Transcripts For CNBC Squawk On The Street 20130620

be the open, and that is perhaps the key to every story out there. 2.417%. that is a 15-month high on the 10-year note. yes, if you are shorted over the last three years, you are finally seeing a little bit of progre progress. gold plummeting by 2 1/2-year lows. you look at that there, down over 5%. and most of the major markets in europe down more than 2% after our significant slide yesterday. after the 2:00 p.m. fed meeting the press conference from fed chairman bernanke and the follow-through on the s&p and there you see it. let's look at asia overnight, the shanghai composite is down sharply. weak pmi in china compounding what is this growing fear of cash crunch in the country. interbank rates and money market rates are shockingly high in terms of where they were a week or so ago. you can see the shanghai composite was down 2.7%, and nikkei in japan as it is almost everyday and certainly almost a 2% loss there and seems it goes up or down everyday one or two percent. let's get to the road map starting with the markets and what all of today's news means for your investments. we will bring in the top strategists from the equity and the fixed income side, and we are going to break it down for you. >> all right. dan loeb, don't hold your breath, sony's ceo saying that the company is considering to spin off the entertainment business burk a decision won't come quickly. and weeks of testimony from executives after apple, amazon and google are coming to a head. the price fixing case of apple case, and we will be live on the scene. all right. so what happened? amid all of the market volatility and the fed speak so much made of the rise in the rates on "squawk box" and ceo of wells fargo john stumpf said that the rates need to continue. >> and the fact is that we need to get back to normal. and it has been four or five years. >> well, the market, david and kelly, certainly doesn't like the fact of where the rates are going, and i'm almost shocked that the market reacted the way it did after all of the build-up and everybody saying, yeah, he will talk about tapering and they will talk some of this or that, and yet notes out this morning, ubs surprise, and goldman sachs, sans shock. >> and you look at what is coming with the expectations of the inflation coming off and the fact that the news is good but not great, and if i 'm the fed, why wouldn't they use the opportunity to correct it and assure people that they are not going to go anywhere and they did exactly the opposite, and it was a surprise to people. >> and in fact a surprise that in some point that the qe is going to end and the bond buying is going to end, and did people think it would go forever? >> one thing for the market to push it in and talk about the pricing and the timing of it, but it is another thing for the fed to come out to say, yes, this it is, and this is the time frame. >> well, we have had qe stop twice already and on the third version and not like we have gone down the road and haven't come back, because we have done it yet. >> and mark my words, we will do it again. i am willing to raise prospect. >> you are not as sanguine as the fed? >> no, i am surprised that the expectations of the market have come off of 1.5%, and fallen off 2%, and look agent what the investors are pricing and they are saying that inflation, what we expect is falling not only from january, but plummeted yesterday after the fed's decision, and people are reacting saying that the fact of what they are doing is not only allowing inflation, but the fact that it won't come down. and now the u.s. economy has to take into account that and the move of rates and the 1.5% move in rates is a hard pill to follow. >> and scott n the last three or maybe four, the feds have come in, and they have said, i am short the 10-year and take a boatload and every year they are wrong, and perhaps now, but to this point, we are waiting for an appreciable move in rates for year and years and the fact that the economy may not stand on its own legs is curious to me. i am curious what you are hearing out there, as well, scott, in terms of the pain people are taking on the fixed income side, and those who are not short credit and obviously watching the equities sell off. >> the market, whether it is treasuries or equities, the market was probably hoping and probably against the better judgment probably that bernanke yesterday was going to sort of walk it back, and walk back the notion that they were going to mention taper org that -- tapering or going to do it any time soon and we know that the people you are talking about who have been in bonds and stocks and talking about the investments were going to be soothed, but, in fact, that is not what happened. and now, everybody is trying to figure out what in the hell do i do now as you see the rates pushing, what 240? 242? >> oh, my god, 240. >> that is a good point, right. the sky is falling and you mean the 10-year treasury is at 2.42%? >> well, it is incredible when you think about it in historic terms bu s terms, but many people feel that the cheap money is the asset class, and allowing them to move and now most people don't believe they will successfully engineer an exit, and they believe that the risk assets have to be sold, and they are doing it now. >> you can have rising rates in two environments and up until this point, we have had it unfortunately in the kind of environment where it seems like morning in america, and the articles in 2009 -- and not '09, but 2010 and 2011 and the narrative, morning in america, and the fed is doing too much, and we have finally gotten to the point of sustainable growth, and now, they laid out the exit strategy two years ago and we have been at this point before and what happens every time? the economy is not as strong, and the important difference is that maybe it is, and we want it to be the case, but it is not entirely clear to make sure that it is going to handle it bu, because we have seen the incredible tightening. >> and if you are not knowing what has to be done, you are not listening. this is what he had to say. >> people are expecting the prices of homes continue the rise and we see that in the michigan survey, and that compensates to some extent for a slightly higher mortgage rates. and in fact, the change in mortgage rates is not that dramatic. so, yes, our forecasts and projections do factor that in. >> sorry, that is a wrong sound bite as we like to say. that is about housing which of course is adding to the strength of the economy. >> which is now the critical question, with the rates going up, what is the impact on mortgage rates? and cramer tweeting watch the t etf that tracks the real estate, the ytr, and there is a shift that people are going to be looking at investing in the market, and the builders and the reits and the utilities and the tell co telecomes and other stocks fallen out of favor. >> and there's jim's tweet. he is not here, but here in spirit. my theory is that the fed is simply trying to make the bond market's slide more orderly so mortgage rates don't go to 5% in straight line. >> the fact of the increase in mortgage rates has not come out of the off increase in the 10-year, but because the mortgage investors need clarity from the fed and important to watch the spread between the 30-year mortgage and the 10-year treasury, because if it is not compressive, the fed has to worry about that as well. yesterday they said they are not going sell mortgages out of the port fo portfolios which is a change from what people are thinking and may cure some of the indigestion in the mortgage market. >> let's bring in a guest. doug mccabe, the president of and chief investment officer and also the chief investment officer from janny, doug, and let me ask you, what does that mean to me, 2.46 or 2.43 and anything that i need to worry about? >> well, i think that i have seen a lot of baseball games, and it is hard to -- sorry to change gears on you, but the last three years the fed is playing catcher. if you don't have a strong catcher, people are going to run willy-nilly around the bases all of the way to third and the fed has been playing catcher in the bond market game. a lot of people have been penalized for going against them. right now, what they have done is to have stepped back and saying, we are more of the traditional umpire role and we have not moved beyond the game, but the game is improving on its own and its own market fundamentals and let the game be played. the only place that you can be is equities or stocks for the long run, and we can discuss that more, which areas of the stocks i would like. >> all right. well, let's do that. which areas of stocks do you like? >> well, i think that we are moving beyond the phase where p.e. multiple expansion is relevant and the interest rates fall to where it is going to be driven by earnings and you have seen it in the fed guidance in that they think that the economy is mildly improving through the dynamics of the housing market which has trickled down effects of the labor market. so i would rather than focusing on the defensive ends of the market, the yield-hungry plays, you would go the where it is a marginal improvement in revenues. so the industrials and i would look at the technology plays much more so than the utility plays and the staples plays, and yes, i would look at home building. it is a choppy summer for sure and i'm convinced it is a choppy summer with this move by the fed, but if you have a long-term time horizon, each last three years, it has been shown a time to buy. >> and guy, are you stunned by the move in rates? >> well, the magnitude of the move is certainly puzzling. as you were talking about a couple of minutes ago, it kind of contrasts what the decline in inflation expectations signal of longer term structural slow growth within the u.s. economy. to some degree, i wonder if the scary play is the fed saying we can't do anything to pullback the economy, but try to do it in a smoother measure, because we cannot keep buying $85 million in infinity. so scary because the fed is pulling back not because they are not working, but because they have to. >> and so this is a critical point, guy. so to the extent that there is a feeling out there and the response is that the fed can do more, but practically speaking, how constrained are they? is this a question of being constrained or a question of potentially seeing the costs and the risks associated with this policy as outweighing the benefits? >> well, i think that charles foster the head of the ph philadelphia fed would argue that risk is the biggest issue, but look at what the federal reserve have done with the stimulus. they have done a few things. they have boosted the amount of risk assets an increased people's expectation of the future, and altered the demand for spending and saving today. the rates are so low that tradeoff is really skewed towards spending today, and ultimately a couple of basis points here and couple of bond buys here can't alter the tradeoff anymore so functionally less and less points for the bond buys and the scary version is that they are reducing the bond buys, because they see the risks and the lack of results than they are seeing the economic improvement. >> doug, you said that the place to be is stocks, and maybe the only place to be, but you worry that the fed killed the rally? >> well, it is going to cause a choppy summer, but the fed would not be taking those moves unless it felt it could control it. i don't believe they are out of bullets. i wish bernanke would have been stronger with the views, but back to the baseball analogy, the fed can step right back into the catcher role and throw out the bond vigilantes if they get out of control and wreck the recovery, but i don't believe they would make the moves light ly. i don't think that you ever want to fight the fed in how many times do we have to learn that. you mentioned all of the hedge funds waiting to short treasuries, and how long have they been burned by that? >> well, they have, but guy, i wonder, is there a chance that it gets out of their hands? are we watching that right now? >> that is why, compare it to playing baseball. >> i don't believe that we are watching it right now, but one of the big issues is that the federal reserve needs to be leading the market and particularly over the last 6 to 8 weeks when bernanke stood up in front of congress, they were watching the market to a degree, and so this clear economic policy does go back to the baseball metaphor and put the fed ahead of the markets rather than playing catcher. >> i love all of the baseball analogies, guys. it is a great sport. >> doug has a stadium over the shoulders there, and that is obviously where it came from. >> we have a ballpark behind you. that is what you do. >> okay. well, you know, it is summer, dan. >> and we are a step closer to the final chapter of the apple ebook price fixing trial. we will have a live report from the courthouse. and also, a report from mark matheny and what the downgrade could mean. it is a rocky open, and there is the implied open from the dow, the triple-digit loss off of the open, and more "squawk on the street" live from post 9 from the nyse when we come back. 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(announcer) scottrade. voted "best investment services company." all right. welcome back, lawyers for apple and the justice department are expected to make closing arguments today in a trial over whether there was a conspire over ebook. the trial is about to get under way. and we go out to courtney. >> yes, the court will get under way at 9:30, and both sides will have an hour to present their closing arguments. this is a non-jury trial so expectations are a week to a month or so for the judge to render her decision. the departmentf of justice will wrap up with facts and statistics showing that the ebook sales increased when apple increased the e-bookstores. and it says they changed their pricing model to better compete with amazon. the publishers settled the case before this point so it is apple versus the department of justice at this point. lawyers of apple will sum up saying that the tech giant operated legally with contracts with the book publishers and shows other books showing that the best sellers and the new releases actually fell. before the trial got started the judge told the court that she had drafted a preliminary decision based on the evidence ahead of time saying that she believed that the department of justice would be able to prove its case, however, yesterday in court she said, quote, i thought i had prepared so well, and i learned a lot, but it seems to me that the issues have changed during the course of the trial. things change, and i'm looking forward to understand where we are now. these comments give apple a little bit of hope that perhaps they have helped to sway the judge's initial opinion during the trial. so what's at stake here? well, if the department of justice wins, apple and amazon will be the two main competitors and cut the margins on ebooks, but it could prevent further competition from entering the market. and if it goes the other way and apple wins, consumers may end up paying more for ebooks, but some of the content distributors say it is worth it and that is the true value that should be paid. david. >> all right. thank you, courtney reagan. we will be checking in. we are about to be visited at post 9, and find out if the markets are overrun. little higher. that is why you have to keep it tuned to "squawk on the street." right here. 