Transcripts For CNBC Power Lunch 20160817

Money have been enjoying lately seems to be fizzling out just a bit. The dow is down, not by much at all, about 22 points, but with todays drop that takes the dow negative over the past month. Melissa. Melissa lee. Heres what else is happening at this hour. A bunch of retailers missing the market. Another dose of earnings reports, target, lowes, staples all sharply lower. A brazilian judge ordering u. S. Olympic swimmer ryan lochte to stay in brazil as authorities investigate his claims of being robbed at gunpoint. Lochtes already returned to the u. S. Well have much more on this story from rio ahead. And speaking of the olympics, medals keep rolling in for team usa, america leading the medal count with 84 in total. China trailing with 51 followed by great britains 50, tyler. Melissa, thank you very much. Im tyler mathisen. Welcome everybody to power lunch. Weve got a very busy two hours ahead beginning with that big reboot shakeup inside the Trump Campaign staff. Is this whats needed to help him turn things around . Our chief washington correspondent john harwood is live from d. C. With the latest. Hi, john. Hi, tyler. Lets start with the context for this move by the donald Trump Campaign. First of all, look at the situation nationally. Donald trump has been falling behind 50 to 41, a ninepoint deficit, thats very large in president ial politics in the nbc survey monkey poll out this week. Then look at the battleground states, big deficits in multiple battleground states. Double digits in places like pennsylvania and new hampshire, you see ninepoint deficit in north carolina, double digits again in the state of virginia. Now, all of that has made the trump world and republicans very concerned. Donald trumps reacted by doubling down on the personality that won him the primary, that is to say he is resisted the idea that hes going to change. Pivot is the word people used. He said yesterday in an interview, i dont want to pivot, i dont want to change. So heres what hes done. Hes brought in Kellyanne Conway, who was an advisor of the campaign, as the Campaign Manager. Her role according to Corey Lewandowski, former Campaign Manager, is to travel with mr. Trump, to calm him down, to make him feel better while hes campaigning. Also says shes going to do a lot of television interviews. Hes also brought in Steve Bannonfrom brightbart news. A republican website been at wars, that means tensions between donald trump and republicans in congress are likely to get worse rather than better. Couple republican strategists told me today this will likely accelerate the move by gop donors to support house and senate races to protect their majority rather than the Trump Campaign. In fact, trump was bragging in a fox interview yet, i havent spent ten cents on my campaign. Hillary clintons spent 100 million. As for Hillary Clintons campaign, they just had a Conference Call in which the Campaign Manager said that the Southern Poverty Law Center has hit brightbart news for being antisemitic and racist and they expect more and more of what he called the hateful side of donald trump to be emphasized in the campaign. So far that is not resulted in success for donald trump in the polls, guys. John, thank you very much. John harwood in washington. Lets go inside this reboot now with cnbcs senior contributor larry kudlow and michael caputo, welcome to both of you. Mr. Caputo, let me begin with you. You said you spoke this morning to mr. Bannon, whom you say you dont know particularly well. What did you say . What did he say to you . I just congratulate him. I know steve bannon a little bit. One of the brightest guys on the right today. Most people consider him one of the biggest idea guys in the conservative movement. Perhaps he doesnt agree at times with the Republican Leadership in congress, but to think that he only has one sheet of music to sing from is underestimating mr. Bannon. Mr. Bannon, i think is a great hire in concert with promoting Kellyanne Conway to Campaign Manager. Shes data driven. Shes absolutely evidence based in everything she does. Mr. Trump respects, listens to her, trusts her, thats a great person to have at his side as hes traveling. And as she said the issueoriented campaign she wants to see Going Forward is wrapped into ideas put together by steve bannon. I think this campaign is onto something. What the Southern Poverty Law Center says means nothing. Theyve been actually dropped off the fbis list of credible organizations. Thats just another Left Wing Group trying to take a shot at donald trump. Is mr. Bannons role here to organize the campaign or to sharpen the message, or both . What are his bona fides as a campaign person . As opposed to a message person . I dont know exactly what his duties are. Right. I dont know exactly what his duties are today. I havent spoken to the Trump Campaign. But i think the great way to deploy him would be to take those ideas that kellyanne is talking about, wrap them into a Communications Vehicle that he comes up with and spread that out to the American Voter and reach out to the center. I dont think that if anybody thinks that kellyanne fitzpatrick, whos been in this business for 30 years, is going to encourage marginal commentary by mr. Trump, they dont know Kellyanne Conway. Lets talk about kellyanne, who is a friend of yours, larry. Very dear friend. Very old friend. A dear friend. Steve bannon was at her home in connecticut for two weeks ago, long visit and shes a frequent guest on cnbc. By the way mr. Bannon to coin a phrase, an informal advisor to the Trump Campaign. And kellyanne has been top strategist pollster for the campaign. What you have here is a number of things. First of all, you needed bulk at the top. Theyve had huge infrastructure increases. And somebodys got to manage that. Remember, since Corey Lewandowski left, you havent had the role of Campaign Manager. And kellyanne will fill that beautifully. Mr. Bannonis former investment banker, i dont know if you know that, worked for goldman sachs, then on his own, hes been running brightbart, which is a strong conservative website. My stuff occasionally appears on brightbart. Hes a producer of a fabulous film, book on clinton cash, its a documentary which has gone wild at the box office. They opened it up in caan. These are experienced people. Do you read this as a response born of crisis . A response born of the practical pragmatic realities that there were a lot of indians there that needed some chiefs to manage them . And what do you think this portends for how donald trump presents himself to the public . Well, i think in some respect both. I mean, both. He just needed management at the top, as i said, the infrastructures grown. More interesting to me, as an informal economic advisor, is the message. See, i never bought into this that trump should change his whole persona. I dont believe that. What i would like to see in his messages more bullets and in particular my area the economy. I think trump on message clobbers hillary. Ive said this before, he has a genuine Economic Growth message. She does not. He wants to lower taxes across the board. He wants to end obamacare, which you can see is in a death march right now, a death spiral. He wants to cut regulations for small business. Mrs. Clinton is exactly the opposite. Across the board tax hikes, more regulations and she wants to save, quote unquote, obamacare, by pouring hundreds of billions of dollars youve got a genuine growth message from a lousy economy from mr. Trump. You do not you dont have any growth message. She is an inequality person, doesnt care about growth. If donald trump in his own way, i dont want him to change, just is that why brightbart is a signal of that . Because all this talk, oh, hes got to act more president ial, hes got to stick to the teleprompter. Brightbart says to me that that is not what theyre going to do here. And trump has said it. Hes not going to change. He shouldnt change his persona. All i suggest is inside, you know, when he has these speeches and rallies now, the speeches have been good. The standup teleprompter speeches. Hes going to run some more coming. But when he speaks to the big rallies, please put in some Economic Growth messages, some put in some law and order messages, put in some refugee messages. Hes good on the issues. Sometimes he wanders off. I dont care how he says it. Well, thats where hes run into where hes run aground and sort of selfinflicted wounds. Mike caputo, talk to me a little about this. Is this about the messaging and the sharpening of the message and keeping mr. Trump more on track, on message president ial . Because, boy, when i watch him give a speech off a teleprompter, as i did on monday when he was talking about national security, he looks so unhappy. Just not happy doing that. Mike . Well, ill tell you, hes been speaking his mind for 30 years without a teleprompter. In fact, really resisted going to a teleprompter. Its a tool that is very important in politics. It keeps you on message. It makes sure your entire message is delivered during very important times like these speeches hes giving. I think hes growing more and more comfortable with it. I believe that having Kellyanne Conway next to him to help him focus as hes going on the plane and off to an event is going to have an immediate impact. I think Steve Bannons big brain and great ideas are going to have an immediate impact. But lets not forget the position of Campaign Manager has been empty since june 20th. And Paul Manafort has been trying to fill that position. Paul made it very clear to everyone that he never signed up to be Campaign Manager. Now weve got one. And we got to get going hitting on all cylinders. A lot of people interpret this, mike, as a demotion for mr. Manafort. No, no. Do either of you see it that way at all . No, no, its a filling up. You needed to bolster the management here. No, no. I think thats really whats happening. Let me add also to caputos point, kellyanne, whom ive known all these years, great pollster strategist, shes a message person. Shes also a progrowth free market supply side person. And she will focus on the message. Mr. Trump, as i said, hes got Economic Growth message. Hes got, you know, strong on trade, strong on law and order. Hes got a bunch of things that hillary doesnt have. He just needs to learn a little discipline in his speeches, thats all. The teleprompter stuff, you know, i was with him at a speech, he delivered a terrific speech. Lots of cheers. All i ask when he speaks in front of the tens of thousands, which is pretty cool and rare these days, just insert a few bullets, all i ask, maybe four or five key bullets on the economy, on security. I watched Ronald Reagan did this a long time ago. Trump can do it. I dont mean to suggest that he cant do it. I think hes fine on the teleprompter. He just is more trumpian and happy when he is we got to