Earlier today before turning negative were just off the lows of the day. Rates are in focus the tenyear is pushing past two six. Pete, whats happening we erase a 280point gain the other day. Then we go up more than 300. Then today we find ourselves falling as we speak. A little slipping welcome to the new world of the market welcome to the new world, and you talk about 1,500 points, thats why were seeing the volatility rise the way were seeing it. This is significant. These moves are huge they have volume behind them i was talking about the volumes the other day in the options world. 24 million, 37 million contracts over the last three sessions so volatility is here, scott i wouldnt be surprised if we start to see a new range for volatility everybody has been expecting it. But we get these kind of moves, and we still have plenty of different political reasons for the stock market to move, along with where i know, steve, in a note earlier today, was talking about what hes seen in the tenyear were just at the start of earnings season. The vix is barely moving today, its not as if the vix is ripping when stocks are sliding. No, but it was ripping when stocks were climbing one of the reasons for it, scott, weve had this binary bet on whether or not we hit the wall on friday, steve, with the Government Shutdown. Yesterday, judge, as we were talking about it on the show, we said, hey, looks like from the reports were getting out of d. C. , that theyre saying, thumbs up, not going to be a problem, well get through the shutdown, extend through february, then do it all over again. Today there is a picmix. Politico was reporting a short time ago that mcconnell was said to be preparing for a shutdown then it seemed as though stocks started to slip a little bit there. Is this the way its going to be, is this a new world of volatility that were so not used to, it just is a little unsettling scott, i feel the return of an old friend that i missed for so long called volatility. I think this is great, because this confirms the market to me this tells me its real, and its actually sustainable. Ive been waiting for this for a while. If you had shorted vxx in the first trading days, you made 10 . Now the trend is in the other direction. If you look at it over the month, volatility is coming back, and it should, and im happy. This confirms we have a real market going we might not have it for much longer, kev. If we get through tomorrow, judge, and there is that kicking the can out to february, then watch how fast this goes right back to 10 as far as the vix 260 on the tenyear certainly got a lot of attention today, maybe that has a lot to do with why stocks are in the red. To me, thats the concerning factory, it should be the concerning factory for everybody. Rates have typically ended rallies when theyve risen quickly. Those who are concerned are saying, look, 261, major technical level, 299, never get to there, major technical level. Major Technical Levels are made to be broken if dragi cuts back further and raises, there will be less of a reason to come into u. S. Treasuries i think thats still the risk. And the market always leads the fed. You feel like theres significant rate risk to the rally right now . Not right now i think youve got to go at a couple of quarters real rates are still ridiculously low and extremely accommodative. Creditors are sloshing around out there. Youre repaying a lot of debt on the corporate side, repatriating thats creating a need for corporate debt which will be priced lower so i think were okay now. Im just suggesting youve got to watch it, because it will accelerate in my view faster the reason we have Steve Liesman at the desk because im a nice guy and good looking theres all kind of reasons can i just say, the makeup room ran out of makeup when they got to these four guys a lot of skin to cover. The fed has commented before about asset prices, asset bubbles in some cases. Im wondering how they view whats taking place in the market and also as theyre watching the tenyear eclipse to 60 for the first time in a while. Every fed official i talk to, i ask about market levels. So far they do not seem to have a level of concern the question i asked janet yellen in the last press conference, where she said its not red and it may not even be flashing yellow when it comes to market valuations. How is that possible when they consistently, some of them at least do, talk about asset prices being elevated, and the question is whether theyre too elevated in the feds mind some do, and they see it as reason to continue with these gradual rate increases the fed looks at the regulated Banking System the one that could fall apart and grow up and create a systemic problem and bring the economy down they do not see the leverage in the system or they see the current valuations as something that threatens that system and were looking for a black swan event when it comes to finances when it comes to the fed and the markets, so far the fed has been the friend of the markets. When i look at whats priced in right now, first hike priced in for march this year, second hike now priced for june, and,000 we have a greater than 50 probability that there will be a third rate hike in december. Which the market has fine with and then i think about what is the potential worst Case Scenario theres a 15 probability of a fourth hike. But if you tell me that the fed is going to do another quarter, and that all of a sudden, current stock market valuations are not justified, then i think youre wrong about that. I think that this market is not going to be spooked. Theres a psychological aspect steve talked about that, a quick rate rise. When i look at the fundamentals of the economy and this about a 3 tenyear and declining corporate yields which means the cost of interest to companies is going to be going down, i do not see the economy being spooked by higher rates right here. Under what circumstance would the fed potentially i know this sounds crazy, but go 50 basis points i dont think they go 50 at a meeting. I think they could add one its possible that one of the meetings, not the first one out of the box for powell, but maybe a second, would be 50. If you get a spikeup in inflation, if its sustained for a while, and if you see, by the way, the fed chasing