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[ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. you are watching cnbc's "squawk on the street" live from the financial capital of the world where the opening bell is set to ring in 45 seconds. a and it is going to be a down market. of course, we will not just be watching stocks, but we will be watching the world of credit led by the 10-year, but not just the 10-year, and we talk so often, kelly, about those getting the statements and they have been in a bond fund and they don't understand the duration risks and watching the capital losses in the fund, and what do they do as well is another key consideration when you watch the 10-year at 2.14%. >> exactly. >> all right. l's get to the opening bells. you can see it right there, and you are watching -- it is a lot of red. a lot of red on the exchange right there on the s&p after yesterday's significant sell-off. there's the big board. the crisis intervention and suicide intervention for gay and lesbian and transgendered individuals. and today trevor who is celebrating their day. >> and this is all of the news that you want to watch on a day like this. the rates, and well's fargo ceo john stumpf said it is good for the rates to normalize and the good for the banks. and the stocks for all of the banks down at least 1%. and tech a place where a lot of people have been going, and the old techs, the ciscos and the mic microteles and the ibms and those are lower, but not as bad. home builders because of the rising interest rates and mortgage rates are all lower. some of the sharpest moves are lennar and toll brothers. >> well, it would happen in a positive macro environment where you have lending and it offsets the securities portfolios and the financials are lower this morning. >> and it is a overreaction. >> we have a big sell-off of yesterday and other concerns, but there is an argument to be made that the interest margin will improve. now, there are those who say they have not been simply lending enough including former chairman greenspan who says you can have all of the stimulus that you want, but if the banks are not lending, it is not through to the e kconomy. >> you can see a 20 basis move or 50 basis points, and that is when you will talk about the improvement in the interest margin. so if it looks like this is not going to be a lasting move, and if we have kind of already put it in here, and we have gone up towards 250 and pulling back to 240, of course, a headwind for t the banks and they want a sustainable last-minute move. >> if you want to argue economic growth of 3%, and things will get back to the normalized level of growth, that is good for the banks and the internet interest margin, and on the flipside, you have seen the refinancing boom, and that has more or less played out. if you have not refinanced over the last couple of years, you may have -- >> these rates to your point, anybody who is on the fence about doing anything in terms of housing is going to be off of the fence and rushing to do something before rates get out of hand even more and some people say they are now. >> and na goes to the corporate realm as well. we have seen, listen, this is why you have so much focus on the end of cute money or what it would mean. because we have seen corporation after corporation fully repair the balance sheets and then after repairing the balance sheets go out to refinance again and again and perhaps bringing the rateslower, and using the proceeds and we pointed it out many times, but this is a reflection of what the cheap money could do go out to sell the bonds and so low that you can retire the stock and the dividend on the stock, it would be a free cash flow, and remember that the interest payments on the debt are tax deductible. >> but we are approaching earnings season again, and lot of headwinds happening in the second quarter, but this is a market of earnings per share, and the number of shares outstanding is shrinking, because of what you are talking about. >> yes, it is a key driver in some areas that i follow closely such as media that we talk about so often. the shrink of the cap is significant for these companies. but scott, we will see where we end up. it is an ugly stock. >> i have one stock in the green, david. >> what? >> facebook. >> really? >> they are having an effect to have video for instagram, and facebook is up 2/3 of 1%. not everything is low. >> when is the last time we have seen this outperformance? >> he will take it. >> and the other thing in the green is the vix up 12%. >> good to see that for sure. >> and the point earlier up 2.7% is a well traded etf and the inverse of the rate. >> there is the tbt crowd and the tbl crowd. >> i'm more of a tbt myself. >> well, everybody wants to be a tbt, and nobody wants to be longer, because the market will burn you if you short it. >> and we did have a move up earlier this year only to trace back to the 1.6 over the 10-year. so it is not as if it has not happened before and been down this road, so we talk about the 10-year and it has not hit the heights, but it has been 15 months and a little while. >> well, the 10-year is higher aer in the recovery than it was before and each year higher and higher. so it has taken a while for us to realize how poor the growth outlet would be. >> and call it 1.1%, that we are down 1.46% and maybe a little bit more from the highs, from the all-time highs on the s&p. >> and on the other day, we were talking about how we were not far away from the all time highs even with the volatility and the stomach churning and that we have talked about endlessly, and the tapering and how it would be mention and the time frame and the strategy and the plan and all of that. but, yeah, i mean, we are really haven't had a tremendous correction that so many people have said would be in the cards. >> i want to point out that we are down 160 points on the dow and can we see a chart of the 10-year, because i am not sure if the positive is correlation, and we are up to the 250 level and now back to 240, and now seeing the stocks follow that, so we are not necessarily in the same kind of situation where people are pulling in their horns basically is what i am saying. >> and you have people taking the risk off of the board, and you have the credit to look at the high of the hyg and some of the other teles, but credit is much bigger than the equity, and they have been taking it hard. of course, the income focused stocks whether it is high dividend payers and reits and utilities and ugly. >> i want to mention some of you with the bond funds of the high yield, and we have significant trading at a discount to net asset value, and that is how quickly the people have jumped out of the products, and the question is how much further does the correction go, and at what point does that represent a buying opportunity? >> well, the portfolio, and you have 1.5% in the etf income and down 1.1% in the s&p and it is not supposed to go this way. >> well, it is david, risk on, risk off, my friends. it is back. >> i refuse to say the words anymore. >> if you believe what the fed sees that the economy is a little bit better, then the consensus would otherwise make you think that if you believe that earnings are not going the come in as bad as some people fear and you have just had the pullback and you had a guy like david tepper on "squawk box" saying don't fear the taper why not look at the market over the last two days as a buying opportunity? and will people eventually today do that in the context of the sell-off that we had yesterday and today? >> and also, look around the rest of the world, where do you put your money right now? because it is the emerging markets that are taking the tightening on the chin, and china, and what is happening with china and europe and japan and why not bring the capital back here that is interestingly enough only going to make the dollar rally and make the less inflationary pressure here in the u.s. >> good point. let's go to our man bob pisani on the floor. >> a fairly rough start today and the real issues in the commodity, because the rising dollar is hurting things. the dollar had the biggest two-day rally in the last two days since july 2012 and thank you, robert, for that statistic which is putting pressure on the commodities, and gold is down and silver down, and the aluminum and zinc and copper are down 2, 2.5%. and stocks and the commodities and don't blame it all on the fed. remember what happened in china, they are down 3%, and philippines down 3%, and indonesia down 3%, and factory output in china fell to a nine-month low. and so the markets, the asian markets would be down even if there was not a federal reserve meeting which is important to point out. and the debate is whether everybody overreacted to this, and art was just talk ug about it, but the economists i'm talking about 200,000 job growth through mid-2014 to get the same assuming that the unemployment does not change, and that is ambitious. a lot of people don't believe it will happen, and good chance that fed will fall short of the expectations for the job growth which sets up the possibility that maybe some of the markets are oversold and not just bonds, but the biggest question of what do i do with the bond etf, but emerging etfs, and you have seen what we have been putting up. the etf space is down 11.5% in the last five weeks and people are questioning that. i am not waiting for an early call, but i am waiting for the early call to get back in, and i'm waiting for dollar strength to hold to get back into it, but interest-rate sensitive stocks, real estate, and the spdr, and the vanguard vnq which is the big etf in the reit space, and that is down 9% and i'm still waiting for stabilization of the interest rates and there will be a decline and people will be calling to go back into those who have been in the oversold side. and i have been asked about the vix, and the volatility has not moved at all despite all of the volatility going on. i did talk to a couple of the volatility traders and it seems like a lot of the deleveraging making sense to unwind of the yen and the long japanese equities and the decline in the merging markets and a lot of the people have fewer risk positions to be protected out there and less demand for the protection, and the vix does not have as much gyrations overall. and finally, i want to put up the s&p and remind everybody for the s&p 500, it is 3% from the historic high it hit two days ago. and two days ago, we were 90 points within the industrial high on the dow jones industrial average. if there is concern, and i know there is a lot of concern, but the stock market is still holding up very well. guys, back to you. >> thank you, bob pisani, down there on the floor. guys, we have talked so much this morning about the move in rates and what it means for bond bon bonds, and what it means for the stock, and we have had jeff gunlock on "halftime" yesterday, and a lot of people consider him to be the bond king. >> that is what we called him. >> double line and $60 million. >> incredible how he has grown assets as a result of the performance. >> and we asked him yesterday obviously, what were the thoughts on rates and let's l listen and react after. >> look at where the copper is, gold is, and look at where gold is in foreign currencies. i mean, it is hitting new lows in terms of the japanese yen, and it is hitting new lows in terms of the euro, and looks like new lows in terms of the dollar which is a weak currency, so gold should be going up in dollar terms so what we are looking at is a bond market rally that going to start fairly quickly. >> all right. fairly quickly, and that is before the fed yesterday and he said that the long-term treasuries are the best play and he said that the 10-year will not hit 2.5% in 2013. >> brave man, and i will defend that call even after what we have seen in the last 24 hours. >> what i love about jeffrey is that he has an ability to go against the grain and never be pushed off of his position. he sees it in a different way. often times those are the best inves to, ators and a great cal. even when he has wandered into equities and i have said, short apple? what do you know about the apple, and meanwhile, i don't know what he knew, but -- >> it is under $25. that is what he knows, mr. faber. >> we will see if he is right about this one or not, but interesting that he is going against the momentum. >> well, i would say that if anyone is wondering swhae talkitalk -- what he is talking about and why he is out front with the argument in intact, it is gold. all of the inflation assets are selling off massively, gold, commodities, and if you look at the tips which a lot of the pension funds are invested in massively selling off. as people are looking elsewhere for returns, and that i have to, the performance of bin ladens to equity -- performance of bonds to equities is a good thing. >> and some what unfairly that people would question what he is saying in light of what happened with the rates. it is a fairly quick move, and he'd be the first to admit that i was surprised that the rates reacted as quickly and sharply as they did, don't you think? >> well, we have not hit 2.5 yet, so he is still right. >> exactly, exact ly. >> all right. over to bond pits right now, and perfect segue to, you rick. >> wow. all i can say is wow. if any of these bond managers bought yesterday, they need to really catch a big buy fish, because they have 25 basis points invested in bait already, but the markets are swift. start at august 1st looking at the 5-year. you can see how yesterday everything moved about the same, and we areare kocomepi comping and the next yield should be 249 or 240 and where we are hovering, but we got up to 247. looking at the chart from august 1st, and that is where it is co comeped and that is based on the close, and put up the 30-year. it is close to comeping in august and still march of last year, and caught up on the volatility basis and not so much on the yield basis, but many believe that the 30-year cold lead the way a little bit. and now to the foreign exchange, if you look at the indexes that bob pisani is rightly talking about, going to may 1st, you can see the clearly the reversal we have had. and then the yen, and same reversal, and wow, close to a 98 handle quickly from 94. if you look at the euro, same sna scenario owe. and a significant move, but maybe the most undertalked about trade that you have been talking about the yield, and you hit it, david faber. shybor was a moon shot, and so were many of the other rates in china. the correlation is close, and many of the rates in china are comping close to 2-years. we will see how it regroups after the initial shock. kelly, back to you. >> wait, wait, rick. what is going on there? they are playing the music, but i want to hear it from you, rick. 38% move in up, and the capital inflows have slowed and i don't know what the government is doing, and i could live there for ten years, and still not figure it out, but what do you believe is going to happen? >> well, china is trying to slow down the lending in a big picture way, china in the whole globe they have one thing in common, i think that the move after the first level of the onion is peeled back on the structure and the short term financing, it is going to be about lending. lending. think about what jamie dimon said. they have had an integral relationship as the transmission line, and some of the too big to fail