leave it there, guys. Larry, youre going to stick around. Mike, final thought. One second. Go ahead. Mike, go ahead. Yeah, ive never heard of a ceo report ive never heard of a Campaign Chairman reporting to a ceo or corporate chairman reporting to a ceo. This is not a demotion for Paul Manafort. This is a buildout. Okay. All right. In that regard you agree completely with larry. Mike, thank you very much for being with us. We appreciate it. Larry, youll stick around. Well be back with you in a second. All right. Right now lets leave politics because we have got a news alert in the music industry. Julia boorstin, lovely. Thats right. Paul mccartney signed a worldwide recording agreement with Capital Records bringing him home to the label which launched his career. Now, this deal brings all of mccartneys postbeatles work, including his decade with wings and all of his solo albums and collaborative works over to capital, which is owned by Universal Music Group. The release says mccartneys working on a new studio album and that the label is working on a plan for his catalog which will be implemented starting next summer. Capitol is taking over mccartneys back catalog from concord, which is a california based label. Ceo of Universal Music Group says it is an honor to welcome him back. It is a homecoming of one of the greatest Musical Artists of alltime. Guys, back over to you. And whats incredible about this, guys julia, thank you very much. This is 54 years after the release of the beng gals no, no, the beatles first single which was love me do october 1962. And hes signing a new deal. Pretty spectacular. Fantastic. Have you seen have you listened to it on the radio in high School Driving around, and, yes, sully, it is the beatles. I was there. I was there. Thank you, sergeant pepper. All right. Could a Trump Presidency lead to recession . Yes, according to a new note out by citi. Find out what theyre saying about clinton next. And the british are coming and theyre staying and its all a byproduct of brexit. Thats ahead, youre watching power lunch on cnbc, first in business worldwide. Will your business be ready when growth presents itself . Our new cocktail bitters were doing well, but after one tradeshow, we took off. All i could think about was our deadlines racing towards us. A loan would take too long. We needed money, now. My amex card helped me buy the ingredients to fill the orders. Opportunities dont wait around, so you have to be ready for them. Find out how American Express cards and services can help prepare you for growth at open. Com. That i would never len express become a superhero. Ces [singing indistinctly] but i learned how to fly. Just to come back in a new disguise, and be the hero ive always wanted to be. Keeping the power lines clear,my job to protect public safety, while also protecting the environment. The Natural World is a beautiful thing, the work that we do helps us protect it. Public education is definitely a big part of our job, to teach our customers about the best type of trees to plant around the power lines. We want to keep the power on for our customers. We want to keep our community safe. This is our community, this is where we live. We need to make sure that we have a beautiful place for our children to live. Together, were building a better california. All right. Welcome back to power lunch. So we just talked a lot about the ways trump or clinton could win the election. But what differences to the economy will there be under a victory for either one . Citi group might have the answer. Firm out with a new note laying out the impact that either a clinton or Trump Presidency may have on the economy. Were joined now by one of the notes authors william lee, head of north american economics at citi group. Larry staying with us as well. William, we promise to keep you out of the political muck as much as possible. You know youre destined for a shower once thats over, but how did you guys come to a 60 probability that clinton will win . That frames your economic thesis. The markets are priced in a clinton victory. And we thought this is such an unusual election that most of the polls have been wrong, including the ones for brexit. So what we did is we adjusted the probability that trump may actually have a higher chance of winning than the current polls are showing. And what does that mean for lets say youre right. Yeah. Clinton wins. What happens to the economy . What happens to the stock market . With clinton its more of the same. And we think that what has been going on in the stock market of sort of the monetary policyinduced rises in the equity markets will likely continue. Under a Trump Presidency, now, both candidates have talked about expansionary fiscal policies, but theres a wide gap between what they talk about on the road and what will be enacted. And that has to do with what ryan will allow to go through congress. In those situations especially fiscal policy of trump, that could initially be expansionary, but all of his trade policies may not only cause a lowering of our imports, but it could cause retaliation on the part of our exporters. So that could contract trade. And we think that would be source of recession sooner than later under trump. So recession a fore gone conclusion under trump . Is that your bottom line . Its not a forgone conclusion, but odds are higher because of the uncertainty induced by the trade and retaliatory trade practices he would evoke. Whereas clinton is more moderate form of trade policies and in fact probably continuation of the current trade policies. Clinton, with all due respect, can i just tackle some of these issues on trade for example. Hillary clinton has become a bigger protectionist than trump. Listen to what shes saying. By the way, trumps point as he had in his last economics speech in detroit, he said he believes and understands in the benefits of trade. What he wants is trade deals enforced properly. So thats a horse of a different color, i dont agree. Both candidates want fair trade, larry. Theres no question about it. But the question is uncertainty associated with trump and what he may do will cause our trading partners to evoke retaliatory measures. Uncertainty is a good thing because my hope is trump, if president , anybody for president , would finally stand up and make some decent deals and stop the chinese from lying, cheating and stealing, which they do. Okay. Point number one. Point number two, you got to tell me, there may be recession coming up sooner than we think no matter who. Business right now is in a mild recession with profits and investment in productivity declining. But you got to explain to me, trump is dedicated to a substantial reduction in business taxes for large and small companies. That is a progrowth. That will fuel, that will reignite the economy. That hits a single central point. Sea corp. Go down to 15 with immediate cash expenses. Let me just finish this point. I dont know a businessman or businesswoman who disagrees with that. Hillary doesnt even have a tax reform plan. And if you read kevin hassets paper yesterday in the wall street journal, his editorial, once again he makes the point, ive made this for many years, wage earners, middle income wage earners are the biggest beneficiary of lower business taxes. And that is growth. And mrs. Clinton unfortunately doesnt have a Corporate Tax reform plan. She just wants to tax the rich, tax increase capital gains, tax corporations. Come on, theres a difference between right and wrong. As far as a recession or growth is called. William, putting aside the trade issues you brought up, what do you think of what larry said in terms of Hillary Clintons known policies of higher taxes across the board here . Well, were not sure theyre certainly redistributive, and that is not in progrowth agenda. It is as i said earlier a continuation of more of the same, and more of the same is part of that negative investment weve seen for the last three quarters, low productivity growth in the last six years. Theres no question there are structural issues that the Clinton Administration and program has not really tried to address other than to say were going to give better education to people and try to improve and trumps promises of lower taxes dont offset the issues with trade . Thats for us a source of uncertainty. Where we think that the trade stuff will come first and the taxes will have difficulty passing congress because ryans agenda come on. Can i just interrupt for one minute . You use this word congress. If you look carefully, and you guys do your homework, take a look at what the House Republicans are publishing. They have Corporate Tax reform, they have individual tax reform, they want to repeal obamacare, and a variety of other issues. If you have i mean, im here to just teach you this, okay, politically how it works. If trump wins, if, i dont know that hes going to win, and if theres a Republican House and senate, the first order of business will be to slash taxes particularly business taxes. But really tax reform across the board. Thats going to happen. Now, if you tell me theres going to be a threehouse democratic sweep, thats another matter because theyre going to jack up your taxes, and theyre going to spend hundreds of billions of dollars bailing out obamacare. And that would be very bearish for the economy. Well, larry, trump has already put in part of the ryan tax reform yes. A higher tax rate. So hes putting a nod to what is feasible. And i agree with you that the key is the negotiation between what he and the congress can come up with. All right. As a viable tax packet. We have to leave it there. Larry, we have to leave it there, i want to say a word of sympathy over the passing of your friend. Oh, thank you. You were on his show a lot, a lot, a lot. You know, youre going to make me cry. He was a great man. Theres only one of a kind. He invented that whole punditry. But to me personally as i was coming back in my life, he had me on his show, i was an irregular, but he had me on many, many times for five or six years. And hed call me up and hed tell me how to be better on tv. And it was just in his heart. I know he was a tough guy, but he was a wonderful guy. And a man of faith. May he rest in peace. Like you. Larry kudlow, thanks. Are massive layoffs coming to cisco . The tech giant not commenting but we dig deeper next on power lunch. This just got interesting. Why pause to take a pill . Or stop to find a bathroom . Cialis for daily use is approved to treat both erectile dysfunction and the urinary symptoms of bph, like needing to go frequently, day or night. Tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex do not take cialis if you take nitrates for chest pain, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. Do not drink alcohol in excess. Side effects may include headache, upset stomach, delayed backache or muscle ache. To avoid longterm injury, get medical help right away for an erection lasting more than four hours. If you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. Ask your doctor about cialis and a 200 savings card welcome back to power lunch. Im seema mody. Shares of monsanto today. Talks are difficult between the two companies and monsano permitt permitted bayer selective acc s access. Were looking at shares lower by 1. 