazy pro, you dont go into russia. This is not a widows and orphans type place to invest. Even emerging markets broadly speaking are still going to be dependent on how many times or if the Federal Reserve continues to raise interest rates, strength of the dollar, strength of Commodity Prices, and the strength of china. Until those four variables become clear, maybe a little before they become clear, im not sure that its easy to get excited about this part of the investing spectrum at the moment. Which do you think will have a larger impact on Global Markets . This is a piece im working on for next year, fed or china . Well, i think theyre equally weighted. If the fed raises rates three times and the dollar strengthens, you have capital outflows from emerging markets that come into higher yielding u. S. Securities and if china weakens substantially, you have the same problem repeating itself because the yuan will ultimately get devalued. You have a double edged sward barbelling the emerging markets. The last time we were in a raise rising environment emerging markets did fine and its different this time because we are in a cycle where commodities are absolutely crushed and that is a key differentiating factor. And that includes australia and new zealand and brazil. Exactly. And to the extent that its different, you still have some currencies, and this is the same, that are pegged to the value of the dollar. You start blowing the grids apart like we did in the late 1990s and you have all kinds of turmoil that has begun this year. The question is whether or not its going to resolve itself favorably going into 2016. Okay. Seema, ron, thank you. Good to see you. Happy new year. Brian, back to you. Lets get a check on the bond market on the back of that sevenyear note auction that professor santelli apparently generously gave a d plus. Rick . Yeah, who let the dogs out. It was a doggy week if you were looking at the dutch auctions tuesday, wednesday, and thursday. But 90 billion of supply is out the door. New owners. Lets look at the intraday of seven year. You can see the volatility right straight up at 1 00 eastern. Normally you see rates come down after the supply. Theres still time. They are moderating a little bit actually. If you look at the long end just to compare it, volatility as well, and we do see it coming off the 304, 305 area. Lqd and hyg they were really popular to talk about a while ago. Its the investment great lqd that yesterday made a new low going back to 2013. The hyg made its lee on december 14th but its in the neighborhood we havent seen since 2009. Thank you very much. They say that the wheels of time stop for no one, but a famous indoor ferris wheel in times square unfortunately does. Courtney reagan live in times square with that story. Courtney . Well, brian, the toys r us in times square is closing its doors for the last time at 6 00 today. Ill tell you why. You have to stick around. Its coming up on power lunch. Welcome back to power lunch. Im melissa lee. Seaworld filing a lawsuit against the state of california to challenge a ruling by a state commission that bans breeding of captive orcas. Fairchild acknowledging it received an offer by an unnamed bidder to buy all shares for 21. 70 per share. And big energy names getting hit again today as u. S. Crude fell more than 2. 5 in trading. Lets get to seema mody for a market flash. Shares of universal display are up about 7 on this down day. Koreas electronic times is reporting samsung and lg display are close to final deals with apple to supply displays for iphones. It follows a report stating apple will launch iphones featuring oleds. Shares are near the highest levels of the day. Toys r us is closing its iconic store in times square tonight. It says the rent is just too high. Courtney reagan is there getting in one final ride on the ferris wheel. I want to try to get in there before the doors close for good at 6 00 tonight. Trex is going to roar for the last time. Toys r us is closing its iconic Times Square Store five months after it closed the fao store it owned on fifth avenue. They are looking for a new location but havent found one yet. Its among a number of retailers that are closing manhattan stores due to record high rents. Average asking ground floor retail rent is up 42 in the flat iron area, 28 on just one part of east 57th street. However, the real estate board of new york says not every area of manhattan is seeing a high averaging asking rents than a year ago. Rent is down as much as 6 in some areas. The average asking rent for ground floor retail space in times square is up 3 and its the second highest area in manhattan at 2,390 per square foot per month. Many retailers justify the higher occupancy costs in part as marketing expenses. Frank lao says the big apple is really hard to beat when it comes to consumer exposure, especially for tourists even if tourism is down due to the strong dollar. Now, we know that online sales have begun to steal some sales and traffic for sure from many Stores Across the country, and david basic at Alex Partners says new York City Stores that cater to tourists especially could be even harder hit from this ecommerce hit. Basically because if youre a tourist and you want to explore the city, you dont want to carry around a big bag, especially if you can order it online and get it delivered right to your home. Back to you guys. Courtney reagan. Try to have a little fun out there today. Thank you. Airbnb is now valued around 25 billion, but landlords and governments are still trying to figure out if it is a friend or a foe. While some tenants are getting slapped with thousands of bucks worth of fines, the three biggest residential landlords are actually in talks with airbnb to work out some kind of potential revenuesharing model. If theres a lot of money, you have to get yourself some. With rents near records, some are asking the questions, is being able to rent your place on airbnb raise everybody elses rent . You have brought in legos. Oh, i have. To sort of accentuate your point. Please educate us with legos. Yellow lego. This is how much a landlord the landlords bottom line. Colored legos. This is how much a landlord is willing to take from someone who is considering airbnb but not to the landlords knowledge. Okay. An illegal airbnber. Exactly. And this is the cost that the landlord incurs if someone finds out about the airbnb that they didnt even know about in the first place and the cost they incur to mitigate future airbnbers and that outweighs the profit. So theres a gap. Here is the bottom line. If its illegal, matt, then the landlord is taking a risk even if he or she does not know that somebody is renting out their apartment, right . Because landlords cant be on top of what everybody is doing. Absolutely. What is the airbnb effect on everybody else . If youre taking apartments off the market to turn into shortterm rentals, the rents will go up because your limiting the inventory going on the market. I get that sort because youre not really because there is a tenant in place. When the tenant is away, youre airbnbing so youre not depriving another potential tenant of an apartment. Correct. Were not sure