banks, and now jamie dimon saying we can make a boatload in interest-rate rising environment. they can. but who is going to finance the leverage? that is the key. >> yes, it is. >> all right, rick. thank you so much. he is going to be a busy man, rick. his head is going to be spinning watching the rates. >> rick's head spinning? never. the overnight session in china was rough. and we will take a look at the company country's cash crunch and why it matters. we are still on the lows here down 140 at on the dow. we've been bringing people together. today, we'd like people to come together on something that concerns all of us. obesity. and as the nation's leading beverage company, we can play an important role. that includes continually providing more options. giving people easy ways to help make informed choices. and offering portion controlled versions of our most popular drinks. it also means working with our industry to voluntarily change what's offered in schools. but beating obesity will take continued action by all of us, based on one simple common sense fact... all calories count. and if you eat and drink more calories than you burn 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[ male announcer ] be sure to talk to your doctor before you begin an aspirin regimen. be proactive. see your doctor. made a retirement plan, they considered all her assets, even those held elsewhere, giving her the confidence to pursue all her goals. when you want a financial advisor who sees the whole picture, turn to us. wells fargo advisors. welcome back to "squawk on the street." i'm bertha coombs at the nymex in the gold pit where gold and silver are at three-year low. they have bounced off of the lows of the last 24 hours or so, however, they continue to be extending to the downside in the wake of the fed yesterday. the stronger dollar and overall commodities getting crushed today after a weak china pmi number. for two months now, swwe have p below 50, that signifies less expansion and manufacturing and you are seeing the result there. natural gas, and we will get the inventories at the bottom of the hour, and expecting to see an injex shun of between 84 and 100 million cubic feet. we will be back with those live. back over to you at the nyse. >> thank you, bertha. and now, there are worrying signs of a credit crunch in china, now the world's second largest economy. and our own national correspondent michelle caruso-cabrera has more on the central bank. it seems to be going in purpose despite the intensing worrying. >> yes, we can chart it for you. rick santelli was talk act it earlier, but this is shybois ans the intrabank rate that banks use to lend to each other, and similar to the libor in england. if we show you the repo rate we should show you intraday 25%. if you don't know what that repo rate is, don't worry about it, but when it is rising they want to suck money out of the system, and when they lower it, they want to inject money into the system, and it is clear that the chinese central bank is trying to suck money out of the system. why are they are trying to do this? it looks like they are trying to engineer some crackdown on shadow lending. remember, a lot of the lending that happens in china that is not done by the big banks, and they are worried about it, because it is unregulated. it comes from the pawnshops and the ponzi schemes and from things like called wealth management products. that means, you as a chinese citizen, if you put your money in that bank, you are running behind inflation, and you are losing purchasing power so you are looking for yield, so they are seeing an explosion in the shadow lending and they are getting worried and it. the premiere had a meeting with the state council, and he talked about the risk in the system due to shadow lending. we have day the out, a nnd i ha a source out on the ground there in china, and it looks like they missed a payment so they had to relent and inject liquidity into the system. david, you asked how it plays out? we don't know. they are trying to engineer something in the face of slowing data, and they have the many knee the fix it certainly, but it could get ugly. >> all right. i think it is. thank you, michelle. >> and there is a panic among some traders as well. >> all right. michelle caruso-cabrera back at h.q. and what about a computer ma maker being bought by stratsys. that is coming to us from brooklyn. and the markets, it is not a great day, but we are off of the lows on the dow and the s, and p. p. tdd# 1-800-345-2550 [ trader ] when i'm trading, i'm totally focused. tdd# 1-800-345-2550 and the streetsmart edge trading platform from charles schwab tdd# 1-800-345-2550 gives me tools that help me find opportunities more easily. tdd# 1-800-345-2550 i can even access it from the cloud tdd# 1-800-345-2550 and trade on any computer. tdd# 1-800-345-2550 and with schwab mobile, i can focus tdd# 1-800-345-2550 on trading anyplace, anytime... tdd# 1-800-345-2550 until i choose to focus on something else. tdd# 1-800-345-2550 [ male announcer ] all this with no trade minimums. tdd# 1-800-345-2550 and only $8.95 a trade. tdd# 1-800-345-2550 open an account with a $50,000 deposit tdd# 1-800-345-2550 and get 6 months commission-free trades. tdd# 1-800-345-2550 call 1-866-294-5412. a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪ a large amount of data is about to break and then some central brain s wis with the proposition, and do you simply trust ben bernanke and buy the dips on the market? we will talk facebook as they prepare to unveil the video service with 30% upside potentially on the stock. ♪ ♪ ♪ [ male announcer ] if you can't stand the heat, get off the test track. get the mercedes-benz you've been burning for at the summer event, going on now at your authorized mercedes-benz dealer. hurry, before this opportunity cools off. with the innovating and the transforming and the revolutionizing. it's enough to make you forget that you're flying five hundred miles an hour on a chair that just became a bed. you see, we're doing some changing of our own. ah, we can talk about it later. we're putting the wonder back into air travel, one innovation at a time. the new american is arriving. the world is changing faster than ever, creating new opportunities for those who stand ready to seize them. in a time when the biggest risk is playing it safe, we believe outshining the competition tomorrow requires challenging your business inside and out today. at cognizant, our flexible, collaborative approach helps forward-looking companies not only run better, but run different... to give your customers every reason to keep looking for you. so if you're ready to see opportunities and see them through, we say: let's get to work. because now more than ever, the future belongs to those who challenge the present. the street." leading indicators for may up 110 and close to expecttations and may existing home sales 5.81 million and holy cow, that is up 4%, and let's go back to history here. that comps back to november of '09 which was the cycle high of over 5.4 million seasonally adjusteded annualized and that a good number. and the fed, 12.5, and buckle up, looking for down two, and up 12.5, and that is indeed good news, and how far back do we have to go? quite a bit. i have to go back all of the way back it looks to me to april '11 to find a better number than the 12.5. so summation, the data is good even though the market is adjusting to all of the issues post fed meeting is bumpy. kelly, back to you. >> a lot of the cross currents, rick. more on the housing report from diana olick and she has the full numbers for us, and what more can you tell us, diana. >> a big bead on the 2.4 increase and looking for under 1%, but it up 12.9% since a year ago and november of 2009 which is before the expiration of the first time home buyer tax credit. the median price came in $208,000 even up 15.4% a year ago and the highest since july of 2008. remember, this is partially due to a mix of home situation, and when you look at the median which is the middle of what is selling below and above, the homes priced on the lowest ends are down 10% from a year ago and the homes priced more expensively are way up from year ago and shifting the median price higher, and you are seeing low supplies of homes for sale, and the realtors are calling the price increases unsustainable, and say given the increases in the employment and the wage, it is clearly unsustainable to have a 15.4% price increase year over year. we are looking at the inventories up slightly, 3.3% to 2.22 million houses for sale which represents a 5.1% supply, and the days on market are shrinking dramatically from to a traditional home to 39 days to sell a home which is down from 72 days a year ago and also inv investors are still in the market, and first time home buyers are 28% down from where they should be at 45%. back to you guys. >> all right. diana, thank you so much. diana olick. let's get insight on what all of the data means for the economy. we go the steve liesman joining us from hq. steve, this is what the fed sees? >> well, you know, there is some sense of a bit of a pickup here, and these are not necessarily the essential data out there, and the philly fed is something that is used as an ind icator fr national data and i was looking which is why i was off camera there at the expectations component, and those are strong in the philly fed, and that is important. expectations for the new orders and expectations for employment, a and they are all high. and the other thing that diana pointed out which is significant, the 5.1 million is the first time that we have gone over the number in existing sales outside of the distortion that was created by the program back in november of '09 in the period since the financial crisis. now, to put it in context, we used to do 6.2, and that was an average, 6.2 million and nowhere near back, but it is a good thing when the people can sell their home and the price they get is higher even if it is as diana suggested that the gains are not sustainable, that is go going to add to the confidence and enable people to be more confident and stretch themselves when it comes to spending and perhaps borrowing. >> all right, steve. okay. let's bring in two e kconomistso look at the data in where we are with the markets and of course, the fed action. joining us is cnbc contributor joe la vornia, and ward mccarthy, and chief financial economist with jeffrey's. and warren, let me kick off with you, would you agree with what was said, for chairman bernanke to ingagree the tapering, me mu think that he can execute without derailing a brilliantly crafted recovery. in other words, ward, is the sensible thing for people at home to buy the dips on this market? >> well, i think that you probably will see the two markets moving in two directions with the rates rising. and i also do think that, and it is the firm view here that the risk assets will eventually collect themselves and start doing better as well. there are four reasons to expect the economy to look better in the second half of the year than it has in kind of the unfortunate first half of the year, and that is that we have continued job growth, and housing sector that continues to improve, and we have an energy s sector that is just beginning to scrape the surface, and in terms of the growth it can provide. and manufacturing is poised for recovery as well. so i think that the timing of bernanke's comments yesterday fits well with where the economy is going. >> joe, the risk here is clearly with what bernanke is doing, a sell-off in risk assets, and that in itself undermines the projections they are going to be tapering anyway. >> at some point, simon, but not at these levels, because they are stupidly low levels. >> what are you talk about? >> on the yields. and equities as ward said, i totally agree with him that the yields will go higher and the backup of yields while violent is hardly levels to slow the housing -- >> not yet. >> not yet. and for the yields to go up higher at 4% or 5% at which you would see housing weaken a little bit the fed has to be hiking and the fed is not hiking any time soon. >> well, let me add into the conversation as to what was said overnight, without qe fair value on the 10-year is 3% to 3.5% right now and clearly rises through the next year and how rapidly could you normalize it and how dangerous is it? >> it is dangerous when the fed gets to neutral, and say the neutral is 3.50 to 4%, and if at that point the yields are up substantially higher, at that point the housing market could slow and intrabusiness activity could slow. and we are so far from that, and we were at 350 and nobody said that the yields were depressing the growth, but rather the banks were capital constrained and people could not get access to credit, and now the 10-years are backed up, and now all of the sudden i it suddenly, and that is going to slow it. >> well, this is a point that the yields are low, and true by historical standards, but if you take into account the tightening since january, and if you look at the move up in the 10-year by half a percentage point, and since then, a full percentage point of tightening of financial c conditions, and that is, joe, massive. >> well, kelly, the problem with the analysis is the starting point. the 10-year starting point was -- >> but why is that low if we have moved up 100 basis points? >> well, the fair value is higher. if you are well below the fair value and the economy is looking up, the rates should rise. by the way, the housing is going to offset a lot of of the tight ness in the financial markets. >> ward, you want to respond to this point of whether it matter s to see this kind of tightening since january? >> well, of course, it matters. in the short run, it will actually boost housing, because anybody who is sitting on the fence in terms of trying to decide whether or not to jump into the housing market is probably going to be pushed into the pool, because they are afraid that the mortgage rates are going if go higher. but i think that what is sort of lost in the shuffle here is that the fed is continuing to buy. later this year, and we don't know exactly what that means, but i think it is qe4. so, for example, if the fed continues the buy 185 billion per month through october and then gradually winds it down by the middle of next year, they will buy another 660 billion in assets and get the balance sheet up to $4 trillion so it is not like the fed is abandoning ship, but preparing to come into dock. >> but, joe, the market by virtue of the reaction and the bond market and the stock market is reacting as if it were shocked by what it heard yesterday. there were notes out that i was making notes of, and newmera shocked, and ubs, surprised. were you surprised or shocked? >> yes. we thought that the market would sell-off, because too many investors thought that bernanke would backtrack from the jdc, but it was more hawkish and the markets sell off more, and so we are seeing massive unwind of the global carry trades, and that is why the economic impact is mild. it is not like the money went n into stocks to begin with, but it was fixed income for the most part and in particular junk and emerging markets, and that is where the dislocations are, and the general economy is pretty darn healthy. >> let me finish on what paul krugman wrote overnight, and what got us here of course was as he put it from the feds this credible promise to be irresponsible, that it would wait before it raised interest rates