3 . Michelle. All right, seema, its been a big and bad week for retail earnings. More misses today. Next, what does all that say about the state of the u. S. Consumer . Plus, jc penneys Ceo Marvin Ellison stops by for an exclusive interview in the second hour of power. Back in two minutes. [announcer] is it a force of nature . Or a sales event . The summer of audi sales event is here. Get up to a 5,000 bonus on select audi models. Mapping the oceans. Where we explore. Protecting biodiversity. Everywhere we work. Defeating malaria. Improving energy efficiency. Developing more clean burning natural gas. My job . My job at exxonmobil . Turning algae into biofuels. Reducing Energy Poverty in the developing world. Making cars go further with less. Fueling the global economy. And you thought we just made the gas. Energy lives here. Hello everyone. Im sue herera. Heres your cnbc update for this hour. A senior north korea diplomat based in london has defected to south korea. Officials in south korea confirm ho is second in command at north Koreas Embassy defected last month with his family. Making him one of the most senior officials ever to seek asylum. The Russian Military announced it has launched a second round of air strikes against Syrian Rebels from a base in western iran. A u. S. State Department Spokesman calls russias use of the iranian base unfortunate, but not surprising. Adding it may violate a u. N. Resolution. Russia and iran are strong supporters of syrian president assads regime. Meanwhile, turkey is planning early parole for some 38,000 convicts. The country is looking to free up room in their overcrowded jails for the tens of thousands accused of plotting the july failed coup. And the Home Team Advantage paid off in rio last night in womens beach volleyball. Americans Kerri Walsh Jennings and april ross lost. They will have a shot at the bronze medal today. Thats the news update this hour. Back to you, brian. Sue herera, sue, thank you very much. Just about 30 minutes to go until the release of the minutes of the last Federal Reserve meeting. Stocks are holding in the red. Theyre down a little bit. I mean, not by much, folks. More dow stocks down, but its not a bad day on any measure. Oil a little change as well. Gold is down just a bit. Crude oil down 8 cents to 46. 50. I think, melissa, we described today as little changed all around. So far. Until the fed minutes come out. I like the mystery. Last week consumer was alive and well, today a trifecta of retail misses. Target cutting full year forecast, sales fall, staples missing on revenues and announcing store closures, lowes missing expectations and lowering guidance. Tomorrow the mother of all retail reports, that will be walmart. Will they confirm what is going on with the u. S. Consumer . Lets bring in jan niffen and also the president and retail analyst, good to see you. Jan, im going to start with you. Im shocked by reading my first line in my notes, Department Stores and brands are seeing resurgence. The data points last night was simply because of very, very low expectations and those Department Stores beat it. So what are we seeing since then that makes you believe the Department Stores are all right . Shocking, isnt it . It is just shocking that things could be getting a little bit better with wages growing, with Energy Prices low, with credit fine, with more people working, it is shocking things would be Getting Better. But they are. And theyre Getting Better because were seeing some change in, i believe, the fashion. Were seeing more interest in denim. Were seeing more interest in shoes. Were seeing more interest in accessories. Were seeing more interest in small leather goods. This is all as a result partly of athleisure not being as strong. We saw Urban Outfitters come out say denim good, boho tops good. Some people are tired of wearing the yo ga pants all over the place so theyve started to buy other clothes now . Thats part of it. And back to school has been good. Back to School Started early. The customer was interested. Shes willing to buy for her kids. Shes got the ability to buy. And so basically were going to see a good back to school. That always helps everybody, including walmart tomorrow. But, yes, things are getting a little better except, stacey, sorry to cut you off, except in one giant sinkhole of retail. Electronics. Target flagged that. Walmarts having problems. Best buys had problems for about 15 years. Whats the issue with electronics . Just nothing out there worth buying . I mean, i think electronics, you know, is just simply getting amazoned. So target talked about electronics being incredibly weak today. And they even talked about apple products being down 20 because theres not a lot of new excitement out there. So, you know, certainly its number one the lack of excitement. And number two, the brick and mortar retailers are simply getting amazoned in the category. But as you were talking about certainly these stock moves, theres number one, incredibly low expectations for the likes of macys and nordstrom last week. Thats why you saw these 20 moves. And this week, today, you saw american eagle, lowes and target with High Expectations that just came in sort of, eh, and target missing. The good news is inventories across the board are finally under control and in line as we head into holiday. Is that enough to get these stocks then to move even further so theyve come off the bottom, but theyre well off their highs at the same point . Like you said, low expectations, but what do they do for the next act . Well, thats the trick. As we go into the allmornt q3 and q4 here, inventories in line is enough for now. Everybodys getting all excited about this, because really for the past four or five years retailers have completely failed to gauge demand particularly how to balance an instore versus ecommerce. So the next act is certainly we need to see the demand part of it pick up. Sure there was a little bit of pent up demand in apparel. Staceys exactly right. Its really inventory question here. Theyve been good managing inventories coming out of Second Quarter, even though Second Quarter wasnt great. But theyre well positioned going into the back half because theyre really being cautious on inventory buying. This is the lowest level of prebought in the holiday that i have ever seen in my career. I want to ask stacey if niffen is right. Is niffen right about boho tops, which brian and i are going to model later. Now thats a tease. Thats a tease, ladies and gentlemen. I would pay money to see that. The slowing of athleisure which jan has been pointing to for some months on our air. Are you seeing it also . I agree with jan on that. Ive been talking about that for about six months as well that youre peaked here and seeing cheaper knockoffs, including primark, 7 for workout pants versus 100 at lulu. Youre seeing h m with a great sport line. Youre seeing a ton of the brands come into the category. Its way too crowded here. So i think, you know, we have seen athleisure peak. I just googled boho top. Now i recognize it. Im sure stacey, im not going to throw any of my friends under the bus, but i saw a picture recently, some of my wifes friends, about 12 or 13 women, they all had the same top on just in different colors. And it was all boho tops. So at least one neighborhoods doing its part. Whos winning . Whos profiting from this . China, i bet. Dont say that. This is going to be good for ralph lauren, pvh, you name it i want you to name it. I dont want to name it. You name it. Ralph lauren, p, vh, hanes brands, kate, coach i dont get all this. From boho to coach and to kate . Because you need to buy accessories when youre wearing real clothes. You dont and hanes . Well, hanes is going to benefit because brands are going to benefit. And pvh. I would disagree. I dont think this trend is enough to drive apparel. I dont think this trend i mean, weve seen this trend iterations of this trend the past several years here, i dont think its enough to drive these stocks at this point. I think if anybody benefits from this it will be the fast fashion guys, the cheaper guys because who really wants to own this stuff long term and pay up actual money for it. Strange what a boho top looks like, its flouncey. Its patterning, yes. Bohemian, hence boho. So let me get back so were expecting walmart tomorrow. Is target any sort of indication of walmart . Are targets woes like decline in electronics, like grocery problems, are they uniquely target . Walmarts going to be good tomorrow, but the real question on walmart is does jet work, does it help them fight with amazon . Because targets going to get pressed between walmart and amazon. And jets just going to help walmart do that. So longer term im still a fan of walmart owning this space along with amazon. Stacey . I would argue that the real key tomorrow will be grocery. We certainly saw a ton of weakness in grocery at target today. And while walmart is going after pricing in the category and probably gaining a bit of share from target right now, we have new entrants and new threats here. Aldi and lite l from germany pressing the store growth coming in the next few years. So i think walmart and target should watch out. Niffen is nodding. In his boho top over there. No boho top walmart. Walmart is 55 groceries, target is only 20 , but i think walmart is winning in grocery. For now. Thanks, guys. Stick around, we are moments away from breaking news from the Federal Reserve. The minutes from their last meeting are out at the top of the hour, so hold your breath for the next 20 minutes. First though, Million Dollar listings Frederick Eklund is in the house. Why hes talking about the brexit fallout and taking it all the way to the bank. Power lunch will be right back. Ur brains so we can share our amazing trading knowledge. Thats a great idea, but why dont you just go to thinkorswims chat rooms where you can share strategies, ideas, even actual trades with market professionals and thousands of other traders . I know. Your brain told my brain before you told my face. Mmm, blueberry . Tap into the knowledge of other traders on thinkorswim. Only at td ameritrade. Everyone talks about what happens when you turn sixtyfive. But, really, its what you do before that counts. See, medicare doesnt cover everything. Only about eighty percent of part b medical costs. The rest is on you. Consider an aarp Medicare Supplement Insurance Plan insured by unitedhealthcare insurance company. 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Again, cisco down 1. 