Good monday morning. Welcome to squawk alley. Im Carl Quintanilla with Morgan Brennan and jon fortt at the Stock Exchange it is a historic day of trading. We will begin with the selloff which did include a break with Circuit Breakers richard on the stress test for stocks, mike santoli on the crude awakening in oil prices as the saudis launch a price war. Rick santelli on a bad yield trip for treasuries and Steve Liesman on the fear and the feds response bob pisani, lets begin with you and think about whats important this morning. Whats important is how did the system respond to the immense stress that we had today. This is the first real test of the margin Circuit Breaker system set up back more than 30 years ago and we did have a halt on the s p at 9 33 for 15 minutes. The by all appearances it looked like it went well it reopened understandably some bargain hunters there, a mild lift in the markets so the mechanics seem fine. What was distressing to see what happened to Oil Stocks Put up halliburton, for example, not only halted on the systemwide Circuit Breaker but when the market reopened, halliburton almost immediately went into an individual stock Circuit Breaker situation, hit it once and then probably a second time as well. These stocks are really under pressure these hoil stocks, halliburton down 39 see the bottom line here is while the overact marketis under stress i think the saudis did us no favors today and was a major part of the exacerbation in the oil stocks. Mike, your characterization of the complications that oil added today . It was the one piece that people werent really too focused on in terms of it being an intentional crashing of the oil market its how it filters through the credit markets thats the transmission mechanism aside from the oil stocks into overall risk appetites and overall willingness to buy a down 18 s p move from the highs which is what we have right now you know, right now it seems as if we tried to kind of hang out a little while in the s p and the summertime lows and the 2800s. Im surprised, the day is not over, that we didnt get another wave lower who knows what there is to see a third of the s p is down 30 off its highs. We should keep in mind this has been going on a while so theres been punishment administered. To that point about crude prices, were down less than 20 right now, in both brent and wti, drops of 30 , we havent seen Something Like that since 2001 these are massive, massive moves. Theyre being felt across wall street how much is potentially for selling . I think its a lot of it is reflective of forced selling or people saying look, my models did not kind of encampus these scenarios so let me back off im more focussed on the way the markets are kind of queuing off one another. Its becoming a little more of a feed back loop of oil into high yield credit into stocks, so that can kind of pingpong around for a while much more than it is, you know, kind of the next incremental news on virus outbreak. This is a direct attack by the saudis, not just on the russians but on the u. S. Oil shale producing system theyre saying lets shake up the whole Playing Field right now and be bold. Were the lowcost producers in the world, lets see who can survive if we try to shake things up. They did us no favors, very difficult day for the markets. Richard, what are we learning this morning from the way that stocks are behaving from the volume initially we opened down the s p hit the Circuit Breaker down 7 . Then seemed to come off of that and then in the past few minutes, we drifted down again, the s p now down more than 6 . Does this continue to look orderly to you and what should investors at home who are maybe sitting on their hands trying to figure out what the wise thing to do, what should they be looking for . The answer to your first question, it was, it did appear orderly to me. We havent seen outages or problems we did hit a Circuit Breaker, but thats the first time i think in quite a while that we have and i think when you compare that to the dislocations we saw in the flash crash where it was disjointed moves down, this was, you know, an expected, again it was an existential event that triggered the market move. I think when mike says, you know, that the assets and different Asset Classes are interconnected thats a product of electronic trading. Hes absolutely right. When you look at all, when you look at the equity indices and futures theyre all tied together you can expect them to move together and thats how fast the markets, the things that exchanges have done, i applaud them i think theyve worked and worked well in a very, you know, turmoil market condition this morning. Yeah. Does this seem rationale to you, rich, given the uncertainty around coronavirus, how this is affecting the movement of people, the movement of goods, the productivity of the work force . I mean you talked about how orderly stocks have been, but in terms of the value that investors are applying to equities does it make sense . Well, the im not a Market Strategist but what i can say and im not a physician thats an expert on the coronavirus, but it does seem like theres still it doesnt have boundaries we dont have limits markets and weve had a number of experts talk about there could be theres other factors such as the president ial election, the top of the market, there could be other factors as well you pile those altogether, what i do follow is volatility. Weve been at historic lows for a while. We were due for an uptick and we certainly have gotten it Steve Liesman, Washington Post is matching eamon javers reporting that the advisors will present the president with a list of options this afternoon characterize what we would hope to see out of there and from the fed and the comments on friday and Everything Else . So starting from the top, i think for sure theres a feeling in markets, a feeling among people who watch Monetary Policy that the substantial part of the response to this xr the Economic Policy of the coronavirus it could be from business disruption insurance, things to help consumer demand, or otherwise fiscal spending in part because theres a sense that, a, the fed is down there when it comes to ratesalready, has few bullets left, and b, the Monetary Policy may not be the best suited for this i will tell you that my suspicion this morning is what the fed is doing is not so much thinking about rate cuts as watching the market