and it would pump qe beyond the point that is necessary. that has changed. you don't have that any longer from the fed, and that is what krugman thinks may be the historic mistake, and finally, howard, how would you rebut that? >> well, i would rebut it by saying that they have made it clear they are responsive to the financial market conditions and the economy. if the economy starts to waeng again, the fed will maybe reverse course. they certainly won't be aggressive in winding this down. they could temper it for a while. and as james buller has been arguing, maybe they should increase for a while. so i don't think that the fed again has made a total commitment. they have is told us what they expect to do, because they are expecting it to be better. if the economy is not going to meet the expectations, then they will change the game plan. >> history in the making, guys. thank you for join g ing us. joe lavorny and warren. >> top strategists in one place during one hour on only one network. what is ahead for the next six months. it is a big lineup at 1:00, and you do not want to miss that. and the shanghai composite is taking major hits from the fed and the shrinking data. we will breakdown what that means for the markets here at home. and facebook is said to make a big product announcement in a couple of hours. that stock is outperforming the market today, and you can find out what that announcement could be and how you should be playing the stock. >> and our top analyst mark mahaney is going to join us live. we will be back in two. ery step, making it easier to try filters and strategies... to get a list of equity options... evaluate them with our p&l calculator... and execute faster with our more intuitive trade ticket. i'm greg stevens, and i helped create fidelity's options platform. it's one more innovative reason serious investors are choosing fidelity. now get 200 free trades when you open an account. let's get you caught up on where the markets were. were just down 200 points on the dow, but we have backed pauf of that and still an ugly moment on the street with the dow down 187. >> may i make the point since may 22nd when bernanke was on the snj, the market has fallen only 13%, and we are still up year to date. >> and a couple of days talking about not too many points away from the all-time high. >> it feels rough, but the broader con text is that the equity markets are relatively point, and there are parts that are selling off, and interest-rate sensitive ones, and we should talk about that, but overall, it is not a catastrophe. >> right. it is the worst two-day sell-off of the year for the dow is what we are working on right now. and we are also watching china closely today. the shanghai index is falling off of pmi data. joining us from the phone on hong kong is helen zhu. hello, helen. >> hello. >> can you talk about the meltdown that is taking place there? >> well, we had the indicator of the exports, and i think that from the manufacturing stuff, it will have to wait for the foishl pmi to come out in the next few days, but certainly, a low print today. a nine-month low, and that is exacerbating the worries that if the exports are not contributing as much as they could be, then the cyclical pressures domestically will worsen particularly as policy makers' tolerance for lower growth and the policy response has been delayed. >> i mean, perhaps i'm misreading what sounds like a lack of concern in your voice. are the markets making too much of the data out there? because i don't know how else you could look at it? >> well, no, no. i certain ly don't mean to soun like there is no reason for concern. there are certainly a number of reasons for concern, and that is why they have been reacting in this way. firstly on the cyclical side, the clear lly leading indicator are not showing a rosy picture, and there is concerns over the overall monetary policy and shibor, and others are at high levels and we have concerns of why the pcoe is not reacting to the liquidity, and how is that a broader effect on the monetary policy in the coming quarters so those are some of the key issues that people are grappling with, and obviously, the qe situation in the u.s. has not bolstered the sentiment either. >> helen, looks like a small injex shun of liquidity by the central bank now, and is that true, and broadly speaking, why so reluctant here? are they intentionally trying to almost force some of thetof the players out of the market? >> well, we don't know for sure, because there are some domestic press reports after market, some liquidity injections, and we wouldn't have seen any of the effects in the trading period. we will probably only find out sometime tomorrow, but it is certainly not yet verify ied. why are they doing this? well, the causes of the spike were probably some of the holiday-related seasonality and a lot of the prudential measures that the policy makers have put in place. certainly the spike has exceeded the reaction and why not reacting is the question that everybody is asking. part of the potential explanation is that they feel that some of the smaller banks are really kind of pushing the line in terms of following some of the rules and the regulations, and they didn't want to create more of a hazard by having people think that any time the intrabank spikes rit , rite -- spikes the rate, the poc would step in, so maybe it is a teaching a lesson for the short time, but they are not frying to for -- trying to -- >> helen, excuse me, but we are down 200 down, and people areedh the federal reserve here, and with all that is going on in china, what are the feedbacks? do we need to worry here about what you are experiencing there? >> well, usually we look at it from the flipside and look at it from the external demand to china specifically. i think that from your perspective, people are indeed worried that china, itself, has become increasingly important driver of global growth for particularly some aspects of the economy and the industrial phase and commodity space, and so there is a good portion of the mmcs and other listed companies in the u.s. whose earnings could be contingent on the demand from china. so from that perspective, it is relatively relevant and worth keeping an eye on for sure. >> thank you, helen. so good to talk to you today on a big day develop iing there certainly and in our markets, simon. we are down 220 on the dow here, and housing stocks are getting absolutely obliterated today, because of what we are seeing in the rates. >> we have higher rates and some of the deteriorating macro concerns and people are saying, why didn't the market react more positively to the home sales data. it is backward looking and the concern is what is going to happen over the next 6 to 12 months. >> and also, the economists were not worried about that, and clearly, if you listen to ben bernanke in the news conference, he is not worried about it. >> and that is why jeff has a point, here, and those calling it an end to the bond market is calling tite so ing it too soon. the message today seems to be a cautious one. >> and we are not going to get a rally from here? >> you mean that we are not going to move lower on the 10-year from here? >> no, i believe it is going upward upwards. >> most people do, but they might be proven wrong for the third or the fourth-year running. >> well, what is going to be interesting is if the scentral banks are on the aesthetic, then we will feel china and the euro -- >> right. that is what we are seeing already. >> and i know that with the economists sitting here said, and i will do a shameless plug for the halftime show today, but we have ivy hellmann on who will tell us if the rates will be affected by the housing rates, and the stocks in that rate are down 5%. >> big, big news. >> and the losses are getting worse as the overall market sells off. >> we may indeed touch on that within the next 90 minutes before the halftime report. we have big downgrades after the markets traded yesterday. ideas, goals, appetite for risk. you can't say 'one size fits all'. it doesn't. that's crazy. we're all totally different. ishares core. etf building blocks for your personalized portfolio. find out why 9 out of 10 large professional investors choose ishares for their etfs. ishares by blackrock. call 1-800-ishares for a prospectus, which includes investment objectives, risks, charges and expenses. read and consider it carefully before investing. risk includes possible loss of principal. summer event is here. now get the unmistakable thrill and the incredible rush of the mercedes-benz you've always wanted. ♪ [ tires screech ] but you better get here fast. 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[ thunder rumbles ] ♪ [ male announcer ] when the world moves... futures move first. learn futures from experienced pros with dedicated chats and daily live webinars. and trade with papermoney to test-drive the market. ♪ all on thinkorswim. from td ameritrade. i work for 47 different companies. well, technically i work for one. that company, the united states postal service® works for thousands of home businesses. because at usps.com® you can pay, print and have your packages picked up for free. i can even drop off free boxes. i wear a lot of hats. well, technically i wear one. the u.s. postal service®, no business too small. welcome back to "squawk on the street." i'm josh lipton, a day in the red, but here's one that is in the green. in fact, it is the only name in the s&p trading at a new 52-week high and that the gamestop, and ticker gme, and microsoft saying that the fans of the xbox 1 console can sell or lend games and that is good news for them which is up more than 6% right now. kelly, back to you. >> all right. thank you, josh. in less than three hours, facebook can make a big product announcement, and wide speculation to have something to do with video on instagram. what should we expect and will it gain for the stock that is outperforming today? we are joined by the chief internet analyst at capital investments, and mark matheny. >> well, good morning, kelly. instagram is unmono tized at facebook. they have 100 million users and 0.1 of their user base. so if they can come up with a way to work for the company, that is the excitement behind the stock today. >> walk me through the advertising opportunities, because instagram has advertising or a way to keep people attach ed to facebook almost? >> well, maybe all of those things, but to start off with, there is no advertising revenue currently generated on instagram and asset with 100 million people that create nos rkree yc for facebook. they could monetize it like they do facebook, but one of the things missing in the facebook equation is the opportunity for video advertising like you are seeing on youtube and so to the extent that you get the users on facebook to habituated to the video, you will create the opportunity to, you know, put in and insert video ads. >> mark, i read in the morning journal that the big project on that may be put back to tend of the year, and talk about the price target and why $32 because that is 32% upside from here, and how do we achieve that? >> yeah, yeah. so, simon, we look at it, and we look at it as being worth up to 40 times next year's earnings of 80 cents and kept the $32 price target since i upgraded the stock last september and not far down from these levels. what this stock needs and this company needs to do is to show two or three things. they can do 40% displayed a ver tiz iing growth this year, and they need to show they are not going to lose the engagement of the younger viewers and there is an urban myth that the younger cohort, 25 and younger are starting to flee facebook and if so, that will cap the stock, and if not, they can rise. and at the top of the list is probably instagram to show they can generate meaningful revenue off of the advertising. >> well, the trouble is that they should have done it sooner. thank you, mark mahaney. >> and the worst sell-off now following the fed this year of 2013, and there it is a loss of 207 points. s&p 500 is down nearly 1.5%, and the nasdaq down 1% as well which is a loss of 43 points. straight ahead, what ben bernanke really said in the news conference yesterday and what it means for the future of the fed. we will be right back. , their l. i use daily market commentary to improve my strategy. and my local scottrade office guides my learning every step of the way. because they know i don't trade like everybody. i trade like me. i'm with scottrade. (announcer) scottrade... ranked "highest in customer loyalty for brokerage and investment companies." otherworldly things. but there are some things i've never seen before. this ge jet engine can understand 5,000 data samples per second. which is good for business. because planes use less fuel, spend less time on the ground and more time in the air. suddenly, faraway places don't seem so...far away. ♪ welcome back to "squawk on the street," i'm bertha coombs at the nymex natural gas, and trading to the lows we had 91 billion cubic feet injection and according to stockpiles that was more of flesz tr less to the mi range, and we are seeing natural gas volatile and overall the commodities are under pressure with the strength of the dollar and the continued sell-off in the wake of the fed not to mention very weak data coming out of china when it comes to manufacturing. back to you. >> bertha, that is right, and thank you very much for that. and it is gold, simon, in particular, that people are talking about and silver under $30 i understand. >> yes, the global miners have fallen and if you look at the markets down 229, it is interesting to see the major issues of the dow that have lost ground, intel, and disney, and boeing and travelers and so it is broad based. >> disney was taken off, and gold with the conviction to buy list, and still interesting call there because the banks are getting a lot of focus today, and they are down across the board. morgan stanley down 3%, and now over 3%, and goldman is down, and wells fargo, and even though, you know, again, john stumpf on "squawk box" this morning said that rising rates are not a bad thing and we have to get back to normal. and for the banks -- >> it is all true, but the problem is that the market environment is telling us that we are not in that right market. >> this is a like talk to the hand market. >> well, it is a market agrees with you, john, and they want to give you higher rates, but we are not there in sustainability. >> well, it is coming and the financials have done, and particularly the regionals extraordinarily well so far this year on that basis, and that story has paid out at a general point at which people may be taking risk off of the table. >> that is true, it is priced in to some extent and that is coming out with the narratives and the calls that we are seeing that the financials are saying that it is catch-up time, and they will have to see that there are a lot of ills cured by the higher rates. but the trouble is can you get to the place where that is happening as opposed to jumping up to testing something like the 2.5% level and bouncing back. >> and then you go to what is on balance sheets. sears has had a poor day and apple, a lot of questions where they have put the cash, and that is coming back to the financials as well. what is on the banks' balance sheets and where are they taking the losses? >> fedex is down 5% yesterday and that stock was down fwraided a -- downgraded and carryover from yesterday's earnings, they were cautious, but