4 in todays session. Power lunch team, back to you. Ill take it, seema. The dow and s p turning positive ahead of the fed minutes. We are moments away from that, 17 to be exact. The nasdaq still in the red. The fed minutes out as a reminder at the top of the hour, so you wont want to miss that. Welcome back to power lunch everybody. In case youve forgotten, in case ive forgotten, im tyler mathisen. Mortgage applications taking a dive last week. Lets get to diana olick with the details. Borrowers just not impressed by the still near record low mortgage rates. Total application volume dropped 4 for the week, thats seasonally adjusted according to the Mortgage Bankers association. Even refis, which are highly rate sensitive, fell also 4 from the previous week. But they are still nearly 48 higher compared to the same week a year ago. And thats when Interest Rates were higher. Now, average contract rate on the 30year fixed fell to 3. 64 from 3. 65 . And thats not a lot, but its for 80 loantovalue ratio loans. Mortgage applications to buy a home also lost ground, down 4 too to the lowest level since february of this year. They are still 10 higher than a year ago. Now, low rates are just not making up for fast rising home prices. Rates are already starting to inch ever so slightly higher. And they could inch a little more after the fed minutes, though no big drama expected. Affordability still the real main issue in housing today. Its weakening due to a severe lack of supply and very high demand. Back to you guys. Got it, diana, thank you. Speaking of housing, the british are coming. And that could be a big win for the hot summer that were having in luxury real estate. Fredrik eklund a leading broker and also the star of bravos Million Dollar listing new york requests. Good to be here. Thank you for having me here. You say after the brexit vote british buying of u. S. Real estate increased, and sharply. Which im very confused about because if i live in the uk, and that is my currency, it got much, much weaker. And new York Real Estate got much more expensive. Why would they want to buy . The brits have always been i would say top ten buyers in new york. But after the brexit i would say top three. I think that the brexit and the turmoil in europe in general has proven once again, ive been saying this for so long, that new York Real Estate is actually the safest place to invest your money. Thats a fact. So we see a lot of brits, we see from france, we see from china this summer. How is the overall summer going . Well, summer is usually slower, right . People over 4 million they go away. Hamptons or europe. This summer was slower, normally slow, june to end of july. And then something happened. End of july, right at the beginning of august a real pop, a record pop i would say in the market, 43 contracts over 4 million were signed the last few days of july and beginning of august. In new york city . In new york city. 350 million over 4 million that week. What happened . Where . Why . Who . How . What . Were startled. I would say Interest Rates, were about to find out, but they are record low, right . I mean, money is basically but those kinds of people theyre not borrowing. They dont have mortgages, do they . Interest rates are low. Uhhuh. And then of course you have, i think, once again the european turmoil. And then theres a few buildings downtown that just opened with lots of great contracts in them. I wonder if with Interest Rates that low, where do you put your money . Youre not going to buy a negative yielding bond. So you buy you buy a nice car. No, they do borrow. Rich people do borrow because they can make more money on their investments because mortgages are so cheap. I just got a mortgage myself and it was not very expensive. Say again . I just got a mortgage myself and i was surprised. Its very, very inexpensive. What kind did you get . What kind of mortgage . Rate . I got a really good rate from j. P. Morgan. Thank you guys so much. What kind of mortgage does Fredrik Eklund take out . Thats what im asking . So i bought a beautiful country house, a little mansion. And im paying it off in ten years. A tenyear mortgage. So its an a. R. M. But you probably could have paid cash. You dont have to brag, im just saying. Anyway, cash is fun. But i think, you know, Interest Rate being so low get a mortgage. So whats happening . You mentioned the high end really picked up at the end of july. Yeah. Whats going on in the middle tier . Is there a real difference . Is there a bifurcation of this market . I think spring was rocky, right . Yeah. Oil plummeted and with that rates came down and stabilized since then. Below 4 million has been super active all spring and summer has been crazy. I think the segment that i work a lot in, new development, groundup and conversions, theres a number of new amazing buildings for really the first time in new york city between 1 million and 5 million. You know, the new developments there was no supply for a long time. Exactly. If you wanted a swimming pool, you wanted a doorman, you wanted this beautiful architecture, you had to pay 8 million to 10 million. Michelle and melissa, you guys live in new york. Yep. Tyler and i, were suburbanites. Were lawn mowing suburbanites. Who are all these people . Every sign you see in manhattan is studio starting at 999. Thats quite accurate a studio starting at im there enough and see the signs. Its basically a Million Dollars a bedroom. Thats right. Who are all these people . I mean, im amazed too. You understand what im saying . Absolutely i do. Wheres the money coming from . Well, i think theres a lot of tech. We used to say there are wall street guys buying, but a lot of tech money from the west coast. We also have a huge trend of retired maybe older couples, families, moving from uptown to downtown. Thats a big trend. What about chinese buyers . Chinese buyers buying for kids, they want to go to school in new york city. Oh, my gosh. Is there a certain degree of weakness in the market thats being masked because some of these developments are offering concessions to keep the list price at the list price but offering extra incentives to brokers and offering to pay closing costs, et cetera, increasingly as the market starts to sort of go into the fall . Yeah, i mean, i think right now in the marketplace is it a buyers market, a sellers market . We always discuss that. In certain pockets, especially i would say midtown, 57th street corridor theres a little bit too much inventory and there you can negotiate and get your concessions, yes. You know, fred, i wish youd come seen me before you bought that place in the country. I have a house in the poconos that i cant sell. Its not a mansion. Why do you call me to i could sell it for you . He wants to be your broker. Well talk. Im in real estate, i have enough real estate right now. On a lake. In the poconos. Hour from manhattan. Thanks. Good to be here. Next, youre a turkish war lord . Got a water its either got its martini we got the jacuzzi, we got mice, we got everything. Fredrik, thank you. Up next, latest drama between brazil and the u. S. Olympic swimmer ryan lochte hes in the middle of it all. And were going to head live to rio and try and untangle an odd story when power lunch returns. Welcome back to power lunch. Im melissa lee. U. S. Olympic swimmer ryan lochte could be in hot water with brazilian authorities. Lets get to cnbcs Andrew Ross Sorkin live in rio. Andrew, some fascinating developments today. Reporter it is a fascinating development. A brazilian judge raising doubts today here about u. S. Swimmer ryan lochtes robbery allegations which made headlines around the world. You might recall after the initial reports the today billy bush spoke to lochte about being robbed by gunpoint by people impersonating the police who had pulled over his taxi late saturday night. Now, of course that story played into the worst fears about security here in rio and raised questions about the safety of athletes and tourists alike. But now a judge today saying she found inconsistencies between lochte and his teammates account of the events. And she has ordered their passports seized, so they cant leave the country. The u. S. Oc said police went to Olympic Village this morning to serve that order but the swim team had already moved out as previously scheduled. Now, lochte is already back in the united states, according to his lawyer. And we should say in a phone interview with nbc news ostrow is fiegtding back insisting lochte told the truth and cooperated fully saying, quote, when there are International Headlines about what happened to one of americas greatest athletes while there, they have to save face. And thats what theyre doing now. Now, we should say before leaving rio, lochte told usaed to usa today that he didnt immediately inform because he thought they would be in trouble for being out late night in a taxi cab and violated team rules. Theyve been the darlings here, but this casting a little bit of a cloud over all of it. But bit of fascination of course about what really took place. Well bring you more as we get it here, guys. Andrew, i am deeply skeptical. I mean, if i had to make a bet between a brazilian judge and ryan lochte, i might not bet on the brazilian judge. I mean, theres so much corruption and weirdness that goes on down there. You know, im not convinced. And two people whove been out drinking at a party and their stories dont match . Im shocked. Reporter i have to tell you that the evidence may suggest otherwise. Theres a video thats come out that was shown to this judge that she refers to. Its a security video showing both of these gentlemen and another teammate coming back that night. They dont look disturbed. They do seem to have their watches and their wallets. So we will hold judgment for now, but lots of questions here in rio about what took place. And given just how much press this particular story has had, both here locally and globally. I guess, andrew, the other question i would have, forget about the case is, is it odd that hes back home, i guess . Reporter no, actually, i should say many athletes have already left here and arrived. We showed some video earlier today Simone Emanuel coming back, she was in texas this morning. Just some unbelievable video that will make you cry because not only is she there with family and friends, but they had a marching band. No, it is not unusual for the athletes to be home for those who participated in the first week. Some of them. Some are staying throughout the rest of the week. And because of this incident some actually changed their security protocol because of this particular event. Or at least what we think is this event. So we will of course as i said we will bring you more as we get it. Andrew, thank you. Andrew ross sorkin in rio for us. All right. Dont move a muscle. We are Just Moments Away from some potentially market moving news from the Federal Reserve. Are they finally ready to hike Interest Rates for the First Time Since last december . Or will the doves down the hawks yet again . The fed minutes out after this quick break with reaction and analysis. Power lunch is the place to be. At ally bank, no branches equals great rates. Its a fact. Kind of like bill splitting equals nitpicking. But i only had a salad. It was a buffalo chicken salad. Salad. Wont replace the full value of your totaled new car. The guy says you picked the wrong Insurance Plan. No, i picked the wrong insurance company. With Liberty Mutual new car replacement™, you wont have to worry about replacing your car because youll get the full value back including depreciation. And if you have more than one Liberty Mutual policy, you qualify for a multipolicy discount, saving you money on your car and home coverage. Call for a free quote today. Liberty stands with you™. Liberty mutual insurance. Farm fresh ingredients, stepbystep recipes, delivered to your door for less than 9 a meal. Get 30 off your first delivery blueapron. Com cook. All right. 