on the legality on whether thats the case. Then thats a different story. So how does that push up rents because its not impacting the inventory. Its supply and demand, right . What you charge in rent. So if youre not affecting the supply mault thely because a tenant is in the apartment and that tenant is airbnbing, how does it impact the rent . I think whats happening is landlords are seeing that tenant is getting 1,000 per night in that apartment. Theyre thinking, this apartment is now going to be able to get charged 30,000, which is not the case. So then when the tenant moves out, theyre going to up the rent to exorbitant amounts that are not affordable. Right. And whats happening, i have actually spoken to landlords who we work with regularly, and for example a 3,000 apartment has commanded 5,500 for a shortterm lease from that landlord. Now, the landlord actually believes that the value of that apartment is 5,500 because he doesnt realize that there are people that are taking that 5,500 apartment and airbnbing it for a profit to make it affordable. Its in that gap of how much that person is paying and how much that landlord is willing to take, its pushing it up. There are people who could not afford to live in a place but for some benefit they get from airbnb. Agreed. But landlords are vetting tenants before they let them in, so theres a qualification level. Theres a limit. The tenant has to still be able to pay his or her rent on their own because youre doing credit checks and employment checks and income checks. But as we learned in 2006, everybody always tells the truth when they fill out a form, right . Its a risk all landlords face. Some people are fibbing, i think. Its a risk all landlords face. The hardest part is that in addition to that risk, now theyre facing the risk that people are hoteling their properties, not to their knowledge, and theyre getting taxed and hit with 20,000 to 40,000 fines when theyre caught about the government. Nita and matt, we have verbs. Airbnbing and hoteling. Right here. If matt comes back, he needs to bring lincoln logs or something. I know. Jenga. That might be applicable to new york city real estate. Here is what is ahead. Oil down big today. Materials, what a dismal sector for most investors but theres one bright spot that might have big implications for the american economy. And last year right around this time, i made some big predictions for this year and for all of you looking for an opportunity to tell you im wrong, i can promise you its coming up. So get your gloat coat up. I blew it. No, you got some right. One. Im here at the Td Ameritrade trader offices. Ahh. Steve, other than making me move stuff, what are you working on . Let me show you. Okay. Our thinkorswim Trading Platform aggregates all the options data you need in one place that lets you visualize that information for any options series. Okay, cool. Hang on a second. You can even see the anticipated range of a stock expecting earnings. Impressive. Whats up, tim . For all the confidence you need. Td ameritrade. You got this. And this year, look at whate he put in our driveway. The lexus december to remember sales event is here. Lease the 2016 es350 for 349 a month for 36 months and well make your first months payment. See your lexus dealer. Welcome back to power lunch. Im melissa lee. Here are this hours power points. Stocks are lower but holding steady. The dow is down 45 points. Oil plunging once again today. Crude down more than 3 at this hour, and health care and utilities the leading s p 500 sectors. Brian . Well, more bad news for the city of wilmington, delaware. Dupont announcing it will cut 1,700 jobs from the companys headquarters in wilmington, and on deck well speak with the mayor of that city to get his perspective on the seemingly major blow to his citys economy. Power lunch is back in two. Dupont will cut 1,700 jobs in delaware early next year ahead of the planned merger with dow chemical. We retached to delawares governor for an interview but he declined. He issued this statement. Duponts announcement is deeply disappointing especially to the thousands of delawareans who helped the economy grow and succeed for generations. The mayor of wilmington is joining us now. Theres no city in america more closely aligned with one company than dupont and wilmington. Bad news. What does this mean for your city . Well, brian, there will be a trickle down effect from the 1,700 layoffs. Most of the lawoffs layoffs will be in wilmington. I had several family members that retired from dupont almost about 20 to be exact. Anybody thats been in wilmington, delaware, for a long period of time, weve called them uncle dupie because dupont has done a lot for our state and city. Im saddened 1,700 people are going to lose their jobs. Mayor, a spoke with a prominent resident of the area a month ago right when the dow chemical news was announced, and his word was tragedy with whats going on at dupont. The company has been there for 200 years. Would you describe whats happening with dupont and the investors and the breakup and the mergers and everything as a tragedy . Absolutely its a tragedy, brian, but when the bottom line comes and the shareholders get together and they want to make changes for companies to survive, thats what they do, they merge and go after the smallest person. My concern for the future now is that these folks pensions will hold up and their benefits will hold up. I do know personally i know some people that are very terrified. Theyre making six figures at dupont. I go to church with these folks and theyre very scared. And its you have to understand that when you are being told youre laid off, the job you have had for the last 15, 16 years and youre making great money with a Solid Company and somebody walks into your office and tells you youre out and youre not prepared for it, what do you do . You see fear on these folks faces and its very unfortunate, but i knew when the breakup went, i knew there was going to be a problem because what theyre doing now is looking for the bottom line and, you know, when you have a board of adjusters and people start looking at ways to save money and compete with worldwide businesses, this is what happens. People at the bottom get hurt. At the same time, there could be an upside and that is that the ceo of dupont has said that one of those companies spinoffs, one of the three spinoffs will be headquartered in delaware. What sort of upside are you getting are you getting any indication as to how many jobs those might mean. Maybe those are better paying jobs at the end of the day. Right now theyre not committing on anything. Theyre saying it might happen but at this point in time im worried about the spinoff. Thats the solid problem im having. Having to look at tax adjustments because i have to keep them in the city of wilmington. Thats 1,000 jobs and thats a spinoff from dupont and thats the one im working with and anything i can do to help folks being laid off with dupont, the city of wilmington cant do much, but the state and the county should be reaching out to those folks. Wilmington mayor dennis williams, thank you for taking time for cnbc. We appreciate it, sir, and have a happy new year. Thank you so much. Off happy new year, too. Tough times in wilmington. Were with you, delaware. It is now 2 00 p. M. On wall street. Same time in wimenlmington. Welcome to the second hour of power lunch here. Melissa and i are doing double duty all week. Fun, fun. Lets begin, you might have heard something on this program this year about the drop in oil prices today. In fact, the story is so big Jackie Deangelis was forced to leave the nymex and to visit us in studio. Got a visa, across the border. Welcome in new jersey. My morning started out with a 5 00 a. M. Email that said the volatility continues. This will be wild today. And it has been. When you see these kinds of moves in either direction, this is what we have to expect. So yesterday all commodities to the upside and today all commodities now to the downside. Looking at ail today, the pressure were seeing coming out of that doe inventory. A build of 2. 