they won't give a regular quarterly guidance anymore and that is interesting to follow that one day after the earnings, fedex down after a downgrade from jpmorgan. >> this is a reaction from what we heard from ben bernanke yesterday and continued debate over what the fed is going to do. let's bring in the "financial post" reporter, and we had you yesterday on the program and welcome back. what do you think that the fed is seeing now on the trading screens do you think? >> well, i imagine a lot of frustration at the fed. ben bernanke said yesterday he is trying to be as clear and communicate as much as he can, and he hopes that people are listening and the markets will listen, but it is clear that the markets have listened, but i don't know if they like the message they have heard. a couple of points of miscommunication here. the fed has said repeatedly that tapering is not the same thing as tightening. that by reducing the flow of asset purchases, they are not getting ready to hike the interest rates tomorrow, and that they are merely lessening the level of accommodation for the market economy, but the mar thinks otherwise. >> why do you think that he has seen that he can't resist it anymore? >> well, yesterday, it was sort of an interesting way to provide for the guidance, because the fed said that guidance is important neutral now that we are at the serial bound, but yesterday was not a policy decision, but it is here is what we may think that we will do if the economy cooperates, so there is a consensus of the fed to move forward on reducing the asset purchases, but they are unsure that the economy is going to the cooperate, so they want to give themselves some wiggle room to reverse the course if things turn south. so the questions i would have is one, what are the conditions that we would have to see in order for the fed to slowdown, slowdown the taper org to in fact increase the amount of asset purchases, it is going to be purchasing. >> and paul kruger in the new york times is concerned that they are making a historic mistake here, and he is concerned also at the overwhelming support of the foc for the action, and he says i'm surprised and shocked by that, and i worry that they may have been or we may have been seeing incestuous amplifications going around, and in other words, for the market not the communicate in a way that will give the market confidence. >> well, i would say the opposite. say the fact that they did not include this in the policy statement says a lot. it says that this is not a path that they have 100% absolutely determined to follow, because in part, there are such diversity of opinions on the fed right now. you are seeing people say, how are we going taper? you can taper by only reducing the mbs or taper by $5 billion here or there, and you can taper starting in summer or taper starting at the end of the year, so that you are seeing a wide view of opinions, and that is what is causing a lot of to volatility and the confusion in the markets is actually this sort of embrace of the fed of open debate and discussion that we haven't seen before, and the fed is no longer speaking with one voice. >> and before we let you go, let's play back the question that you asked ben bernanke in the news conference yesterday, if we may. >> on monday, president obama said in an interview that he believed that you had stayed in your position as chairman longer than you wanted to and longer than you were supposed to, and can you assess your term, and can you update us on any future plans? >> well, we have spent two days dealing with the monetary policy issues, and i would like to keep it to policy and i don't have anything on the personal plans. >> it is important for when he is going, but do you believe he is not going to seek a third term, and he will be out in january? >> i think that it is unlikely he will be coming back next year, because he is skipping jackson hole, one of the most important fed conferences we have seen in a long time. yet, i would imagine that he is pretty tired. >> and we are out of time, but who will succeed him, and does it change the debate? >> i don't think that the debate has changed yesterday and the day before then, but it seems that janet yellen is still the front-runner. >> good to see you. and thank you for joining us from the "new york post," their financial reporter. and stratsys is higher after acquiring maker bot that we introduced to you as a "squawk on the street" breakthrough and the ceos of both of those companies are coming up. 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>> but isn't that going to make the u.s. more attractive than anywhere else in the world? >> well, that is the story, but was the u.s. propped up by ben bernanke or substantial fundamental bull ishness by ben bernanke. >> and housing makes you think otherwise. >> and housing are reliant on the rates, and the ism numbers are weaker, so there has not been a lot. we have seen the revenue misses, so not things that you are really substantive. >> housing, difference of profitability of housing and a housing recovery. housing stocks can fall, because they may not be able to make abnormal profits, but it does not mean to say that the housing recovery not still in place. >> it is a supply/demand issue to your point. it still works to the bullishness, but the problem with stocks, the stocks factor in six months' lead time, and so we are factoring in the profitability of these companies. >> and with the complacency, we are 5% from the s&p high, and too much complacency out there? >> i do. david, when you see the sell-off, it feels like we are down 5% to 10% on days we are down 1%. so people have been waiting for a long time and they are antsy on the sell side and thinking it is going their way. >> going to the levels and bank of america says you have a matrix of support, 1615 to 1697, and -- >> well, 159. is t -- 1597 is the 100-day hold. >> and if we break that? >> well, it is going to be sloppy, but today s a sloppy action day. we have to hold 1600 the law of round numbers. >> if you don't call 219 sloppy. >> well, a couple of days back-to-back, but it is really a test to see if the 1600 level holds. if it doesn't, you have to look at the hedge funds and 90% of them are trailing the index, and this could be the shot. >> you mean the buy the dips and send us higher? >> unless they are short. and it could be the shot to catch up. and you know, make some alpha for themselves on a day like today that could turn into a week. because we are looking at earnings as the next catalyst. >> good to see you. >> thank you. >> steven grasso with stewart frank frankle. >> and next live with rick santelli live from the cme floor. stay with us. the most free research reports, customizable charts, powerful screening tools, and guaranteed 1-second trades. and at the center of it all is a surprisingly low price -- just $7.95. in fact, fidelity gives you lower trade commissions than schwab, td ameritrade, and etrade. i'm monica santiago of fidelity investments, and low fees and commissions are another reason serious investors are choosing fidelity. now get 200 free trades when you open an account. welcome back on a bad day for those long in the market, a really bad day for anybody who is long. shares of ebix which is a software provide for the insurance industry, and it was acquired by a private ek ti of goldman sachs and that deal is gone. it was revoked by both sides. no breakup fee paid. why? well, on june 14th, the u.s. attorney for the northern district of georgia sent a letter to the company saying that it is opening up investigation of allegations of intentional misconduct that it had been brought to its attention by a pending shareholder class action lawsuit brought against the company. they say they are in the preliminary determinations to make any determination as to whether any violation of the securities and exchange commission laws have been committed. but it was enough for goldman to say, see you later and the company saying, we will let you out of the breakup fee. that is ugly. down 42% for that company. of course, this is a small leverage buyout, but when we watch the move in high yield and higher rates and watch the indexes, we watch the outflows from the high yield fund, you have to keep in mind that we have a lot number of larger leveraged buyouts that are based on the mo cheap money to make it work whether it is bmc or dell. and remember, that a lot of it depends on the financing in the high bond yields. keep in mind to watch the deals and the dislocation s and you have to wonder if a higher rate than you anticipated can determine the economic terms of the deals overall. >> and david, some people are saying that the high yield could last a couple of months so seasonally slow time for bankses, does this ripple into the third and maybe fourth quarter of revenues? >> yes. we saw that some commodities were down 36%, but you are seeing that, and that is of course, for june which is worse than the quarter reported, but at least for jefferies it was, but it is a good point, and at least something that we certainly need to keep in mind. we will be watching that, also. >> right. up and down the food chain. all right. david faber with the latest on that deal. and now we go to cme group with rick santelli with the "santelli exchange." rick? >> thank you, kelly. if the cubs could get some pitching and couple of long ball hitters i would think that next year we could be in pennant contention. a lot of a lot of qualifiers there. think back to yesterday's fed statement but don't think about it as a statement think abousta it as a rorschach. let's say we walked in and the dow was up 200. i feel pretty certain that pretty much the talk out there would be, you know, there's a lot of qualifiers on what the fed is going to do, this needs to happen, that needs to happen, maybe he'll do this, maybe he won't, maybe he'll be in charge, maybe he'll start to taper, maybe it will be on the next watch, maybe it won't. see what i'm saying? i think let's just get back to the markets because the markets always find a way no matter how big the position is of the fed and that is the thing to watch. it's not necessarily the buying, with i is important, it's the accumulation of treasuries that's important. but real markets still find a way. the fact that keynesians are up in arms about the statements' interpretation in the context of the way the market traded last night and today, it makes they think we're probably on the right track. now, let's look at the market. we've talked many times about ten-year and technicals and some of the issues we hit on were some key areas on a closing basis in the ten-year around 2.23%. there's so much to learn here today. because even the best of models, the best of beta testing, itf yu put your stop in, if you close above that level, that's all fine and dandy. you probably probably won't hit your level, however it's still technically significant. if you look at october of 2011 and march of 2012, the other key area we've talked about many times is on a closing basis 2.39% to 2.40% in ten-year note yields. i find it amazing we go up to 2.47% and all of a sudden where are we spending our time? 2.37% to 2.39%. this is key. look for more momentum to the downside. but the confirmations on weekly, monthly, quarterly basis will give them even more priority in the strategy of many trading groups. the last point, you know, we heard jamie dimon say if rates go up, we'll make billions, true, but it is a double-edged sword. who do you think ownins a lot o treasuries? i would say banks. on one hand they will have an issue, on the other hand future activity may benefit. it's all about leverage and positions and logistics known as technical issues. don't underestimate them. back to you. >> rick santelli, thank you, sir. the sell-off continues with all three major indexes down more than 1%, off the lows but we're still off more than 200 points from the dow. we'll keep an eye on that and also some of the financials, the home builders we've been watching. plenty more when "squawk on the street" returns. tdd# 1-800-345-2550 hours can go by before i realize tdd# 1-800-345-2550 that i haven't even looked away from my screen. tdd# 1-800-345-2550 ♪ tdd# 1-800-345-2550 that kind of focus... tdd# 1-800-345-2550 that's what i have when i trade. tdd# 1-800-345-2550 ♪ tdd# 1-800-345-2550 and the streetsmart edge trading platform tdd# 1-800-345-2550 from charles schwab helps me keep an eye tdd# 1-800-345-2550 on what's really important to me. tdd# 1-800-345-2550 it's packed with tools that help me work my strategies, tdd# 1-800-345-2550 spot patterns and find opportunities more easily. tdd# 1-800-345-2550 then, when i'm ready... act decisively. tdd# 1-800-345-2550 i can even access it from the cloud tdd# 1-800-345-2550 and trade on any computer. tdd# 1-800-345-2550 with the exact same tools, the exact same way. tdd# 1-800-345-2550 and the reality is, with schwab mobile, tdd# 1-800-345-2550 i can focus on trading anyplace, anytime... tdd# 1-800-345-2550 until i choose to focus on something else. tdd# 1-800-345-2550 [ male announcer ] all this with no trade minimums. tdd# 1-800-345-2550 and only $8.95 a trade. tdd# 1-800-345-2550 open an account with a $50,000 deposit tdd# 1-800-345-2550 and get 6 months commission-free trades. tdd# 1-800-345-2550 call 1-800-578-4439 tdd# 1-800-345-2550 and a trading specialist will tdd# 1-800-345-2550 help you get started today. i work for 47 different companies. well, technically i work for one. that company, the united states postal service® works for thousands of home businesses. because at usps.com® you can pay, print and have your packages picked up for free. i can even drop off free boxes. i wear a lot of hats. well, technically i wear one. the u.s. postal service®, no business too small. summer event is here. now get the unmistakable thrill and the incredible rush of the mercedes-benz you've always wanted. ♪ [ tires screech ] but you better get here fast. 