20 seconds now until we get the release of the minutes of the latest fed meeting. Heres where we get your setup. The dow is down 14 points. Not a big move, but were now negative over the past 30 days. The market is fizzling out a bit. 10year yield at 0. 75 . Gold a little softer. Here is Hampton Pearson in d. C. Reporter from the june Federal Reserve minutes, listen to this. Given the economic outlook, they, monetary policymakers, judge that another increase in the feds rate was or soon warranted with a couple advocating an increase at that meeting. Thats however still dropped off to a discussion about exactly what kinds of conditions would it take to actually pull the trigger on a rate hike. Essentially a split among policymakers. Some actually concerned that inflation is going to fall short of the 2 benchmark and therefore it would be appropriate to wait for more data to see if there would be a movement on inflation. There was also concern Going Forward too to see if the job market would strengthen further. And on the downside, a concern about the lack of Business Investment Going Forward. But on the Positive Side what led to the fed essentially saying that economic risk essentially were a little more on the balanced side. Participants agreed that the proper recovery of markets following brexit as well as that pickup of job gains in june had alleviated some of their uncertainties. Again, that inflation the concern about inflation not meeting the 2 target a big speed bump Going Forward. And, again, the call for waiting for more data. A few of the members also emphasizing that there was a concern about the continuing low Interest Rate risk intensifying incentives for investors basically to reach for yield and possibly a misallocation of capital and a misallocation of risk. Overall members generally agreeing that it was prudent to basically wait for more concrete data as far as the timing of future rate hike. But there it was in plain english the belief that a rate hike is imminent. Back to you. Got it. Thanks, hampton. Lets bring in gabrielle la santos, Global Market strategist at j. P. Morgan and Global Advisor pimco, danielle, im going to start with you. Does this mean were going to get a hike in september . I think right now the markets are believing dudley more than they are williams. It sounded like there was definitely a more hawkish slant to these minutes. And that would back dudley saying that the markets right now are way too complacent when it comes to prospects for a september rate hike. Gabrielle. It seems hard just judging by data in terms of labor market, economy, its getting harder and harder to justify such low rates and the fact that the fed has still not raised rates this year. So i think theyre opening up definitely and preparing the market for another rate hike this year. Yeah, i think to me the four letters were they said soon, may be soon appropriate. They didnt say september. Back in april they said june it could happen. Now theyre saying soon. So i think its a hint that septembers on the table. But its not a broad commitment to go there. Let me ask you more strongly because ive been a little more hawkish than some of my colleagues. If they dont raise rates in september, have they lost all credibility . Well, i wouldnt say theyve lost all credibility, but i think the last two or three months have set back fed credibility. They seem to be wallowing in uncertainty. Rich, ill take it a different way. Go for it. They seem to be desperate to find a reason not raise rates. Not to, right. Things are good, but now so much to worry about. But the job numbers and inflation tylers boho top there are quite a lot of there are quite a few howevers floating around out there. And certainly the fed speak doesnt make it any better. Danielle i think all eyes will be on jackson hold next week try to get a tie breaker oult of yellen. Danielle, how fractured is this fed . Oh, look, youve got ester george dissenting, youve got words in the minute as in was, was appropriate. That means there were members of the committee who were actually who were for it. They were ready to go for it in july, probably june. I think theres a tremendous amount of dissension on the federal open Market Committee these days. But again, you need to listen to the chair yellen and the vice chair, the second in command, dudley. Listen to their words the most closely in my view. So were looking at intraday charts of the dollar, the major averages. Theyre reacting major markets reacting negatively, but not strongly. Fed rate hike probability has gone up, pricing in the chance of a but rates have come down in response to this. Right. Across the yield curve, it looks like. And the dollar has come down off of this. Right. Bring up the dollar chart intraday. Its very interesting. Im just wondering, how would you it seems like dont you think the dollar would go up . Seems like investors dont know whats going on. I think you hit the nail on the head. This is a fed with 17 participants and i would say 17 different opinions and right now the chair has not really imposed her will. Well see at jackson hole if we get the yellen take on all of this. But right now its each man or woman for himself. And thats why the markets are confused. Is it really though . Do you think its really, you know, eight people against yellen . Or maybe if eight said, g gabriel gabriela. Isnt it interesting we had arguing for a rate hike sooner than later and now pointing to more and more members joining that camp. Even sooner. Even sooner or especially after the june employment report and after brexit came and went. So i think were getting more and more members of the committee joining that rate hike camp. So i would bear in mind, the election. The election septembers really the last opportunity to hike rates before the election comes. Unfortunately, for janet yellen, she wont have the latest labor report for the month of august in hand when she presents at jackson hole. Right. Lets look at this dollar chart again, i still want to go back to this because im very confused. The dollar should be moving higher if you think a rate hike is coming. And instead it had that momentary spike, and now it is lower. This isnt some japan yen day, is it . I think its part of the credibility issue that we talked about. Weve been talking about the fed all year. They were crying wolf for a bit there, came back. I think the way that they can regain credibility is really just acting, right . Is just raising rates. And until then well have some question marks whether its in the dollar or yields. All right. Hold on, we want to get Rick Santelli standing by with the reaction and his interpretation of whats going on. This 10year yield drop 1. 5 is where it stands right now, rick. Tell you what, there is one group thats totally confused. And trust me, it isnt these guys. These guys arent confused. They know that words are words and actions are actions and none should the on the fed. The fed brings new indecisive hypersteroids. We were at 77 in the twos, right now at 72. Thats not confused. Thats convinced theyre not going any time soon. 117 and five at 113. In the long end it did wake up briefly. It was a 2. 28. Now its at 2. 26. But watch 30s to 5s, its about to get the flattest its been in 16 months. And, yes, the dollar index, king dollar, it was up 13, its down 6. Confusing would be if all the markets were roughly the same. Rick . Yes, sully. I hear you. Youre right. The bond market is saying one thing. The fed minutes at least in print as were reading it seems to be saying another. Why do the men and women behind you think that the spike and soon maybe some already wanted to raise it that theyre disregarding the fed and no rate hike is coming. Why do they feel that way . Theyre not disregarding the fed. They have been conditioned by the fed. Just like a pavlovian dog, ring bell, salivates looking for the food. The fed rings bells, they dont do anything, they ring bells, they dont do anything. These guys get it. Theres huge opportunity in fading the words. Theres huge opportunity there. These guys are conditioned by one thing, money. And theyve been highly rewarded for taking the tact that they have taken. And i dont see them breaking that any time soon. If the fed wants to get back on offense and try to at all put together their credibility again, they need to talk less and act more and corral these people. We talk about trump and all his people and his campaign. The feds way bigger, maybe way more important and you have these fed officials going on with 180 degree opinions. Its crazy. Hold on, rick, i want to bring in bob pisani from the floor of the new york stock exchange. Bob, rick was talking about how the people, the actors in the bond market dont think its going to happen. In the stock market were not seeing that selloff that you would think, for instance, in the financials. If there is skepticism based on these fed minutes that the fed is going to hike sooner rather than later . I think the stock market is saying that there is no consensus on this in the fed. And they believe that yellen will ere on the side of caution and be dovish in jackson hole. I think thats what the stock market is saying. Look what matters here. Concern inflation might fall short. Many wanted to wait. Thats not a consensus on jobs may was an anomaly, think the job market is good. Some concerned job Market Growth will not keep strengthening, so not a consensus there. On the foreign issues and brexit, brexits still concerns still present. Not a consensus there. Everything indicates that theyre going to hold here. Now, yellen, we know generally eres errs on the side of caution and sounds like yellen will be dovish at jackson hole. Could it be clear it up the market thinks, shoot, these people might raise and that would be bad