6 Million Barrels certainly bearish for crude oil prices. U. S. Production up three weeks in a row. Im not sure if we have this chart for you. But if you look at u. S. Production on a weekly basis you can see we started around the levels we are now, 9. 2 Million Barrels a year. We peaked in june at 9. 6 and now weve come back down. So this shows you next year its really anybodys game. The producers, the shale producers, theyre much more flexible in controlling their volumes, controlling their output and they can play along here depending on what opec and the saudis decide to do. But right now as you said, prices under that 37 mark and expected to potentially go lower early next year if the fundamental story doesnt change. Why does everybody say depending on what the saudis intend to do . Is there a thinking that the saudis are sort of talking up this tough rigid oil policy as a political gain . Theyre jaw boning at this point . Because the Saudi Energy Minister said unrestrained output is a reliable policy for saudi arabia. And everyone was reading that today with a very critical eye. You have to look at their budget numbers that came out just a couple days ago and know they are choking from low oil prices. How could the oil minister actually be out and say that today . Now, they may be willing to draw the line in the sand even deeper than they have or they may sort of be positioning themselves to bring a big surprise to the market, and that is something people are starting to consider. Remember that whole production keep up things. We were just kidding, world. Wei lets bring in kyle cooper. Kyle, here is the thing. Here is the problem you know, you lay there and you think, okay, saudi arabia is making some money on oil but a lot of people are losing money. At some point they will make the economically rational decision to cut production. But is that where the great mistake can be made in oil right now is thinking that the saudis will act rationally . Well, yeah, and whats rational . If they cut, does the price go up enough to offset the volume . And i think they got sick and tired of earlier in the decade losing market share, and ipg the li line in the sand they have drawn is were tired of losing market share. Were going to maintain our customers. Were one of the lowest cost producers on earth. Our margins are still better than others and were not going to give up customers anymore. Kyle, in your mind its not about what the saudis are going to do because in your mind the saudis are going to keep going what theyre doing, pumping oil. It certainly seems like that. This has been their mantra for quite a while. I honestly think they vastly underestimated the significance of the oil shale here in the u. S. I think they thought it was kind of a lot of bluff and wouldnt really fulfill those levels that weve seen. And now theyre saying, you know what . This is via 1986. Were not giving up any more market share. What i think is interesting is the view right now looking at the budget and seeing some of these reforms the saudis want to put into place. Basically effectively taxing the inhabitants of the kingdom that are not used to this. The concern here is we could potentially see a little bit of a mutiny internally once the effects start to pak place. Thats what people are thinking might cause the shift in tone. Absolutely. Like you said, the saudis have been very, very lavish with doling out goodies to their populace. People get used to that, and its going to be very interesting. I still think the royal family has a pretty good grip on the government there and is not under any duress or, you know, immediate threat of overthrow, but you know what . Thats always a possibility. Thats obviously one of the most volatile areas on the planet. If we come in one morning and the saudi royal family is no longer in control, things are going to get really crazy. Kyle, whats the price of a gallon of gas in houston right now . Unleaded is 1. 57, 1. 60 if you go to one of the discount sams. Ill be to the airport. Im flying into houston on sunday. Well see each other, i assure you. Kyle cooper. Give me a call. Im in. Kyle, thank you very much. Lets get to breaking news with sue herera. Thank you very much, brian. We are awaiting the arraignment of entertainer bill cosby. He is going to appear in court at that arraignment nbc news is reporting. We expect that to happen at 2 30 p. M. Eastern time as you look at the live picture. Obviously thats a lot of the live trucks. This is a very big media event, and we should let you know cnbcs and nbcs cameras are there as well so we will bring that to you when it does happen. We have discovered, as i said, mr. Cosby is going to appear in court. Earlier this morning prosecutors outside philadelphia charged the comedian with aggravated indecent assault more than a decade after allegations surfaced that he drugged and molested a former Temple University employee, and that occurred in his home. Its a felony charge. Mr. Cosby is 78 years old. If he is convicted, he faces five to ten years in prison. Its a seconddegree felony charge. Nearly 50 women have come forward saying that they were victimized by mr. Cosby, but in many cases the statute of limitations have expired. In this particular case because of a civil proceeding, the prosecutor said this morning that some new evidence was discovered which then allowed them and basically encouraged them to bring this case against mr. Cosby. So they have charged him with aggravated indecent assault more than a decade after those allegations occurred. Youre looking at the live picture. Elkins park, pennsylvania, is just about 20 minutes or so outside philadelphia were learning, and he will appear in the courthouse. We expect it to happen about 2 30 p. M. Sources have told nbc news that mr. Cosby will probably go in the front door of the courtroom. We have cameras all over that situation in case he comes in a different door, but, again, brian, we expect it to happen at about 2 30 p. M. We will keep you posted, melissa and brian. Sue herera, thank you very much for that. We were just talking about oil before. After energy, we should point out materials come in at number two for worst performing sector in the s p 500 down 9 . Freeportmcmoran is down 70 in 