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[ static warbles ] welcome back to "squawk on the street." i'm josh lipton. we are watching kroger, the supermarket operator. the good news posted better than expected first quarter profit lifts its forecast for the year, but total sales did miss. the street wanted to see $32 billion. that stock down some 4% right now. guys, back to you. >> all right, josh lipton. we're bouncing off the lows. we have been watching the 1600 level and we're at 1605. we haven't gone below it. >> we haven't really touched much on what's happening in gold today, guys. gold is down more than 70 bucks. >> silver below 20. >> silver is getting hit hard but gold, that slide is really dramatic. that's a loss of 6%. >> helicopter ben is about to land, isn't he? >> this is the point. if you look at all the inflation geared assets, whether it's gold, whether it's silver to some extent, inflation protects, securities tips massively selling off, these are key holding for institutional investors. the worse they do, the more ultimately they will have to get into other assets. >> commodities are not going up, but does that indicate there's no economic growth? is that all china? >> it's very obvious to say this is all about the fed. actually if you look at europe and the issues that are falling there, it's clearly about china and i'm not sure we're breaking that out to the same extent. wynn resorts is down almost 4%. a lot of technology plays are -- >> scott mentioned freeport earlier. >> do you think the sell-off, david, and guys, would be as severe if it was just the fed or is it the pile-on of china, too? it's like sacking the quarterback like a blindside hit and then stepping on him when he gets up. >> you're removing the anesthetic. if central banks remove the anesthetic you will start moving i imagine on all -- on violence in brazil or whatever it might be. >> and we have -- >> china or europe. that's the risk. >> look at india, turkey overnight. china is the most high-profile example. i think we'd be talking about them anyway. even though they're second largest economy still behave a lot like an emerging market. >> you also have a substantially higher dollar. >> i was literally looking over your shoulder at the dxy. that's going to be a key story going forward, suspect it? >> it is. i don't often agree with rick santelli, but on this one i do. i'm glad i don't have a mortgage linked to shibor but i feel badly for those who do. but that's important what's happening in china. it's the second largest economy. i'm trying to find out right now whether there are people perhaps who are being hurt as a result of some investments that are in some way maybe based on that. unlikely perhaps, but you never know what hedge funds are doing. >> if the interbank market is freezing up, it recalls what happened here, and let's hope we're not talking about shibor every day because that would suggest a stiffer problem than perhaps the world is ready to deal with. >> they're trying to wring out a lot of excess -- >> this is a totalitarian regime with a lot of money. you can rest on ha surely. >> this is the question, absolutely the question, how much can they absorb because they've already been so extended. >> and will they sell treasuries as a result. >> they have a lot of reserves. they can sell a little bit and sill have a lot more less. >> thank you. we'll look forward to "the halftime report" in an hour, a little over an hour. >> ivy zellman on what's really going to happen on housing. good to listen to. >> looking forward to that. if you're just joining us on "squawk on the street," here is what you might have missed if you're just joining us. >> welcome to "squawk on the street." here is what's happened so far. >> housing has led every recovery or participated in a big way, and it's even bigger than the numbers. hou houseing affects people's attitude. >> i think the key is for the fed to keep the public as fully informed as it can of what its thinking and where it thinks it's going under certain circumstances. >> we've had qe stopped twice already. we're on the third version. it's not as though we've gone down the road and then haven't come back. we've done that already. >> and you know what? mark my words, we may yet have to do it again. >> you don't worry that the fed just killed the rally? >> oh, i certainly think it's going to cause a choppy summer, but the fed wouldn't be taking those moves unless they thought the economy could stand on its own. >> may existing home sales, 5.18 million. holy cow. that's up over 4%. >> they've told us what they expect to do because they think things are getting better. if the economy doesn't meet those expectations, then they're going to change their game plan. >> that is what is causing a lot of the volatility and a lot of the confusion in the markets is actually this sort of embrace by the fed of open debate, open discussion that we haven't seen before, so the fed is no longer speaking just with one voice. good morning. we're live at post 9 here at the new york stock exchange. some very big moves on asset classes this morning. you can see the dow, the s&p, and the nasdaq all in negative territory. gold is down 5.5%. crude is down almost 3% trading below $96 a barrel. as we pick up the pieces from yesterday's sell-off and, of course, what the fed is now intending to do withq e tapering or to begin tapering before the end of the year and to stop qe next year. at the corporate level, fed ex trading to the downside after down grades. those come after fed ex reported strong earnings yesterday arguably but issued weak guidance for next year. morgan stanley downgrading to equal weight and jpmorgan downgrading to neutral. gamestop rallies after microsoft says there will be no limitations on selling or sharing used games on its new xbox. used games maker a big part of gamestop's business. microsoft's announcement is clearly good news for the game retailer. >> markets are getting hit hard across the board following the fe's signals it might scale back the bond buying program later this year and also signs of concern in china. equities are down for the week. the ten-year note surged overnight. it's pared back a bit since then. how should you position four portfol portfolio? micha michael temple is from pioneer investments. good morning. >> good morning. >> i guess i should ask the question, is it a good morning? how seriously do you take the move in the ten-year and do you think it's the start or the end of the bull run in bonds? >> well, we do, we think that, you know, at this stage we're really moving towards a different interest rate paradigm that investors have been warned, they've been warned for a while now, and we've been expecting this move. we think the yield curve is going to start to reflate, and i think we're in a different world at this stage. maybe the new new normal. >> the chief investment officer from wisdom tree joins our conversation also. do you agree with that? >> i think you're seeing a reprising of assets as interest rates have backed up but i think we need to put it in context. these are still historically low interest rates even with the move over the last six weeks and the fed is still being extraordinarily accommodative. they're not talking about mopping up the liquidity. they're not talking about raising interest rates. they're talking about slowing the rate at which -- >> do you agree with -- sorry to interrupt, but do you agree on the point about this being the end of the bull run in bonds? >> well, people have been talking about the end of the bond bubble for a couple years. you know, i could see rates in the 2% to 3% rage in the ten-year bond for the next few years. you might get a sideways movement in bonds. i think the real question is what does it mean for the equity market and what does it mean for the higher quality portion of the equity market? >> i would imagine then that you're telling clients they don't necessarily have to pile out of bond funds, for example. what kind of advice then do you give them if you're of that view that we're not headed materially higher on rates? >> yeah. well, it depends on everyone's individual circumstance, but generally you want to be short a duration, higher quality, and if you can you want to take advantage of rising rate environment. there are some etfs that give you that exposure, but the broader question, you know, in terms of your asset allocation, most people are still invested in equities in larger parts of their portfolio. i think this is an opportunity to get the higher quality part of the equity market. look for higher return on equity, higher return on asset, and if you can use less leverage than the s&p 500. that should work in an environment where rates back up. >> okay. let me ask you both then the next question, which is at what point do people that are close to retirement who have been chasing yield in the equity market say, whoop, time it get back into bonds because the yields have risen? michael, let me start with you first of all, and if i may nail you down to where yields are going to go. socgen says if it weren't for qe, we'd be 3%, 3.5% on the ten-year. as we recover next year, the natural rate, the true rate, the fair value rate of that would be higher. at what point do we get to, say, 4%, michael, on the ten-year? >> great question. we don't have a target forecast for where the ten-year is, but in a recent paper that we just published "the danger of duration," we've essentially shown the progression of where the yield curve is likely going to rise over the next 12 to 18 months, and if you use the quote, unquote, golden rule, the ten-year should be trading close to 4%. are we going to get there immediately? no. but i could certainly see over the next 12 to 18 months moving in that direction. we're almost at 2.5%, which had been, you know, many economic pundits' forecast for the end of the year. one of the things we learned is the bond market tends to, you know, move very rapidly when we change these types of interest rate paradigms. in terms of when we should be getting back into bonds, i really feel the same way, that there are certain areas of the bond market that present opportunity and will be presenting very strong opportunity over the next 12 to 18 months, and we're going to start to see people shift back into -- >> briefly, michael, where is that? where? >> where? when does this happen and what yields? >> no, what part of the complex do you think is going to rip roar higher? >> i think that it's going to be largely the treasury market, the high quality mortgage, high quality bond market that's going to be under pressure, and i think the areas that people will be looking to find safety and find opportunity will be in the high yield and the bank loan market. >> let me put the other side of that argument out there. yesterday it was notable that the defenses, the high yielding utilities and telecom sold off quite dramatically. at what point does that part of the equity market begin to sink as a result of seeing higher yields in the bond market? >> well, they'll come in equilibrium. right now the higher yielding part of the market is a little more expensive than the faster dividend growing part of the market. the part of the market where companies pay dividends and their earnings expectations are faster, that has value in this environment. that has relative value. so we would be tilting the portfolio towards companies that are growing dividends but have return on equity, return on assets that are higher than the s&p 500 and use of leverage that's lower. and, you know, certainly there are etfs that give people a way to access that in one basket. but if you're -- >> i feel that you're selling to me. what part of the market will deteriorate? >> well, i wouldn't be in mortgage reits right now. i certainly wouldn't be on the low quality, highly leveraged part of the spectrum. i think people have been searching and extending for yield in junk bonds. i think there's risk there. investment grade corporates probably don't have a lot further to go either given where the rates are. so i would say generally if you're owning bonds and you have been owning bonds, there's a lot of risk there. >> sure. >> and so i would say where is the opportunity on the equity side? i'm not trying to sell you. i'm just trying to steer you towards where the opportunity is as the market changes because these assets are being reprised. >> and you make your case very well. guys, thank you very much for your time. >> our pleasure. thanks. let's get to seema mody at the nasdaq. seema. >> the nasdaq just broke 340 which is a key support level. we're seeing a steep sell-off in the technology sector as, of course, investors take on this more risk off approach to investing today. microsoft among other large cap tech stockings moving to the downside, google, amazon also trading in negative territory. apple, which had been bucking the downward trend in the market, also now just turned into negative territory. however, this is what's interesting, the worst performing nasdaq stock right now is rand gold resources in response to the drop we're seeing in the price of gold. rand gold resources trading down by around 5% on the day. those are some of the big movers we're watching right now. kelly, simon, back to you. >> thank you very much, seema. let's bring in jim stewart, famed columnist with "the new york times," recently described as the journalist that every other journalist would like to see. nice to have you on the program again, sir. thank you very much. welcome. >> nice to be with you. >> what fascinates me about this interview is you are now presumably in order to write your column for the weekend trying to decide where the second bounce of the ball will be. >> let's start with the bond market, fixed income. i think that long bull market ended over a month ago and people are really waking up now that they have got to take shelter. anything with leverage is terribly exposed. we're looking at a full point -- we're in the neighborhood of a full point rise in ten-year rates here. that is a big, big move in the bond market. people are getting crushed in anything with leverage. it is time to take shelter there, and my advice a couple weeks ago was move to safety. don't try to be fancy here. for the individual investor, don't try to play raising rates, take shelter. >> jim, a lot of people have been asking questions about being in bond funds right now. they would seem like not the right place to be because you're vulnerable to a sell-off, but they do offer protection because rates will move higher as opposed to holding a bond which is literally just a fixed income investment in that kind of environment you're describing. so for the guy on the street out there, do any need to panic about being right now in some of the bond funds? >> absolutely not. i think you have to get out of the leveraged funds and look closely if there's leverage but other bond funds are all right. i look back at '94 which was the last catastrophic year in the bond market, if you were patient, if you keep buying, you get some, you know, cost based averaging in there, those people who held on did fine in ensuing years. if you take a long-term approach, you're patient, those bond funds will be okay in the long run and they have a role to play in any asset allocation. now, i think equities is another story. i think this is a fascinating decline here. there's a raging debate whether higher rates are going to be good or bad because it, after all, does mean a stronger economy. that should mean higher profits. i think we will see a buying opportunity in the equity market. >> so to be clear, would you say trust ben bernanke, he's worked so hard at this recovery. he wouldn't be doing this if he didn't think he could pull it off. buy the dips? >> absolutely. why wouldn't we have a fair amount of confidence in his judgment at this point? we've been through eight incredibly rocky years with him. i think he's really done an incredible job in amazingly difficult circumstances and, by the way, why the president decided to hang him out to dry like that is beyond me. i mean, he's been a tremendous public servant, suddenly gets the rug pulled out from under him. that is not the sendoff he deserved in my view. >> well, you know, he said he had had some kferthss with tcon the president. >> are you saying you saw this as a slap in the face from the president? >> is certainly wasn't the sendoff i had given him. do a joint thing or let him make the announcement. it's not just a personal matter with bernanke. it plays a role in the markets. there's sudden uncertainty about who is going to be at the hel number a critically sensitive time in the market. do the people in the white house really understand markets? in my view this was a crazy thing to add that layer of uncertainty right now. we have not only this significant change in fed policy but speculation you're going to get a much more sort of employment friendly fed chairman which is going to, of course, change the entire e quaution and that's causing a