economically and therefore that would bring down the long end of the curve because it would be, i dont know, recessionary or negative for the economy. Well, i think theres a bit of that. But lets remember were in the eighth year of recovery, full employment, inflation is above 2. We dont need emergency Interest Rates so i think the disjunction is until we get that second hike, until this looks like a rate hike cycle and not a one and done, youre going to have Market Reaction like this. Its eighth inning of a seveninning game, seems to me. We need to get rick some kibble. Has anything changed your view as to when the fed is going to raise . I think, look, september is a possibility. But all the stars have to align. We still think that december is much more probable but that the market needs to get that pricing a bit better, right . They need to get used to this idea. And its not just this year, but its the cycle next year as well, right . How many hikes will we get next year . By the way, markets just turned positive, s p turned positive on this. Look at utilities, pull that up intraday we are seeing the spike. Dividend paying stocks have sold off recently because there was a notion that a hike could be coming, rates could be rising and yet we do have a bid back to these dividend paying stocks. But does that make any sense to anybody when the fed says it would soon be warranted to raise rates . Right . They had a laundry list of why it wont be. Gabriela, pending an kpoj nest event, im going to die and the Federal Reserve is going to raise rates at some point, i dont know if its september or december, im also sure the chargers wont win the super bowl this year, but i dont want to jinx my favorite team. So given that, what do we do . If you believe the fed will raise rates, timing is kwoi coincidental or incidental, what do i do about it . So weve been talking to clients about this. Its not necessarily trying to get the timing right. Weve clearly not been able to do that that well with this fed, right . So i think its making sure that our portfolios are not as defensively positioned as the market was behaving in the first part of the year. So for example really looking at cyclical sectors within the equity market, right . Sectors its not just about Interest Rate increases but the fact that the economys doing much better than it seemed in the first half of the year. So making sure that were not defensively positioned. So is that tech . Is it industrials . Discretionary . Its discretionary, financials, tech, health care. Danielle, jump in. Look, i think what dudley was trying to jawbone and what the minutes are trying to say, one of the smartest things ive heard in the last few days is that theyre all looking for something north of 50 probability for the december meeting, right . If the fed acts according to script, its latest script, that means its going to have markets on tender hooks for a september hike but actually wont come through and deliver until december, until after the election comes and goes. Thats what it did when it was threatening to taper purchases after qeinfinity, thats what it did last year right before that very first rate hike. The markets were anticipating september and the fed delivered in december. And i think the message to markets with this fed certainly since december and dudley said it himself is theyre really focused on financial conditions. Theyre very focused on the dollar. Theyre focused on emerging markets. And so theyre doing everything they can albeit with diminishing returns. And theyve been at this now for a number of years to sort of keep the appetite for risk assets alive. And i think that is the message right now. Were in a range of diminishing returns, but you dont want to go against that very powerful force. Quick final question to danielle. The election, you might have heard about it its in november ive heard something about that. Youve worked inside the fed system for a long time. Do you honestly believe, and seriously, that they would not raise rates even if they wanted to ahead of it because somebodys going to say dont do anything ahead of the election . I do not would they actually do that . No. Look, on the inside were told to say it doesnt matter, but the election has a huge bearing on fed action. I dont think theyll raise ahead of this election. Wow. Because they dont want to be seen as political . Is that the idea . They want to portray themselves as being apolitical, but i consider the fed to be anything but apolitical. I consider it to be a highly politicized institution. So what happens so by that theory theyre not going to move in september because maybe they want to hold off and not be inserted into the political process. Lets say the election destabilizes the markets, one way or another. Then the person whos right in the end is art cashin whos been saying all along that the fed is not going to make one move this year. And im actually with art. Because if the markets get rocky after the election, theyre not going to move in december. Theyre not going to do anything. Interesting. To ricks point a few minutes ago, it has been years and years and years and they have always found an excuse to not volatility [ overlapping speakers ] interestingly fed fund futures indicate a drop in expectations for a hike in september as well as december based on these notes. There you go. Yes, i know. But those are just bets. Based on after the fomc minutes. So read a signal, they move. Its turned out to be a fun day. Rich and gabriela, thank you. Ive just heard the fed is beholden to the politics, beholden to the white house, to the stock market, to brexit. Yes. Thats all we talk about. Weve all been doing this a long time. The Federal Reserve, maybe im crazy, seemed to at some point why is this a surprise, brian . Well, ive been saying its not. Thats the way it is. Hes channelling his inner santel lirks. And rick is out there with the pavlovians. Markets by the way green across the board. There you go. Different than the old boss. Santelli gets the last word. One of the Fastest Growing private businesses in america is a company that sends a box of gear to geeks and gamers every month. Is this a club you want to belong to . Evidently a lot of people do. We will talk to the ceo and get you the latest on the fires in california, and more seriously those floods in louisiana. Power lunch returns after this. Ink magazine just out with ink 5,000 issue ranking the Fastest Growing private companies in the country. The Number One Company on the list is a multiMillion Dollar geek gift box business. Its name is loot crate. The companys founder, chris davis, gracing the cover of the magazine out today. And mr. Davis joins us now. Chris, welcome. Good to have you with us. Were grateful that you could join us. Thanks for having me. Really excited to be here with the team. Your growth has been 66,000 percent over the past several years. Your revenues up above 100 million a year from basically nothing. Most people including yours truly had never heard of loot crate because maybe im not your target audience. Tell us what you do and how youve achieved that kind of growth and success. We like to say its the best surprise you know is coming. We find exclusive content from the best entertainment brands, marvel, lucas, dc, and create these authentic exclusive experiences. And really target the core fan. So i think thats probably why you havent heard of it because were talking directly to the most passionate fans of geek and pop culture at this point. Geeks and pop culture, tshirts, a magazine included in the box every month. Are these boxes curated for individually, or does everybody sort of get the same box . You subscribe, what is the subscription rate . You get a box every month filled with this stuff, right . Yeah, our main product is 20 a month. We have a whole inhouse curation team. We try to find relative items from that month. So we have these big 650,000person event when the boxes are delivered. Everyone gets the same items, they talk about it. Yeah. So give me an idea of what is in the last box you all shipped or what might be in the next box you ship, if you do that, look ahead. Yeah, our july box featured a futurama collectible ship, planet expossess, rick and morti tshirt. We created a plaque from strst trek, we try to cross the whole gamut of pop culture and mesh up franchises youre not used to seeing. What do subscribers do with this stuff . We try to fit it into everyones lives. Its a collectible on your desk. A tshirt, a geeky dead pool mug in the morning for your coffee in the kitchen. We try to bring fun and magic to everything you have. Give me some sense, youre charging 20 a box, a loot crate, per month. Give me some sense, im not going to ask you to pin it down, of the range of what your cost is for the stuff thats in there. So were buying some of the largest volume units so we get incredibly good pricing. I think the subscription model allows us to take a lower margin than a traditional Consumer Products business because theres a long life for that customer. But we definitely have healthy margins and it was how we were able to boot strap the business for three years. And when you say a long life of the customer, i take that is as a way of saying that your subscribers stick with you . Yeah. We work hard to make it something that is of great value and really fun. Like we said, the best surprise you know is coming. Physical goods are still, i think, loved by a lot of people. But the worlds gone digital so quickly. Will you send us a box . Of course. We would like ill pay for it. Im happy to buy it. But i just want to see and display some of the stuff. But thank you, chris. You know, if this thing doesnt work out for you, this loot crate, you should be on the next bachelorette, you got the look, the whole thing going for you. Tyler is an expert. I got two addictions, hamilton and the ba bachelorette. Im with you. See. All right. All right. Congratulations on the cover of inc. Magazine. Are you going to share the box . He looks good in a suit. Why are you so skeptical . The look on your face. Who is tyler mathisen, the boho top, bachelorette, loot crate, i dont know you anymore. Renaissance man. He is. Renaissance fair. Im a lot of fun than i appear to be. Shares jc penney up 20 in the past year since new ceo ellison took over. Well talk to him about and, well, the fed movement, well, its moving. Power lunch will be right back. The heirloom tomato. 