2015. Alcoa down 40 so far this year but there has been a bright spot. Morgan brennan has found it. There is one bright spot. Its been a tough year for materials. They have marketly underp underperformed the broader s p 500. But metals and Mining Companies have plunged. Take a look at construction materials. This is an Industry Group up about 38 for 2015. So the two names that are fueling that, Vulcan Materials which has gained more than 46 this year. Also Martin Marietta materials up 26 . Morningstar says its been a recovery story as nonresidential constriction has begun to take off. Both of these company produce rocks for concrete and that business tends to be almost entirely u. S. Based. Unlike other more valuable commodities that rely on demand from china and other countries. He doesnt expect to see the same kind of rally in 2016 but that demand for construction should continue including for roads with legislation that was recently passed here stateside and that should benefit these names to some extent next year. Another group to watch, chemicals. While down about 5 5. 5 this year, this is an Industry Group that has actually soared about 15 in the fourth quarter. Thats thanks to the proposed dow chemical dupont merger. Analysts expect to see more consolidation especially among Agricultural Chemical Companies and frank mitch at wells fargo adds that despite a rising rate environment a strengthening u. S. Economy should be a positive for chemicals as well. For that reason, melissa, he likes names like Ppg Industries which made an acquisition in mexico and is seeing its input costs come down. Its an interesting point about the concrete leverage plays. Theyre also not dependent on the dollar. Its so true. Rocks are not valuable enough to move and export out to other parts of the world. Exactly. But they make a lot of sense locally. Morgan, thank you. Brian . The top of the last hour we learned puerto rico is set to default on part of their debt payments that are due on monday. The default will total just 37 million but they will pay the 329 million in general Obligation Bonds. Still, a big story out of puerto rico. Lets bring in a man who called this morning a year ago, Larry Mcdonald from Societe Generale. Theres two ways to look at the story which is, number one, puerto rico is expected to default. Number two, they will still pay the majority of what is due on those g. O. , general obligation, bonds. Is this a good or bad outcomes . For investors watching us at home, there are 72 billion of these bonds. 16 different parts of the capital structure, but those general Obligation Bonds, those g. O. S, are about 13 billion of the 72 billion, so at the end of the day what were witnessing is a public bankruptcy where politicians are picking winners and losers and thats whats going to thats what were going to see over the next year as the government of puerto rico picks those winners and losers. Yeah. They pick the winner and loser and they can decide what creditors are going to get paid. Lets take the story out bigger for an investor in oregon or whatever sitting there right now thinking what does puerto rico matter to me . Explain the connection to puerto rico and the bigger markets. All across the United States of america what we saw in detroit with that bankruptcy is some of the pension people were given better protection than the bondholders, and now people are going to look at other bonds across america, cities and towns, and theyre going to start to think could government officials pick winners and losers, and i think what could transpire is the cost of financing across america, particularly in the cities and lower parts of the Capital Structures of different bonds, those costs can go up relative to whats happening in puerto rico and what we saw happening in detroit. Larry, i wanted to im sure you saw this, too, but we saw a sharp reaction in some of the insurers of these bonds, the nbiss. Theyre down 3 or so apiece at this hour. The fall mostly on this news out of puerto rico. It cant possibly be the small the amount thats being defaulted thats simply pushing the stocks down. Is there some thinking when youre looking across different issues coming out of puerto rico, are yields going higher on some of the bonds that are due to be paid out later on, for instance . Are we seeing a pricing in of risk in other bonds aside from the ones that are due on monday . Yes. Weve seen a massive pricing of risk across the capital structure, so some of the bonds are trading in the low 70s and you have some bonds trading down at 10 cents on the dollar. In the case of the mortgage insurers, they have wrapped some of the bonds. The bonds defaulting are wrapped, 1. 9 billion, so people are saying, oh, geez, how much will the mortgage insurers be on the hook for. Across the capital structure youre seeing the different bonds pricing in risk and i think that it will continue over the next two to three months and through the year. Given the amount that is going to be defaulted on on monday, larry s there any way to sort of do a back of the envelope calculation on what Puerto Rico May not pay in the future . Is there any way of getting your head around that . The most simple way is if you have 72 billion of debt, 13 billion in g. O. S and after the g. O. S, you have the cofinas with better protections in terms of the language written into the bonds. Besides the g. O. S and the cofinas, other bonds across the capital structure are considered weaker and theres no way to really quantify that right now, especially on the air, but i would just say 1 billion of g. O. S is at the top and then you have another 10 billion of cofinas and everything after that falls into different buckets. Larry mcdonald, head of u. S. Strategy at Societe Generale. Have a happy new year. Thank you. Here is whats on the menu for power lunch. Humble pie and maybe a little crow on the side. Sounds delicious. It does. Yummy, yummy. Brian is going to have to eat a lot of it. My chance to grill brian on his 2015 predictions coming up. But theres still time. One trading day. A small market rally, please, might help me out. Were back right after this. Were always looking for ways to speed up your Car Insurance search. Heres the latest. Problem is, we havent figured out how to reverse it. For now, just log on to compare. Com. Plug in some simple info and get up to 50 free quotes. Choose the lowest and hit purchase. Now. If youll excuse me, im late for an important function. Compare. Com. Saving humanity from high insurance rates. At the end of every year many of us on cnbc make predictions about the next year and then you try to be honest about them and say, okay, here are the predictions i made, here is what i got right, and maybe here is what i did not its hard for me to say the w word. Get wrong . What i did not get right. Here is our chance to talk about it. Just because you didnt make predictions because we prrnt doing the show together at that point. Ill make some predictions next year. For now i will be delivering the humble pie. Im ready. First up, your prediction was that the tenyear yield would be above 3 and that prediction was it wasnt just wrong, it was horribly wrong. It