whole recalculation or layer of uncertainty in markets right when they don't need it in my view. >> and there, jim, we will leave it. thank you, jim stewart joining us from the "new york times." let's look at the s&p heat map to get a feel for the sell-off. the s&p just perched above 1600, 1601. key technical support we're holding at that, but you can see the bulk, the bulk of the 500-member index is in negative territory. falling 1.6%. the dow down 1.5%. let's get to rick santelli live in chicago. >> boy, we have a segment coming up in ten minutes. how many times have you heard it's the end of the bull run in treasuries? does that mean you can't ever be in a bullish position post a bull run? i don't know about that. also, let's think about the biggest hedge fund in the world. do you know who they are? we're going to talk about that for a guy who has worked for fannie mae, sallie mae, citi, security pacific. he's been around the block. one of my favorite sources and a great trader, bob lavin. be here in ten minutes. [ male announcer ] at his current pace, bob will retire when he's 153, which would be fine if bob were a vampire. but he's not. ♪ he's an architect with two kids and a mortgage. luckily, he found someone who gave him a fresh perspective on his portfolio. and with some planning and effort, hopefully bob can retire at a more appropriate age. it's not rocket science. it's just common sense. from td ameritrade. gold is below $1,300 and the material sector is down sharply. have a look at the figures here live from the markets. you can see it is rough for consumer staples, telecon, health care, discretionary. let's get to josh lipton. >> we are watching the materials sector closely. one of the worst in the s&p and within the materials, the miners really getting hit hard. gold, the yellow metal, hitting the lowest since september 2010. down some 30% from its recent highs in october. simon, back to you. >> thank you very much. let's have a look at some of the builders which are notable for their losses so far today. you will be aware these stocks had a great last year, broadly flattened out this year, and some of them are now raising their gains for the year. pulte up just 6%. >> let's get to rick santelli speaking of housing with a look at markets after yesterday's big fed announcement and perhaps some info on fannie and freddie here. >> you know, maybe we'll touch on that. you know, i'm always so happy when -- you always hear me talk about how whether i'm on my train or, you know, kind of shooting market activity with some of my buddies, bob and i go back to drexel days in the early '80s where he was a client and i was on the sell side. bob, let's get right into it. when i hear people like bill gross and i so agree say the secular bull run in treasuries is over, okay? let's quantify that. what that may mean is we may never have a settlement under 1.38% in a ten. does that mean you can't buy some good sell-offs and make money? >> exactly. we were down at 1.60% and the japanese had their experiment going, it was working, and it kind of got rejected the third week of may. 2.30%. a lot of guys i talk to are looking for 2.40% big level. the market goes back and forth on a daily basis. you can always make money from the long side or short side. maybe in a big picture you won't see that level -- >> you go back to the early days of modeling. i can remember way in the early days where we were trying to do the beta testing and modeling. one variable that's always a difficult animal to reckon with is volatility. i'm not talking about the volatility where prices get wild, although that might be a subset. i'm talking about option volatility. it can be very expensive and it can bite you. >> that's probably what some of the amplification we have going on. holders of all mortgages are in effect short volatility. they've basically way under hedged their exposure. they're probably the whole planet is under hedged given the low rate environment and the feeling it would never end. that's the only reason markets can move this big. >> many think everyone has to be digital and it doesn't. markets always ebb and flow. i think the other notion i want to punch a few holes in, believe me what the fed does is important, any entity that without anybody voting on it with regard to the public that is that can amass close to $3.5 trillion balance sheet is a force to reckon with, but the markets can also get a life and the markets usually always win in the end, don't they? >> that's right. i mean, in effect they're like the huge -- the biggest hedge fund on the planet right now -- >> the fed. >> they're long i don't know exactly what their exposure rate is, but could be somewhere $2 trillion securities with maybe a ten-year average -- >> absolutely. >> there's no hope. they're funding it with 25 basis points paying on excess reserves so they got positive carry but at some point -- >> it can get -- >> that treasury that's been benefiting, that can go away and that hurts the budget deficit. >> bob, thanks, buddy. >> thank you. >> kelly and gang, back to you. >> all right. rick santelli. sorry, simon. i jumped in there. you know why. i'm all agitated about the level. the question is whether we continue to see the markets move to the downside. >> a big contributor is what's going on in china. factory activity slowing to its lowest level in nine months. we'll tell you if this is just a one off event or something much more troubling next. in a world that's changing faster than ever, we believe outshining the competition tomorrow requires challenging your business inside and out today. at cognizant, we help forward-looking companies run better and run different - to give your customers every reason to keep looking for you. so if you're ready to see opportunities and see them through, we say: let's get to work. because the future belongs to those who challenge the present. dave's always wanted to do when he retires -- keep working, but for himself. so as his financial advisor, i took a look at everything he has. the 401(k). insurance policies. even money he's invested elsewhere. we're building a retirement plan to help him launch a second career. dave's flight school. go dave. when people talk, great things can happen. so start a conversation with an advisor who's fully invested in you. wells fargo advisors. together we'll go far. there's red across many asset classes today, but the eye of the storm continues to be the sell-off we have in fixed income and in the treasury market as the prices go down, the yields spikes higher. it's important to note we're at 2.395% at the moment. we broke above 2.4%. that's important because it is a level if we can get -- that we have bounced back towards over two years. if we break above 2.4%, you may find that there are further losses in the bond market, further yields spiking higher. >> a quick point, because we were higher, we were almost up at 2.5%. we have seen the yields move down to people shouldn't be confused that stocks are selling off as yields are moving higher because right now they're selling off as yields are also coming down which is why we are talking a little bit about this idea of whether we're back in a risk on/risk off environment. it's a good question to put to dennis berman. suggesting the fed is the only thing that matters to this market perhaps evidenced by trading today. dennis, it's great to see you, editor and columnist with "the wall street journal" joining us now. do you think we're seeing here a return to risk on/riskoff? in other words that the economy isn't stepping in here to cheer higher rates on higher growth prospects but to worry about them. >> it's so strange right now because right now what you're seeing is a differential. the market is evaluating the differential between the added support of what the fed can bring to the market or pull out versus the additional of an improved economy. right now it's voting a the least on the equities side that the fed is more important than the improvement in the economy. how do you expect the fed to -- it has to happen at some point. today might be the moment when we look six months in the future, today might be the moment where the process begins. overall though, it's got to happen at some point. it's got to happen some way, and this might just be it. >> okay. agreed, agreed. and the debate -- look, but i think it's important to tease these things out. the debate everyone is having right now, and again we'd all love to see a normalization of interest rates. you heard the ceo of wells fargo talking about that, but we're seeing financials sell off, still this concern that perhaps yet again the fed is moving before conditions can actually support ben leading. >> the we canty markets are telling us that, but it seems if you are managing a portfolio, you are at this moment having your guys look to the spreadsheets and saying what do i need to rebl? where is my interest rate risk? i will sell off the interest rate heavy sectors. as you saw, the home builders in particular are selling off because of the mortgage rate risk. again, whether the fed is ahead or not, the market has to respond and as i see it now, i see probably a continued small dribble changes in the sectors but i see it normalizing eventually probably within the next few months. it just doesn't seem to me like an awful day in the markets. it seems like a day that has to happen. >> yeah. i mean, it's not my job to tell people where to invest nor is it yours, dennis, we're both journalists but it would see blatantly obvious to me if this environment you don't particularly want to be in bonds. if helicopter ben is landing, you probably don't want to be in silver or gold. if easlanding because he thinks the economy is strong enough, it would have to be equities. >> that's the conundrum. why is the equity market down? you get to the general portfolio rebalancing question and i think that explains it. as jim stewart said quite rightly a few moments ago, equities, if the economy -- let's say the economy picks up half a percentage point, a quarter of a percentage point of annual gdp point, why wouldn't you want to be in basic consumer stocks? maybe stay away from banks for a while but this seems to be a sign that the u.s. economy is improving. >> well, we have to leave it there, dennis. >> you disagree. >> you know how i feel on this issue. but nevertheless, thank you for those thoughts. >> we'll continue it on twitter. >> be a important area of debate. >> i might have a little bit of a habit. dennis berman from the journal. it's a global sell-off today. bells are about to sound across europe where they've certainly taken it on chin as well. we'll have details and impacts when we come back. 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(announcer) scottrade. awarded five-stars from smartmoney magazine. a talking car. but i'll tell you what impresses me. a talking train. this ge locomotive can tell you exactly where it is, what it's carrying, while using less fuel. delivering whatever the world needs, when it needs it. ♪ after all, what's the point of talking if you don't have something important to say? ♪ the european markets are closing now. >> actually the data in europe today isn't so bad. the contraction in the eurozone is slowing and we have had a nice rebound in uk retail sales but look at the degree of loss that you have there, very big numbers today because, of course, europe -- where as yesterday we split our reaction to the fed yesterday on the session and then today on the session and it's 450 points on the dow. they're getting it all in one, and that's what you see today. it's a double whammy at the same time. a double whammy of the fed and china and it's interesting those big miners are bearing the brunt of a very broad sell-off. so 95% of stocks around europe of the 600 stocks are down, but those most exposed to china, like the miners, are those that are falling the greatest. let's have a look at the miners if we could. thank you very much. you'll see gold down 7% and the european exporters, those that export around the rest of the world, are also down partly because of their exposure to china. bmw, inbev, electrolux and swatch. we had some data from the swiss suggesting that watch exports from switzerland were down 3.9% in may. at the same time and i know you will want to comment on this, we have had the yield spiking. you have a sell-off in bonds everywhere. it is particularly acute at the periphery of europe. you see the italian ten-year yield, the spanish ten-year rising to levels that might look troublesome to some though i would say they have front loaded their issuance, their degree to which they have had to raise money on the open market to the first half of the year, so it's not as acute as it otherwise might be. >> very smart move. the question is now if there's more pressure maybe mario draghi has to talk more about that omt program that still doesn't exist. >> the ont of buyipossibility o buying in the market. the uk banks. after last night, the chancellor, the finance minister, was talking about how they could possibly get rbs to market. lloyds looks a lot easier. >> let's bring in bob pa sa ni with a look at what's moving on the big board. >> it's just ugly across the board. even defensive stocks aren't doing any better today. let's look at some of the major sectors on the day. as i said, everything is down 2%. that's pretty much the story. energy -- when you see energy and consumer staples and consumer discretionary all down the same amount, that's a broad decline. health care. nothing -- even defensive stocks aren't doing very well. we've been talking about the interest rate sensitive sector. they're all getting clobbered. most of these are in correction territory. utilitie utilities, reits, home builders down 5%. really getting clobbered. most down 12%, 14% overall. i get more questions on other than what to do with my bond etfs, the number two question i get, what do we do with the emerging markets. it's been a very popular investment area now that there's a lot of exchange traded funds. people ask me why are emerging markets down so much? what's going on here? it's very simple. the fed flooded the economy with a lot of money. a lot of it ended up in stocks and a particularly large amount of that ended up in emerging markets and they were favorites for investors, turkey, mexico, india, south africa. now the reverse is happening. money starts coming out. that's really the answer about why the emerging markets are getting hit so much. the question is what do you do at this point? i want to show you the most popular emerging market index. this is the one everybody talks about. it's the eem and this is the etf you can own here. volatility is a fact of life in emerging markets. this dropped 50% in 2008 during the big financial crisis but since then routinely it has moved in a 25% range on a yearly basis, and that's the key point. if you're comfortable with volatility, the answer is here it is. the important thing is we have been right about $38 for a number of years here so it's quite possible if you look at where you went in, you may not be down that much at all. you may have to be -- you may be comfortable with the fact that it's here despite the fact it's been down recently rather dramatically. if you have to get out in the next six months, well, we don't know. it could get a lot more volatile, may not. people ask me how do we know we're at a bottom? it's pretty simple here. number one, the key thing any trader looks for, things calm down, volatility just