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With patientcentric, digital innovations; from selfmonitoring devices that can interpret personal data and enable targeted care, to Cloud Platforms that invite providers to collaborate with the patients they serve. Thats why over 90 of the top 25 Global Pharmaceutical Companies are turning to cognizant. Our domain experts, technologists, digital and data specialists, clinicians and scientists are transforming the way Clinical Research sites collaborate with pharmaceutical companies, and enhancing Patient Engagement with innovative platforms and solutions. Our populations growing healthcare needs present growing opportunities for our clients to advance the future of medicine with digital, and improve the quality of lives. Hi everyone. Im sue herera. Here is your cnbc news update at this hour. Police in germany have arrested the man who illegally sold the gun used in last months deadly shooting rampage at a munich mall. Prosecutors say the dealer sold the shooter the pistol and 100 bullets for about 4,000 back in may and later sold him 100 more bullets. Nine people were killed in that shooting. Cuba and the u. S. Are teaming up to fight the zika virus and other health concerns. A u. S. Delegation is expected to visit cuba in october. This new Alliance Comes a little more than a year after the u. S. Flag was raised in front of the u. S. Embassy in havana. And a new study shows nearly 50 children a day end up in hospital Emergency Rooms for injuries related to strollers or car carriers. Most reportedly suffer head and face injuries. The studys coauthors advise parents to always buckle their children into strollers or a carrier and to make sure that the product is the appropriate size for the size of the child. And who says you cant go home . Not Paul Mccartney certainly. Hes returning to Capitol Records signing a new worldwide agreement with the label that brought the beatles to the u. S. In the 1960s. The Record Company says mccartney is also working on a new album. Look forward to that. Thats the cnbc news update this hour. Melissa, back to you. Thank you so much, sue herera. Lets take a check on the markets right now. This just about 31 minutes after the fomc minutes were released. Back in the red across the board, biggest moves within the equity markets are seen in the utilities if you pull that up on intraday basis utilities up by more than 1 . Taking a check on oil, hanging around break even after up and down session. Michelle. Jc penney Ceo Marvin Ellison took over the company more than a year ago. Since then the stock is up 20 . Today ellison is meeting with analysts and also Courtney Reagan whos live from irving, texas. Courtney. Reporter thank you very much, michelle. Of course i cant come all the way down here for jc penney analyst day and not sit down with Ceo Marvin Ellison. He took over just about a year ago. And so now hes here answering some of our questions. Congratulations on the quarter you all posted on friday. Here you laid out your threeyear plan. I will tell you your stock is down about 3. 6 . Youre looking at comp sales to grow 3 to 4 by the year 2019. Im not sure the market believes that, especially with mall traffic declining mid single digits. So what will you tell those that are skeptical that you can actually follow through with your plan . Well, i think for us its all about the results that we believe we can deliver. We have a couple huge initiatives that we believe will be net positive, not only in the fall season but for the next three years. Were going to expand our sephora cosmetics business. Its been a wonderful business attracting new millenial customer. Were rolling out in 500 stores this year and we see continued growth over the next couple of years. We have a strong, aggressive plan to fix our windows business. Back in 2006 jc penney was the number one in market share in windows touching a third of the americas homes. And we destroyed that business with a lot of resets that really did not drive any type of customer awareness. We believe pick up in store same day we were one of the few large retails that could not execute that. Weve rolled out chain wide this year, well get benefit in the second half. And we think the whole value message is really important to our customer. I mean, we struggled years ago understanding who our customer was, what she wanted and how we could serve her. And we think the data leads us in a much better clear direction. And market today we dont look at it daytoday, there are a lot of retail activity in the market, couple poor results from a couple large retailers, we had Great Results last week. Our stock is up for the year. And we think were headed in the right direction. So appliances is a big part of some of your new initiatives as well as pilots with Ashley Furniture and empire flooring. I understand your best selling refrigerator is a 2,700 version. Thats correct. Thats great. But how many refrigerators does a customer need . Are they going to come in and buy a refrigerator and come back, are you worried youre getting onetimers . Not at all. In the u. S. 100,000 appliances break every day. Thats a fact. So customers will always need appliances. The appliance market is projected to grow at 30 over the next three years. Though not many retail categories that have that type of growth projections or trajectory over the next three years. So we dont believe that. What we do know a third of the customers buying appliances are brand new customers to jc penney. We know 70 of those appliance customers are buying on a jc penney credit card. And over a third of those customers are new credit card customers. We know that the appliance category is 10x more profitable than our existing categories from a gross profit and from a sales standpoint. So we know were doing this business the right way. We are growing an accretive, profit accretive, dollars per sales foot and we think were headed in the right direction and we think this is a customer that will shop in other areas. Our stores with appliances have a slight halo effect where the other categories are lifting as well, which tells me that when she comes in shes going to home, shes going to kids, shes going to womens apparel, shes going to sephora. We think this customer is more than a onetime customer. You said you hope to pick up onetime customers, what about all the Macys Store Closures . If a macys closes in a mall where theres also a jc penney and or sears, what happens with the traffic flows . Historical trends tell us it is a net positive to jc penney. When we share a mall with sears and they close, we gain market share. So its a net positive from a sales growth. When macys closes in a mall, historically its been a net positive for a couple reasons. Number one, because it is well telegraphed. So we know exactly when its going to happen so we can take specific steps to get the traffic to flow our way. And also if a retailer is closing a store its typically an underperforming store. And an underperforming store isnt creating a ton of traffic in the first place. So mall operators can replace an underperforming retailer with a more dynamic business model, maybe a theater, maybe a restaurant or some other attraction. But net positive we think that its going to benefit us and allow us to take market share. What about your store fleet . Youre going to stick with where you are . Every year we take a very hard look at our store portfolio. Last year we closed roughly 40 stores. Were going to close about seven stores this year. But what we understand is that we dont want to run on profitable stores. And we have very few stores that are full all cash flow unprofitable. What we want to do is leverage our 1,000 stores to help to drive our omni channel business. We want to lever these stores to deliver from store to pick up in store. And what weve learned from a digital ecommerce perspective over 50 of our ecommerce transactions touch our stores. Thats a significant number. And so what we understand is we can lower our costs to deliver for us, we can make it more convenient for our customer, and we can drive foot traffic in our brick and mortar locations. Having said that, if a store is not strategically relevant, it wont stay open. And if its not profitable, it wont stay open. If it is profitable and strategically relevant, we see no marvin, i think we have a question on the east coast. Yeah. Thanks, its melissa lee here in englewood cliffs, marvin. I want to get to your commitment to these physical stores because last week, you said, im going to paraphrase, ecommerce competitors who think they can fully compete without our store is, in your words, in for a rude awakening. Is that a dig . Not at all. We have brilliant competitors that are pure play ecommerce companies. And they have a very specific strategy. But if youre a brick and mortal retailer, in my opinion you have to leverage your assets. Your assets are primarily your employees and your physical structure. We can take 1,000 stores and we can use those stores to deliver from store to create what we call enterprise inventory, leveraging inventory from the dot com dcs and in our physical store dcs and in our physical stores. So if you have 1,000 stores geographically located around the u. S. , we think its prudent to use those physical locations to reduce the delivery time, create convenience for the customer and leverage the asset in a more effective way. And you said that youll do that and be able to deliver to 90 of the country within two days without a membership fee, is that a dig at amazon . Not at all. Its really a value proposition. I mean, we think next year 95 of our instore deliveries will be two day or less because of the geographic footprint and because of the technology were layering on top of our digital and physical environment. And we think that its all about leveraging what we are good at versus trying to do what our competitors are better at. Well, youve laid out a big plan here today. You know well be following along. Brian, do you have a question . Just a quick one, courtney. Im sorry, awesome interview. Mr. Ellison, its brian sullivan. Youre based in texas, ive got to ask you, do you have any metric to where gas prices impact you, if they go up a quarter, does it do x amount of damage to your business . Does it matter to your customer . How does oil and gas, what does it mean to jc penney . Well, it really has had a really kind of a marginal impact. One of our strongest performing areas last year was texas and the southwest. And while the market was going through reducing oil prices and fracking and alternative energy was really going through a transition, we saw no Material Impact to our business negative or positive. So we see it as a net neutral. Obviously energy is a huge economic driver in texas. And texas remains one of our strongest markets. And we think thats going to continue. Thank you very much for being here with us today, marvin ellison, ceo of jc penney. I think youve got some work to do. I do. So i guess i will let you go. Brian, melissa, michelle, tyler, back to you guys. Courtney, thank you. Up next, a look, a book and a nook. The good, the bad and the ugly in todays trade when power lunch returns. You know what, guys . Theres a lot of tree branches and dry brush over here. We should probably move the bonfire over there. [smokey whistling a tune] im guessing smokey liked that idea. Perfect driving record. Until one of you clips a food truck. Then your rates go through the roof. Perfect. For drivers with accident forgiveness, Liberty Mutual wont raise your rates due to your first accident. And if you do have an accident, our claims centers are available to assist you twentyfour seven. Call for a free quote today. Liberty stands with you™. Liberty mutual insurance. Welcome back to power lunch. Time now for the good, the bad and the ugly. Lets start with the good. Urban outfitters higher by 16 , reporting Second Quarter profits 10 cents above estimates as well as an improvement in profit margins. Thanks to fewer promotions. Then theres the bad, staples is down 7. 