was rong wrong. Of all the predictions i made, i knew it was the least likely to come to pass because we were so low when i made it. That would have been a monumental shift in the bond market. I thought the fed would raise rates, they did. I thought they would raise them earlier than they did. Most people did that also. And the thing is that the wall street strategist who thought the economist who thought that they could amend their predictions and youre stuck with yours. You had to stick by this one. Everybody you know that you know nobody has gotten it right. Theyre like, sullivan, youre a moron. I threw it out there anyway. Next up, that gold will end the year trading below 1,000 an ounce and survey says wrong again. Gold is trading at 1,060. The lowest trading price for the year was 1,046 in december. On the flip side gold as trading as high as 1,300 an ounce on the 21st of january. So almost a year ago. So this one i got wrong, yes, however, i got a piece going up where i recap it, it should be on the website soon if its not already, which is i think i will be right soon on this one. I agree. Youre a little early. Early is wrong as they say in trading. I have been negative even before i joined cnbc on gold, i have been negative for five years since it was at 1800 bucks an ounce. The only prediction i can make about gold next year is im making no predictions about gold. I have hated it for five years. I called it a tired old mule. You get all the gold people worked up. I was wrong on gold but i think i will be right sooner than later. Because a lot of the gold call because you thought the u. S. Dollar would be stronger . Has nothing to do with the dollar. Theres a great book that says gold is simply people buy when currencies are unstable, when people are scared. And sta bill has returned to much of the world and gold is just a thing. Its been a safe haven for a long time. Try to sell your gold if theres anarchy. You will get ten cents on the dollar for it. You cant eat gold. Next prediction here, you believe that 2015 would hold a major sovereign default. I was wrong. But the puerto rico stuff, they just defaulted. Theyre not a sovereign. Im not saying i was right. Im saying Puerto Rico May default on part of their debt on monday. I mean, im not hoping for a sovereign default. I thought venezuela would because of oil, russia could. Russia less likely because the weak ruble is boosting exports. Venezuela, if oil stays down its just a matter of time. Youre thinking maybe venezuela in the next couple days could be your ticket in the next couple days . Not next couple days. Next prediction, ibm would see some sort of split. It would break up. A lot of other spinoffs. I was wrong. They have to do something. If those go well, this prediction could turn out to be right because they are going to have to take steps if the current strategy does not work. Ibm was a 200 stock a couple years ago. One of the worst performers in the dow again. Multiple straight declining sales. Ibm will have to do something. Warren buffett has even given it a boost and its not helped ibm. Wrong this year but ibm, something has to turn. A final prediction and you might be right on this still. That the dow would close higher for the year by either be flat or up my prediction was the dew wou dow would have a meh year. What do you mean . Thats right. Its down for the year. Theres a 2. 8 dividend yield which makes it reverse that buzzer. Are you going to play it backwards . If i am off on the dow by a half a percent. Well let you have that one. Youre right. By the way, every other strategist wif we have on this network was wildly optimistic. Theyve all been wrong. All of them. All of them. All of them. So im well call it a half for 4 1 2. Fine. Half right. There you go. Thats over. We do have some serious breaking news with sueherera. It concerns news out of belgium. Brussels is canceling the new years festivities which included fireworks over a terror threat. It comes in the wake of two separate raids over two days where they detained four people, two suspects were arrested and they are accused of plotting attacks in brussels, so as a result of that, brussels has canceled its new years festivities because of a legitimate and significant terror threat. We are also following a developing story right now, and that is that bill cosby is due in court within the next 15 minutes. He faces charges that were lodged against him this morning of aggravated indecent assault more than a decade after allegations surfaced he drugged and molested a former Temple University employee in his home. Its a felony charge. He would face five to ten years in prison if convicted of that Second Degree felony charge. Once again, he is expected in court in just a few moments. We will continue to follow this live developing story right here on cnbc. Well take a quick break and then power is back in just a moment. Welcome back to power lunch. Just a reminder on the developing story were very closely following which is that bill cosby is set to be arraigned in a courthouse in cheltanham, pennsylvania, which is effectively a very closein suburb, inside the beltway that goes around philadelphia. Its one of the most close in suburbs to deep south philadelphia. Thats a copter shot and you can see theres not only a number of authorities but theres also a number of media that is there. Bill cosby set to be arraigned on a felony charge of Sexual Assault. We are watching an suv right now. Again, we dont know if bill cosby is in the suv, if he will be attending the arraignment in person. It would be likely he would be. Sources at nbc or nbc is reporting sources are telling them bill cosby will appear in person. Generally you do. He will walk through the front door of that courthouse, so we are expecting him. He should be arraigned at any moment now. Sue herrera is joining us from the breaking news desk. This is a story youve been following here. This is a stunning develop. It is a stunning development. And earlier this morning as we watched that black suv to see whether or not mr. Cosby is inside, the Montgomery County First Assistant District Attorney kevin steele, who was in front of the media this morning, said, quote, reopening this case was not a question. He says, quote, rather, reopening this case was our duty. There was a civil suit filed by the plaintiff in this particular case, and it was part of the testimony that was given in evidence of that civil case that triggered the reopening or the reexamination of that particular allegation by this woman, which was, of course, that he conducted aggravated indecent assault on her. Thats what led, that new testimony is what led prosecutors to reopen this case and ultimately bring those charges against mr. Cosby which were announced this morning. Nearly 50 women though in the past have come in the past year have come forward saying they were victimized by mr. Cosby, but, unfortunately, the statute of limitations in many of those cases have expired. There is a separate case in los angeles that is pending right now where the limitations have not expired and prosecutors have said that they are actively pursuing whether or not to file charges in that