drops, and you don't get 2% and 3% moves every day. for several days. that's got to be the first thing. the second thing is you look in these funds for differentiation among countries. when all the fast moneyy gets out, you will find individual pickers buying the philippines and selling thailand. that's a sign that the real market pickers are back in trying to get the money. buy low and sell high. so i think that's what we're going to be looking for right now. it's a simple problem that we've got, folks. the u.s. investor is the largest foreign investor in the world. when they decide to pull money out, it creates ripples all over the world. it's the good part of this whole thing. we saw people moving in. i talked enthusiastically about emerging markete tfs and now we're seeing the opposite. i think people who have a longer term stomach for these kinds of markets and recognize this volatility is a fact of life in emerging markets should take some comfort from that before they start panicking. i don't tell people to get in or out, it's just recognize the volatility is a fact of life. >> that's a perfect place to pick up with our next guest. emerging markets are getting so much attention. >> let's bring in rodolfo. >> thank you for having me back. >> you have $250 billion assets under management in emerging markets. you can clearly give us a view here. how worried are you at this stage? >> i'm glad that you mentioned that it's an asset organization. we manage that much money around emerging markets. now, it's important to highlight and i think it was already mentioned, this is business as usual in terms of volatility in emerging markets. in terms of what people should do now, part of the advice is hold on tight. this volatility is not unheard of. may of last year the index was down 11%. september of 2011 it was down 14%. may 2010 it was down 9%. we have seen this before. the interesting point now is to differentiate the noise from the real elements here at play. there's a lot of capital that's being pulled out and that has a lot to do with the recent pullback in the index because a lot of these countries were actually trading at rich multiples. in some cases like turkey two standard deviations above the historical numbers. this is a time where we have to figure out the noise from the true elements of information. >> okay. can we go back to the index we were looking at just now, which is down now 17% so far this year. are you suggesting to me that that is noise? white noise to be ignored? >> no. i'm not saying it's white noise, but i'm saying there's a lot of other noise surrounding what's going on in emerging markets. you hear about riots, protests in different countries, some of them in brazil, some in turkey. that plus all the noise about investors pulling out money, particularly in fixed income markets, it actually makes a very good case for looking deeper into each one of these countries to find value in many of the stocks, individual stocks, in these particular markets. >> i suppose it comes back to the age-old question, when the knife is calling in front of you, at what point do you put out your hand? you're saying to me at some point you should catch it. is now the time or do you continue to sell? >> i think it's a time to continue to monitor closely what's going on, and i'll tell you why. just a bit of information. flows year-to-date into emerging markets are still around $10 billion year-to-date. probably after accounting for this week's outflows. if you were to use that as a proxy of the money that could potentially be pulled out, there might still be some room for things to get a little worse before they get back to normal state. >> just so i can finally because we're out of time, just so i can have some context on the interview that we've just conducted, have you ever told people to sell emerging markets? >> we would like -- the area that i focus has to do more with stock selection. from a stock selection perspective and from the secular growth perspectives, emerging markets should be a buy in for any investor that has a medium to long-term horizon. >> rodolfo, thank you for joining us. >> let's get to the nasdaq and seema mody. it's been a pretty ugly day. i imagine the same where you are. >> a similar picture. when you see traders take on the risk off approach, technology is one of the first sectors to get hit. now lagging in today's market. take a look at the large cap tech pike topicture all arrows pointing down. those names selling off. micron tech, best performing tech stock this year, trading lower after reporting earnings came in better than expected. its first profit in two years. biotech seen as a more risk averse sector. cell gene and others trading to the downside. the nasdaq down better than 50 points. it broke 3400 20 minutes ago. >> thank you. keeping an eye on things. housing stocks getting hammered. we'll take a look at the sector and the rest involved in today's massive sell-off. don't go anywhere. more "squawk on the street" straight ahead. looking at covered call strategies to generate income? 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>> you know, it's fairly calm ironically. people are just watching this decline. let's ask trader mike vidella, it does seem fairly calm, fairly organized. not necessarily huge volume today. >> no. i think a lot of it happened overknight and the volatility did spike in the options pit. as the market goes down, the fear is to the downside so the options vl tilt did spike. >> ubs cut its one month forecast for gold now saying they see it at $1,250, down from $14,2 $1,4 $1,425. today we're really having trouble or the market is really having trouble holding that $1,300 an ounce left. >> $1,250 is not far away. this $1,285 level was very important. it was retracement level. if we break that level, we really don't have much between here and $1,150. so there's a lot of investor pain. this is a lot of investors getting out of their positions, maybe people who were long above that $1,500 level. it was investor driven on the way up. it's also being driven on the way down by the investor class in thee tf i would say. >> we're seeing the worst decline for gold and silver since april 16th when the taper talk and taper concern really started to percolate. is there any bull case to be made for gold here with rising interest rates, the fed stepping back from asset purchases, and stocks at this point also moving lower? no signs of inflation. what's going to move gold or stabilize gold here? >> it would have to be inflation. i mean, most of the reason why people got into this trade was because five years ago people started to see the printing presses go on and felt inflation would kick in. well it never really happened. people basically were giving up on the trade and that's what you're seeing. you saw it in april and you're seeing it again today when we got this report and the news that bernanke was indicating tapering. so i think you're seeing the reaction to that and we're also seeing these inflation numbers that are quite low at this point. no reason to be in the trade. if that changes, you will see gold rise but you don't see it coming anytime soon. >> certainly no reason to be long. mike, thank you very much for joining us. kelly, it looks like the bears are having their way. back to you. >> that's for sure. bertha coombs at the nymex. thank you. >> when the bears have their way, this is what it looks like. all the major averages are in negative territory. the s&p is perched just above important technical support at 1600. we will talk about that and the fact that the home builders are down 6%, 7% today after the break. par rena bartiromo just sat down for an exclusive interview with house speaker john boehner. here is what he had to say about the fed-driven market losses. >> the sell-off is in large part due to the policies that we've had coming out of the federal reserve. you know, you can't continue to deflate our money and deflate it and deflate it, have the equity markets go up without some change. now, bernanke has made it clear, he's doing these policies in the absence of the government doing its part to help improve our economy. that's why democrats and republicans here on capitol hill and the president need to deal with -- fix our tax code that would help us promote more economic growth and deal with our long-term spending problem. >> a timely interview with john boehner, speaker of the house, tonight on "closing bell" at 4:00. >> markets are reacting to yesterday's fed speak and today aes economic data and there's been plenty of both and plenty of signals in both directions. here to help us sort through it, senior economics reporter steve liesman. receive? >> thanks, kelly. really mixed data today. i think at least one area of concern after bernanke's comments is the fed could be on the verge of a policy mistake. reducing a combination too soon. here is the data from today. homes sales better than expected. that's something the fet chairman talked about. we have not been above 5 million for the right reasons since 200 2007-2008. claims worse than expected rising to 354. here is some commentary on the claims number. this was the survey week for june payrolls and given the number of claims is above the prior survey week suggests is not so good job gain when the report is released. take a look at the housing rebound we've seen here. this very slow steady creep since those bumps around 2000. that was that big government program to help the housing market. it gave and then it took away. now we seem to be on a more real path except for the fact we've had these very low interest rates engineered by the federal reserve. barclay's commenting saying we believe the recovery will prove resilient to any broader slowing in the economy and the recent rise in mortgage interest rates, but, of course, then the economist head saying we'll be watching for any signs of weakness. john over at rdq writing, we are not going to jump with joy on the philly fed news but neither the philly fed nor the empire state index has correlated well with the economy nor broadly. investors probably happy to have qe replaced by better growth. you wonder if one concern is less qe but not the expected level of growth. kelly, a lot of ways you can spin this and talk about it in terms of whether it's a buy or a sell. today almost certainly a sell. >> steve, just to reiterate the point, a lot of people are trying to wrap their heads around the idea we may be talking about the economy not strong enough for the fed to exit right now which is a totally different nar of it that be what we've been hearing but one that needs to be aired. >> all things being equal, right? if they replaced qe with economic growth one for one, i think the market would be happy. i think the concern is there's not a one for one replacement, that there's really good benefits toq e to stocks, but that stocks may not be giving enough to make up for that replacement. >> steve liesman, thank you very much. major stock sell-off today. we're keeping an eye on it. we're off 200 points on the dow. we'll have a particular look at the home builders selling off but why. we'll be right back. with the spark cash card from capital one... boris earns unlimited rewards for his small business. can i get the smith contract, please? thank you. that's three new paper shredders. 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[ male announcer ] see your authorized dealer for an incredible offer on the exhilarating c250 sport sedan. but hurry. offers end soon. i work for 47 different companies. well, technically i work for one. that company, the united states postal service® works for thousands of home businesses. because at usps.com® you can pay, print and have your packages picked up for free. i can even drop off free boxes. i wear a lot of hats. well, technically i wear one. the u.s. postal service®, no business too small. the market is cutting some of its losses but still home builders have been hammered so far today. joining us now on the phone is will randow, home building analyst with citi. has ben bernanke killed the rally in home builders? >> i think he's definitely taken away some of the forward price appreciation. definitely slowed the rally in the builders. >> right. so what should investors do from here faced with those sorts of losses? >> i think at the end of the day you pick your spots, wait for the taper or the red to slow down, and there will be an inflection point as we get to second quarter earnings when we hear about strong price in margins and demand. >> i want to get into why exactly the builders are selling off. even as we have seen the ten-year pretrace by about ten basis points, we're not seeing a response. ask that because builders here are more concerned and more selling off on worries about fundamentals? >> i would tend to think that's a couple things going on. the first thing higher rates ultimately mean the discount rates you put on the builders have to go up, therefore, multiples have to go down. right now the builders are trading at ten times. a week ago they were trading at 13. the second is forward price appreciation. although homes are quite affordable, price appreciation goes away. volume is good, pricing incrementally we will see it slow from a year-over-year perspective. >> are you saying if i'm reading between the lines there in addition that there is a difference between the moves on the home builders which may be a response to their profit margins being cut compared to a broader housing recovery that may very well still be intact? >> exactly. as long as we have confidence and, you know, inventories are healthy, which is the case, and we have affordability, starts and expectations for growth should continue on. but forward praysing appreciation should slow. >> what are your favorite picks in the sector and has your view on them or on the sector generally changed given the events of the last 24 hours? >> i actually think the move makes me feel a little more better about the health of housing starts as well as valuations which we've argued are a bit stretched. horton is our favorite name, dhi. right here in the long liquid builders who have good supply primarily because we think the first time home buyer will come back and drive volumes. building products, we like awi. >> where would you not be in the sector, will? >> we still -- beazer as well as kbh primarily because we think the lack of call it excess liquidity will be a noose in terms of growth. >> thank you for joining us short notice. will randow, home building analyst with krit citi. >> we've seen the ten-year come off its highs. we're seeing stocks move lower but off their worst levels of the session as well. >> obviously we'll keep up coverage on a big day for the markets slout the session on cnbc. from the team that puts together "squawk on the street," thank you very much for watching. >> thank you for tuning in. if you want to know what's going on with housing, ivy zelman will be here to share her thoughts. that's coming up. all right, guys, thanks so much. welcome to "the halftime show." four hour to say until the close. there's a look at the major averages. the dow down 1.33%. the s&p down 1.5%. that's where the nasdaq slide sits, down 51 points. home wrecker. what will rising rates do to the one area of the economy that's buzzing? we'll ask the definitive voice on that suggest, ivy zelman, in a halftime exclusive. mining for answers. what does china's manufacturing meltdown mean

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