the market here, if the market believes in higher rates steve, if the question goes for 100 basis points, 25 a possible 225 would be your endpoint for this year, yes. And the tenyear stays at 256. Does it stay below three then youve got that specter of that yield curve issue right youre going to have the reversal and traditionally, equities dont like that. The market is free to express its belief in the efficacy of Federal Reserve actions. You know, so i very well predicted the three rate hikes in 2017, i nailed the twoyear what i didnt nail was 60 basis points of spread tightening on the tenyear whats your call on the ten i would think at a normal rate, if the fed goes up to two, it would be a 3 because i like this hundred basis points of spread between the two and the ten, which is a normal world to me i agree let me ask it this way. Does anybody view whats happening in the bond market or in d. C. And thinking to themselves, maybe i need to rethink how bullish ive been feeling over the last weeks, what the tax plan will mean, where the economy will go, why im all of a sudden sitting back and saying, maybe i need to take a little off the table because its starting to feel skittish i think thats the action in todays market as the bond market went through 260, look, the tenyear yield has increased by 10 bips in the last month youve got to be whistling past the graveyard. Nobody is buying credits yet, you have to buy midcaps, you are get a better yield i agree that he just a forecast or a look at things to come if you get that rapidity in raising, youll see more pressure im just taking money off the table now to keep my portfolio balance in check i got a number, 65 35 is the way i balance my portfolio, stocks go up and i pare it back down. Im just doing it naturally. Into cash i did a little bit of tips and a little bit of fixed income great but whats driving it, whats more powerful than you and others im not moving the market i dont know. Thats an ego thats an ego, huh but in all seriousness, its the alcos that drive it. If yields are going higher, equities are coming lower. And then it resets, when it sees that its going higher on credits. Youre still getting two six on the triple b portfolio and you can get 3 dividend yield out of midcap stocks i dont disagree. But thats not whats driving the markets. Whats driving the market is treasuries are we just venting worries here i dont know that the fed is really something that keeps these guys up at night its not. The trend has certainly been maybe in fact we are its a legitimate question to be asking if investors are getting too optimistic about the rally our mike santoli has been looking at that and join us from the new york stock exchange. Michael . Hey, scott. Any way that you would typically measure investor sentiment, its been flashing a warning sign for a couple of weeks now. If you talk about the low put call levels, all the survey work is basically up at multidecade highs in terms of bullishness. You talk about exposures of investors on the retail and institutional side, very low cash levels, very, very high in healthy equity exposures that was the case coming into this year. All that tells me is thats the makings of a random air pocket or a flattening of the market or maybe this isnt your best entry point at this particular point it explains to me the action weve seen in the last couple of days this is a higher velocity rally that weve seen in the last couple of weeks. Thats why you get up to 85 by 10 00 a. M. , lose it all, up 320 the next day and by the way, on no news, you cant really tie any of that to headlines, because i think right now the market is kind of captivated with itself, with its own momentum, with the raw power of the mali. That of the rally a little bit different than last year when you had clockwork rotation yes, i think sentiment is very stretched. But guess what, its stretched because all the news is good its not as if everyone is very bullish and by the way theres lots of danger signs people are ignoring i think it just kind of confirms the situation were in its really a question of how long can things stay good. Im looking at the credit market response to potentially higher rates, not just the yields themselves going up. And the vix, if it closes above 13 when the market itself hasnt fallen very much, maybe thats telling you tell sparrows are starting to scatter and you should look for storm clouds the bottom line, and i think art kachin said it yesterday afternoon, nothings changes you had this big fallaway from a 200plus rally and you had this come back, if the market is really concerned about a Government Shutdown, down. 4 , that doesnt say much to me. Nothing has changed in the big picture. I agree generally the market has traded down on average. 6 during a Government Shutdown, thats nothing to worry about. Youve had that move intraday, so many days look, i think in terms of the fed, your question is, does anybody really care about the fed. I dont really care about the fed. You dont worry about it. I dont worry about it. I care about it. I care about them, but overall, the market, the fed is so transparent now and talks so much totally agree it false on deaf ears theyve done a good job they have and an unheralded job, in becoming a nonissue. They lay out for the market which is what you want for the fed to be that way, dont you want them to be transparent . To a certain extent i dont want to know how the sausage is made, because then it falls on deaf ears, because then theres no import to what they say. It comes back to what weve been asking almost daily, whether were too optimistic, or if were not optimistic enough i think its more of the latter. Can i throw a question out . You have apple announcing, walmart, all these other Companies Paying their employees more its still not figured had. Do you feel like the tax cut is priced into this market no. Ive still not seen the movement by those companies that seem like theyre going to benefit most from the tax cut, on just a mathematical basis its a very difficult thing to model how the tax cut will flow to the whole stock market. But you can look at a company, you can say theyre a domestic company, theyve not had these foreign overseas earnings. They have 35 taxes, going down to 21. Theres a mathematical equation you can make i havent seen the vaullues beig put on that group. Ive seen models from analysts theyre Still Holding corporations at 35 tax rates, they havent even changed their models youve seen modest revisions but not enough of it it will be a gift that keeps on giving. The next question is the economy. Weve done 3 . I dont think thats the run rate of the economy. I think its more like 2. 