particular case. In that case there are allegations that he molested a woman after he gave her a drink and caused her to black out at a party. Mr. Cosby is expected in court in just the next few minutes. We know the prosecutor is in the court already and has told nbc news, specifically our philadelphia affiliate, that he is expected in court in just a few moments. So, guys, we are waiting to see whether or not that is, indeed, mr. Cosby in the black suv. It certainly seems like it might be given the focus of that Helicopter Shot on that particular suv. Back to you guys. Yeah, sue. Thank you very much. Generally, you do show up for an arraignment. There are cases if you filed a waiver or notice of appearance, you would not have to. In this case mr. Cosby is, according to our sources, likely to show up for the arraignment. The arraignment is where they will likely set bail. If they believe there is enough to go forward with a preliminary hearing, bail will be set at which case mr. Cosby, if bail is set, will be forced to put up the bond. One would assume he would have no problem in doing that as well. He lives nearby, in the next town over. There we go. The doors are opening on the suv. And we are waiting to see if mr. Cosby will be stepping out. There he is. There he is. Bill cosby being led for arraignment at the courthouse in pennsylvania in the town next door to the one in which he liv lives. No comment to reporters obviously. They wanted a comment from him but hes not making a comment at all. Im sure under the advice of his attorneys. He is being charged with felony Sexual Assault like we said. Actually, brian, nbc is using the words aggravated indecent assault because thats the formal charge, just to step back from that just a second. Thats what nbc standards is using. Okay. Thank you, sue, for that. Again, the magistrate in this sense will likely go ahead and if they believe they have enough to go forward with a preliminary hearing will indeed set bail for mr. Cosby, and then if the preliminary hearing goes forward and they believe they have enough evidence to go forward with trial, then a trial date would be set, so the process here, bail set, preliminary hearing, go forward with the trial if, indeed and, brian, you have the legal degree, not me, but a lot of legal experts are saying that there will be a lot of challenges in proving this case partly in conjunction with other Sexual Assault cases, that theyre difficult to prosecute, but one would think that they must be there must be pretty compelling evidence at least in the prosecutors view to bring charges against someone with the profile of mr. Cosby. They must feel, i would think, that they have a pretty solid case. Would you not agree . To bring these kinds of charges . Its hard to know what theyve got, sue, but just generally legally, if youre going again, im not an attorney. I do have a law degree, but if youre going to go forward with an arraignment of somebody with the profile and the Legal Resources of mr. Cosby, as a prosecutor, as a district, i would imagine you are going to feel like you have extremely strong evidence because this is a highprofile case, not one you would wish to lose as a prosecutor. Absolutely. Keep in mind that under oath about a decade ago he acknowledged having a relationship with this woman but said it was consensual. Right. And she actually settled a suit. We do not know the terms that she filed against mr. Cosby, and there are some Defense Attorneys out there who say that basically one of the issues will be whether or not she is pursuing these allegations against him for financial gain. However, she already settled a civil suit with mr. Cosby, which removes the potential defense claim that she has a financial incentive to aid the prosecution. So its going to be very interesting. We dont have many of the details of that civil suit that was settled, but there was some sort of monetary compensation we understand which would remove that particular motive in this case according to legal experts anyway. If youre just tuning in, we just witnessed bill cosby, the entertainer probably known at one point as americas dad walk into this courthouse in elkins park, pennsylvania. So he just arrived. Youre seeing the leftover media scrum. When we saw him step out of the black suv, you saw a lot of cell phones. This will be one of the biggest celebrity trials in the era of twitter and social media that we have seen to date probably. Absolutely. If it does go to trial. Its likely that it will. You have the arraignment, bail will be set, you will have a preliminary hearing. They will decide then if it will go to trial. It likely will because like i said the prosecutor is not going to go this far without having what they believe to be a strong case in which case a trial date will be set. Just looking again, all laws are different. As you said, sue, its aggravated indecent assault. States will often use different terminology for similar offenses. Punishable by up to ten years behind bars in the state of pennsylvania. Looking through some of the pennsylvania legal records as we speak, but that is elkins park, illinois, very close to philadelphia. And mr. Cosby resides in the next town over of cheltanham. Lets go back again. This is the video of bill cosby moments ago getting out of an suv to arrive at the arraignment. And a magistrate in elkins park, pennsylvania, just outside of philadelphia. Mr. Cosby, how do you feel, sir . As you see, craig, he almost tripped over the curb. Obviously questions being shouted at him. Refusing to answer, shaking his head. Stumbled a bit on the way in. It will be interesting to see, as i mentioned earlier, prosecutors in los angeles are looking into more recent allegations against mr. Cosby. Those allegations were lodged by a 24yearold woman who has alleged he molested her after he gave her a drink and caused her to black out at a party in the playboy mansion in 2008. They have not filed charges yet but theyre quoted as saying theyre watching these particular proceedings very closely to decide whether or not they should file separate charges in a separate incident back in 2008 involving a separate woman. So its going to be interesting to see whether or not they do decide to reopen that and do that. Especially because that she would have been a minor at that time. Uhhuh. Well, she was 24yearold shes now 24. I think thats what that means, melissa, youre right. She was in 2008 it says according to reuters she was 18 but then other news sources have her at 17. So, you know, im not sure whether she might have been a minor, she might have been an adult at that point. I think the math on that is according to different news sources, youre getting different ages but serious allegations nonetheless, no matter what age. Were going to take a short break. What im reading in the pennsylvania code, the preliminary hearing by pennsylvania law is required to occur relatively quickly after the arraignment unless theres an extenuating circumstance within a matter of days. So we may know more about a potential trial date here in the next phase of this. Bill cosby arriving for arraignment in elkins park, pennsylvania. You are watching cnbc, we are first in business worldwide. Were going to take a short break and then back with more right after this. Its hard to find time to keep up on my shows. Thats why i switched from uverse to xfinity. Now i can download my dvr recordings and take them anywhere. Ready or not, here i come whispers now hideandseek time can also be catchuponmyshows time. Here i come cant find you anywhere dont settle for uverse. X1 from xfinity will change the way you experience tv. All right. Lets get back to business now and those final oil trades crossing just moments ago, and it was another tough day for cried oil down 3. 