5 . The Office Products retailers reporting sales drop for the 14th quarter in a row. And it is an ugly day for barnes noble, look at that down 12 ousting chief executive officer ronald boyar saying boyar was not a good fit for the book seller. Brian. Thank you very much. Well, we talk a lot on this show about ford and General Motors and Fiat Chrysler and ferrari and all that kind of stuff. But the hottest single car maker in america may actually be s subaru. Increased sales every year since 2008. How is subaru doing it . Phil lebeau is live at the companys only u. S. Plant. Phil. Brian, i know you fancy yourself to be a car man. So to answer your question, theyre doing it based on reliability and safety, the hallmarks of subarus Marketing Campaign here in the united states. But i also get this question a lot from people, i hear about subaru, but where are they sold . Where are the most popular states when it comes to subaru sales. If you live in the northeast, this should not surprise you, top states and northeast as well as Rocky Mountains thats why you see montana in that map as well. And subaru is in fact growing sales faster than the market overall, up 2. 7 this year. I know that doesnt sound like a lot, but remember were coming off a record year for auto sales in this country. Industry overall is up only about 1. 3 . Subaru now the ninth largest auto brand in the u. S. And for the dealerships that means tight supply. Thats why theyre increasing capacity and production at this plant here in lafayette, indiana, adding a third vehicle this fall. And the key here, can they add that production while maintaining quality . They really want to make sure that theyre going to be able to extract value from those vehicles over, you know, the seven, eight years that that vehicle loans are approaching now here. So that reputation for quality and dependability is crucial for subaru. This is the chart that i love. Look at the comparison of japanese automakers. And remember the parent of subaru is fuji though changing the name of the company to subaru. Over the last three years outperformed toyota, nissan, honda, thats the story behind their success not only here in the u. S. But asia as well. They build the legacy and outback here. Thats whats rolling off the line. And coming this fall theyre going to be adding the impreza, back to you. Very cool stuff. Phil lebeau with subaru. A big bullish bet on motor homes thats not a bet on a motor home stock. Give you that, plus other big calls you need to know about in street talk. And later on, could the fed be killing one of the markets hottest trades right now . Our trading nation team will weigh in when power lunch returns. Todd spaletto, president of the north face, we are working on the prototype to match customers to gear. Watson, lets give it a try. Say its midjune and im backpacking in yosemite. Of our 353 jackets, i can recommend nine. Watson, what if it rains . There is just a 3 chance of rain, so i recommend the breathable stretch fleece fuse form dolomiti jacket. A Perfect Choice watson. No wonder our Customer Loyalty numbers keep climbing. I believe we can do even better. I like the way you think. I believe we can do even better. Will your business be ready when growth presents itself . American express open cards can help you take on a new job, or fill a big order or expand your office and take on whatever comes next. Find out how American Express cards and services can help prepare you for growth at open. Com. All right. Time for street talk. Our daily dive into the key wall street are you ready . Yes. Lets do it. First stock is cree. Ubs says you need to sell this company. Downgrade from a sell to neutral after missing guidance. Simple call, they see more risk to earnings in part because of pricing pressure in the l. E. D. Lighting segment. The analyst blames china because china, this is interesting, has been buying a lot of some kind of metal dioxide tool, acronym, which he says increase market thus down. He cuts the price target to 21 from 24. 50. About another 15 down on a stock thats been smacked around today. At first analyst doesnt sound that optimistic when you read through the note. Says sales need to be sinking through a hole but then the bullish comes out that said it should come back in 2017 and cold weather should help and there should be stabilization in the northeast and great lakes and the Company Plans to ramp spending on customer service. Roanoke, virginia is fine. Another upgrade for this gene therapy company. This time wells fargo upgrades from market perform, high line optimism among Clinical Experts on the outlook for gene therapy candidates called abxs 101. Up from 30 to 32. Stock was above that. So 30 more upside. Second upgrade in the past few days. More than double. Jeffrey upgraded stock on the 12th. Even with that double in a year they see more upside. As you recall, the good stock in yesterdays good, bad, ugly. Raised to 140 from 111. There is a better opportunity to accelerate to the doubledigit Earnings Growth rate. And your smaller capital under the radar, make is patrick corporation. Elkhart, indiana, parts maker for rvs. Parts is parts. Quote that old commercial. Anybody remember that one . Month. Like wendys. Parts is parts. Stock is up 36 . But cl king sees more. Analyst raises raising to buy from neutral. Notes a Strong Performance in rv sales. And adding recent pull back from 70 to where it is now. Now at 60 when i found the stock. Creates that attractive entry point. Stocks up 6. 5 today. But 71 target. More upside on this stock which is just an 11 stock three years ago when people thought nobody would ever buy a motorhome again. Parts is parts. Parts is parts. Patrick corporation, your stock of the day. Up 6 . Street talk out. In this era of ultra low Interest Rates, the buy the dif dent stock trade and let it ride really has been a nobrainer. Also a moneymaker. With the release of the money minutes is fed keeping the dividend trade alive or sending it out to pastor. Tim seymore. Tim, i know it was dovish. Maybe hawk, who knows. No matter what the feds will do, this is a path to normalizing. This is relative to their own value though. So things that have gotten overly blown out, clorox, kelloggs, general mills, unless Interest Rates are going to move 150 to 200 basis points quickly, i actually think the flow will maintain some relative performance here. I think utilities actually are really always valued on their own dividend yield and it is relative to themselves. I think utilities are probably, you know, very interesting here, if you look at the trade all wait back down to 4950. Thats an important level. So no, i dont think the fed has taken the dividend trade out of market. Did you know that the path title was the original for the stairway to heaven . Thats not true. And all that glitters is gold. Yeah. Shes not making it to heaven. Is this alive and well or is it over . I think is alive and well whaep i would say is i think what we have seen off the last six weeks isnt this change. It went from probability of 30 to be raising 25 basis points to around 50 now. Thats not a huge move. What i really think you saw over last six weeks was a shift to risk on from the more the utility sector at the telecom sector, Consumer Staples sector for just the yield. We saw investors moving into technolo technology. Moving into emerging markets, emerging market bonds. I think some of the rotation we saw with this underperformance in utilities and telecom was retags to more risk on type of environment. What i would say we are seeing now is utilities is more balanced flow. To tims point we arent seeing a max exodus here. They obviously dont think it is over. Stacey agrees. Go to tradingnation. Cnbc. Power lunch is back in two. This car is traveling over 200 miles per hour. To win, every millisecond matters. Both on the track and thousands of miles away. With the help of at t, Red Bull Racing can share critical information about every inch of the car from virtually anywhere. Brakes are getting warm. Confirmed, daniel you need to cool your brakes. Understood, brake bias back 2 clicks. Giving them the agility to have speed precision. Because no one knows like at t. Teeing up a full week of coverage for us leading up to next weeks jackson hole, because they gave us enough to chew on for at least three days. I thought the minutes were confusing and we will look for clarity from mrs. Yellen next week. This makes it very interesting. Yes. Speaking of confusing, the situation in brazil with ryan lochte. Was he pulled over by someone posing as a Police Officer and held a gun to his head. There is skepticism in brazil because it is not uncommon for people to pretend to be police to rip you off or sometimes for the police to rip you off in brazil. My check is far less interesting. Jc penney has done well but the best performing retail stock has been little old stein mart. Is that a Grocery Store . No, womens apparel based in jacksonville, florida, 108yearold company, up, congrats to stein mart for being the top retailer the past three months. They sell boho tops there . I bet they do. It is fascinating. You guys were feigning ignorance of what a boho top is. You know what we found . A picture of you guys in boho tops. Just unbelievable. Oh, i like that. Youre like, oh, boho . Case you dont know. I have hair on my chest. Who spray tanned me. Someone spray tanned me there. Ive got the magnum pi coming out of there. Put that back up. We need to apologize to all of you out there eating lunch. You cant unsee certain things. Thats what you said when you meant i cant unsee that. I would not tell you. All right, folks. On that note thanks for watching power lunch. Closing bell without a boho top right now. Hi, everybody. Welcome to closing bell. Im kelly evans at new york stock exchange. Little early for happy hour, isnt it . Im bill griffeth. Wide swings, although not that wide, since the july meeting, showing some officials believe that a rate hike may soon be needed but most members agree that more Economic Data are needed before making alert the media. Havent we heard this . Yes. Disappointing sales from target and lowes this morning