5 but hold on. Hold on. Debbie downer no, thats wrong. Hold on weve done 2 perso the last sel years. Weve got a run rate of the economy estimated to be 1. 8. Youre telling me im doing an extra half a point on 18 trillion thats right, debbie. If it is, im fine with that. But im telling you, 2 1 2 is a very good number its a victory for the market. Its a victory for policy. Its a victory for whats happening. Scott, there is in part your answer in part your answer is, everybody is scoffing that were not at a 3 economy forever. Silly every year weve been talking about the annual First Quarter slowdown, we have a soft patch that would be the big surprise that upends everyones expectation that all we have to worry about is overheating i think people are potentially still underestimating. They dont have a good earnings number, they dont have a good handle on the multiple 5 in 11 days when you compound at 5 at 11 days, youre building in lots of good stuff if that continues to be your trajectory if youre expecting what we got to be the run rate of the market, youre probably going to be disappointed. Maybe people arent positioned for that mike, every ceo weve heard from, from jamie dimon through the banks that weve heard from so far, has said that they are extending the impact of the tax cuts for what it will mean for their businesses so to all of our points, its not priced in, or at least its not priced in correctly. Second of all, you just spoke of that 5. 7 move that weve seen over four days, judge. And michael, you said is the stock market sniffing out something with the vix no, the market is responding to that 5. 7 again, highs to lows, guys, as we surged 13 days for us to basically get through 26,000 i mean, when youre looking at that kind of thing, its justified. If we didnt see it, you would be shocked so were not shocked and now, to your point, were not seeing much today, because all we have is a 24hour wait for the window on shutdown if i told you that earnings were going to be at the high end of expectations, if not potentially even exceeding them, and that the yield on the tenyear was going to stay somewhere in the current range, maybe it goes up 10 to 20 basis points, you would probably all tell me the market is going to be higher. If thats true, well get another 20 in equities this calendar year. A lot of people are starting to come to the realization that that may be true 50 are starting to say, wait a second, we can get another 12 to 18 on equities if in fact it has been priced in, that all these Midcap Companies with domestic revenue have to be adjusted from 35, 36, down to 21 thats 15 more Free Cash Flow thats what im betting on i think we may see that. Frankly, i think in 12 months well have a run rate with the atlanta fed just moved up, four days ago they had it at 3. 3. They just moved today to 3. 4, judge. Four days ago. All thats happened are the reports that were talking about. In other words, people are still racheting up, including the fed, where they think were going i didnt even throw in the buyback question, which is like a dirty word around here its a big part of the potential impact of this tax cut, which is, apple yesterday writes its very vague press release that says its going to be paying this tax money and its going to be doing 20,000 in jobs and a whole bunch of investment we dont know how much is tied to it. Heres the thing what we dont know is how much of this money ends up in buybacks and dividends take a guess. Is it a third of everything that comes back i think its twothirds everybody at this table is competing with the cfos for buyback. For political reasons, theyre not announcing it now, theyre talking about jobs and investment there is a wave 3 trillion you have to be careful with the language its all coming home they are required not all of it theyre required to pay and santoli knows more about this than i do. Theyre required to pay the tax on it. Therefore it is all available, if they paid the tax on it, to buybacks theyll pay workers what workers are worth to them. There will be no bonuses and no wage increases that are not profitable for companies to give tim cook in an interview last night had all the opportunity in the world to say, we would be doing all of this no matter the tax plan or whatever, and he didnt he gave credit to the tax plan he said in large part its because of the tax plan and a large part we would be doing its like saying, twothirds its for this and twothirds its for that. My point is he didnt have to say anything scott scott. Yeah. Why wouldnt he say that . The tax plan is the catalyst for companies saying, look, we have this much cash that we have no excuse for not using, lets allocate it across these different fronts, employees, buybacks, dividends, m a, whatever its going to be. But apple allowed 50 billion to float to the bottom line they could have let 49 billion to float to the bottom line. It also has 100 billion of debts against the 230 in cash overseas this is a company that could have done anything but its using the tax plan as a catalyst to say were going to do something for all our constituencies its a net positive for everybody but its not a causal thing. Mike, thanks, steve, thanks as well. Senior economics reporter Steve Liesman. Were focused on shutdown possibilities at d. C our Kayla Tausche is there for the latest reporter scott, republicans will work throughout the day to short up support for the short term funding bill ahead of the first vote at 7 00 tonight the governmebill would keep govt funded for six months. Delays of certain obama care taxes would, they hope, win over the support of obamacare supporters the pentagon was voicing the same message the white house has reiterated its support for this bill and is not giving any cover to those who would vote against it. Back to you. Kayla, thank you very much. Next, Value Investing superstar bill nigren is wit