4 . 1. 28 a barrel to 36. 59. Natural gas falling today as well g 6. 5 to 2. 21. Well, it just has not been a great year for investors among many of the major Asset Classes. In fact, the best return in any kind of a major market you could find was in stocks. The s p returned just 2 , including dividends. Put it this way, 2015 has been one of the hardest years to make money anywhere since 1937. What will the next year bring . Lets ask the trading nation team. Thats Larry Mcdonald joining us bike from Societe Generale and dennis davit from harvest volatility advisers. T the fact that a 2 gain with dividend is the best performing asset class of any major Asset Classes at least in the United States is pretty fricking terrible. If you talk to traders, its an absolute meat grinder of a year. Hall of fame legends, buffett had a terrible year, david einhorn, carlos slim. Those are my three most favorite investors of all time and they all had bad years. But the investor listening to us right now, i want you to understand, 2008 was a terrible year in the stock market but bonds were still up 22 . But this year not one major asset class had a good year, and thats whats made it so difficult across the board. Dennis, what so we know lets just put this year behind us. I know we have a day and a half. Its over in our minds. Happy to. What of the Asset Classes you track and follow is likely to be the best performing asset class one year from today . Oh, yeah, nothing like getting put right on the line. Just throwing it right on the line. What we trade at harvest is primarily u. S. Indexes and u. S. Equities and thats where we feel the opportunity is going to be. We feel the u. S. Is growing at a slower rate. We feel thats where the opportunity is going to be. Commodities, i dont know. Commodities are crops i always tell people. Oil is a crop, gold is a crop. I know it sounds crazy but when i used to trade beans back in the day and when beans are high, people planted a lot of beans. When oil is expensive, they drill for a lot of oil. I view them as a crop. The one area that concerns me is the private equity area, the unicorns is a popular term out there. Like what are they worth . They had some of the greatest returns if you look at where theyre marked on a lot of peoples books. If you can get in, but were going to have to leave it there. Were a little tight on time. The bottom line stocks, even if theyre not great, will be the best performing class in your mind. Thank you very much. Thank you. For more trading nation go to tradingnation. Cnbc. Com. Another short break. Were back right after this. We have some breaking news. Bill cosby leaving the courthouse after his arraignment. Nbc news reporting that bail was set at 1 million and mr. Cosbys passport has been turned over. Nbc reporting that a preliminary hearing scheduled for january 14th. Bail is set at 1 billion, guys. His passport has been confiscated. He turned it over while he was in court. It was a short arraignment, brian, as you really predicted. Sometimes they take a longer period of time. This one was pretty perfunctory and only lasted a few moments. So 1 million bail, the passport has been turned over. January 14th will be the next hearing date for the preliminary hearing, guys. Back to you. All right. Sue, thank you very much. Again, that charge aggravated indecent assault. Generally what an arraignment purpose is simply to make sure you are exactly aware of what all the charges are against you and to set bail if they feel that is the case. In this case they obviously did, 1 million. One would imagine mr. Cosby would be able to raise that based on the value of his home alone. But also unsurprisingly taking his passport so he could not leave the country as well. January 14th is the date of the preliminary hearing where they will decide and that will take longer, melissa. Thats where they say we are going to go to trial and here is going to be the trial date. Right. And as sue pointed out before, this would be the first trial even after a string of allegations, similar allegations. This would be the first trial if it does come to trial. That is absolutely correct, melissa. There have been 50 women who have come forward saying they were victimized by mr. Cosby but the statute of limitations has expired in many of those cases but not all of them. I think this trial is going to be watched very closely. Just a little background on the allegations by the woman involved in this particular case, andrea constand. Said she met mr. Cosby back in 2002. At that time she was working as a director of operations for the Womens Basketball team at Temple University. Mr. Cosby was on Temple Universitys board of trustees. He was considered by this woman a mentor and a friend. The incident occurred allegedly in january of 2004 when she was invited to mr. Cosbys home which is quite near where were seeing this live shot now to discuss her career plans. She says that he gave her three pills and saying that they were an herbal medication. She said she then felt dizzy and had to be helped to a couch and then passed out. So thats a background on the alleged incident and when it took place and the woman who is filing these charges who now incidentally lives in canada. Shes not given any comment so far on this mornings proceedings. The black suv you see in the middle of the screen, thats the vehicle transporting bill cosby away from the courthouse where he was just arraigned. 1 million in bail set, passport taken away. The next hearing date to watch is january 14th. Were going to take a quick break. Power lunch will be right back. This year has been somewhat of a bumpy ride for the markets. We are joined with a look into year end. Michael, you brought some stock picks. I want to go straight into them. The sector you like are health care, consumer discretionary, health care. Unite ed health not long ago indicated the viability of aca . Well, it may not be great, and it may be better than that. So there could be some upside with the aca for United Health. In this space, United Health has been less volatile than the space as a whole for the second half of the year. And theyre better diversified than the typical hmo company. So we still like the company. Theyre still growing sales. Theyre still growing profitability. Its a Good Management team. We think that shareholders will be rewarded over the longterm with United Health. In terms of consumer discretionary, you like t. J. Max. Yep. Have you seen any benefits from low oil prices, low Energy Prices . Is that yet to be seen in 2016 . Yeah, i mean, it could still kind of flow through through 2016. Tjx is in the sweet spot. If youre in the mall, most of the stores in the mall arent doing that well. Tjx offers kind of premium product at discount prices and consumers like that. Particularly thrifty consumers. And we see a path where the company can grow sales at a nice double digit clip in an environment where most companies are happen to be in the mid single digits. And yes, any kind of savings that hasnt blown through from oil prices, tjx could be a benefactor of that. And you do like industrials. Does that mean you believe in the strength of the u. S. Recovery, or that Global Growth is still intact . More the strength of the u. S. Recovery. So, you know, talking to the producer. Dana versus the caterpillar. Something that has a diversified portfolio of products that isnt based on Big Industrial onetime purchases overseas for infrastructure spending. So two different types of companies, and we certainly prefer danaher there. Trading to a premium to the s p 500. Is it worth paying that for danaher . Yeah, youve got two different businesses, youve got a catalyst late in 2016 where the company is going to split into two different companies. Kind of the slower Industrial Base and the Health Sciences bit. So it does have a rich p. E. To the sector in the market a little bit. But youve got kind of two different types of straddling two different type of sectors. Happy new year. Thanks for your time. Same to you. The Portfolio Manager at fbe capital. Though it may not be animal house, in my opinion, revenge of the nerds is one of the great classics of all time that doesnt get the credit it deserves. David katz says that could be the theme, revenge of the nerds, not the movie, of investing next year. David is cio of matrix asset advisers. What do you mean revenge of the nerds, david . If you look at technology this year, the hot stocks are on fire. Theyre up 40 to 120 . The flip side of that is some very Good Companies like cisco or qualcomm or semantech are down. Theyve got no respect. Theyre considered the nerds of technology. We think thats going to be the place to be next year. Were a little bit wary about the valuations. Whenever youre paying more than 100 times earnings, its been trouble. Even if the prospects continue to be very good. The flip side is youve got a lot of very good businesses with great Balance Sheets and under ten times earnings that are paying a 3 or 4 yield. We think thats going to be a much better place to make money. Okay. So of the bigtime tech companies, and youre a value guy, david, who looks the most valuable . Whos the cheapest relative to how you would value the company . Well, in terms of the cheapest, hewlettpackard, the printing business is one of the cheapest stocks in the market right now. Their outlook is a little less certain. So we would buy a basket of them. Hewlettpackard, dirt cheap with a great yield. Qualcomm has had a lot of problems in the last year, we think is well on their way to fixing the problems. An activist got involved, they changed a lot of things about the companys structure. That pays a 3. 5 to 4 yield thats growing. And we think thats much better situated for good things in the upcoming year. So both of those should do quite well. Cisco has done quite well as a business. Stock hasnt moved yet. So we buy a basket of those under 13 or 14. Who looks the least cheap . A company like netflix has done absolutely great. I love the product. We have it in our house. My kids have it. But the valuation is excessive. And we think its too richly priced relative to a lot of things in technology and relative to a lot of entertainment companies. So listen, costs are going to go up. Everybodys talked about that. Did you own it and do you no longer . We did not own it. We generally are trying to buy companies under 12 times earnings. So when were involved with netflix, people are going to think its gone the way of the dinosaur. Basically about 15 years ago, when you have this great run on the internet stocks, Companies Like cisco and microsoft were nosebleed territory. We had lots of meetings and said dont expect to buy them for a long time. Now that weve bought them when theyre down 70 , people are pretty disgusted with that. Same thing will be the case with netflix. All right. David katz with matrix asset advisers, now a new honorary member of lamda lamda lamda. If you saw the movie, youll understand. Power lunch is back right after this. Ing 24 7 on mobile trader, rated 1 trading app in the app store. It lets you trade stocks, options, futures. Even advanced orders. And it offers more charts than a lot of the other competitors do in desktop. You work so late. I guess you dont see your family very much . I see them all the time. Did you finish your derivative pricing model, honey . For all the confidence you need. Td ameritrade. You got this. Take a look at that chart. Something is going on in that chart this year that may be a buy signal for stocks. Well explain what that is tonight on fast money at 5 00. Meantime, lets get back to sue herera. Shes got the latest on bill cosby. Thank you so much, melissa. Moments ago, bill cosby arrived at the Police Station where he is being processed, formally booked. He would be fingerprinted. They will take a mug shot of him, which the police have told wcau, which is our nbc affiliate in philadelphia, will be released to the media shortly. So he arrived just moments ago. He came directly from the courthouse where he was arraigned and bail was set at 1 million. That bail was paid by wire transfer, according to nbc news. Mr. Cosby surrendered his passport. This is in relationship to charges that were lodged by prosecutors this morning against mr. Cosby. They charged him with aggravated indecent assault on a case that took place allegedly more than a decade ago after allegations surfaced that he drugged and molested a former Temple University employee. At the time, mr. Cosby was also sitting on Temple Universitys board of trustees. He faces between five and ten years in prison, if convicted of this seconddegree felony charge. And there you see mr. Cosby moments ago being led into the local Police Station. Now, its going to be interesting to see how this proceeds. We will have the next preliminary hearing held on january 14th. Guys, back to you. All right, sue herera. January 14th is now a date on the u. S. Calendar for mr. Cosby. In the meantime, a couple interesting things happening in the markets, as we are continuing to watch them. Energy socks are close to sessionlows, so we have seen a deterioration on the equity side of the oil trade going into the final hour of trading today. One more day left in the year. One more day and an hour left. Thanks for watching power lunch. Closing bell starts right now. Welcome to the closing bell. Im syrara eisen in for kelly. And im bill griffeth. Were going to talk about the selloffs impact on the middle east, the global economy, state economies, the ruble. Oh, yes. Ruble coming up. Meantime, this is a fascinating part of this story. Alaska now considering an income tax for the first time in 35 years to make up for lost oil revenue. The governor will join us coming up to explain t