adjust to the level it wants to be at and being sure that as richard was talking about so intelligently, its an orderly decline. Its not a problem necessarily for the Federal Reserve that markets go down, that bond yields fall, but if it happens in an orderly way theres sufficient liquidity with which price discovery can take place the new york fed as we report, did come in early in the morning before seemingly there was a problem, and provide additional liquidity in that regard to a specific section of the market which was the overnight lending market whether or not additional liquidity is needed is unclear at this point and whether or not a broader fed statement is needed my best guess is that the fed is not going to want to cut into a falling market like this, it might not do very much good. The fed wants to come in with maximum effect i dont think that would happen today. Yeah. Meantime rick santelli, we are seeing big moves in one direction and the other within the bond market as well. More than a 20 basis points mount in the 10year treasury and back up to 0. 524 right now after hitting a new record low of 0. 318 . Put the moves into context and the fact that as some strategists have suggested today, the fact that were on the heels of that seeing a weakening dollar could be a silver lining. Well, you know, lets just look at the problem from a very easy macro standpoint. Theres so many real cash treasuries in the world. What weve done over the years, is weve made derivatives of derivatives of derivatives, whether etfs, so the claim on this finite group of treasuries is now like an upside down pyramid. As it goes up, theres a whole host a global host, of people focusing on this actual core of cash securities. Granted, its a big one. But the focus, the laser focus, if everybody wants to get their hands and play in that arena is multiples of leverage beyond the reality of that. The derivative of the derivative of the derivative. Heres where we find ourselves a lot the same in the credit crisis we have certain areas like mortgages that became reference points on the upside down pyramid. All those priced as something that was very small. So when you shakethese arrangements up, this is what happens. I will state to the simple i hope the fed doesnt waste any more quarter point or half point eases. Its not going to make a difference the japanese have learned, yield curve control doesnt make a difference have we not learned that at every point since 2005, when all of this really started before the credit crisis, debt and leverage, that making rates lower, getting them to make more creations out of the low Interest Rate blocks isnt the type of building we want i think that the central bank should monitor, give us guidance, act parental im not disputing the fact that fiscal may make a difference, it will make people feel better but in the end and i dont say this normally, pressured many times to say it, but with such a flat curve, supply is the way out we want to issue if they want more focus on the group give them more securities. Open the window, issue 10s, issue 10s. The spread, it just seems like the right thing to do. Thats my two cents. Bob pisani, we had this big drop at the end of february and then were kind of trading around in a range. I think some people were thinking maybe this isnt so bad. Were down below that range where we were trading but theres this oil issue partly to blame for it i think there are a lot of people who are maybe if retirement or getting close to it who are especially worried about the direction the market is taking. Given that things are orderly, how concerned should people be is it stick to your plan time or do you think that conditions have changed enough that people really need to consider changing their calculus theres nothing out there that the standard expert advice has not changed or gone out the window the question always has been amongst professionals that come on our air, how long are you going to live for . If youre 60, youre going to live another 30 years history shows these are generally shortterm phenomenas, stick to your plan. Much shorter term, if you need more money in the next five years or so, you might want to consider altering that plan a little bit by and large, stick to your plan is the most important advice ive been asked about the Circuit Breakers, if we drop below 7 again you keep going. Theres not a second halt at 7 decline. You go to 13 the next level weve got a long ways to go to have another trading halt. System line. Rich, do s p earnings, estimates mean anything right now . I really think theres a lot of uncertainty in the market you cant you know, the Economic Impact of what were seeing from the coronavirus, i think its pretty difficult i think a lot of traders have gone to an and investors have gone to defensive positions more, you know, off of technicals trying to get that is pretty difficult right now. I ask because were a few weeks from pricing in q1, right . Sure. Mike santoli. We want to know if were going to reset revenue rates at what level its difficult to say what were running at at the moment we started from an elevated valuation. I dont think youve reached a point where youve generated true absolute value based on a grim scenario. Because there was so much cream at the top right 19 times or so sure. I mean i think right now its all a matter of figuring out the market is getting in the direction of pricing in a technical recession or some kind of prolonged stall for the economy. Doubt that were at the point where we can actually say we priced in a significant decline in earnings at this point. The market has an interesting and a little bit curious tendency to go down almost 20 in one of these bouts, 19 point something percent. It happened in late 2018 and in 1998 and in 89 and 90. Thats going to be a little bit of a fail safe. The multiples are a toss up we have no idea whether the right multiple is 17 or 16 a Global Economic decline the overall multiple should be lower even on an average level we should be closer to 15. Thats why youre getting thousand point swings. What is it we have to go through the discovery process. Everything trying to glean what this is going to mean in terms of an Economic Impact as well, Steve Liesman. I want to get your gauge of the pros versus the krons right now, at least from a u. S. Economy perspective. Theres all this uncertainty, people are crackdowns on traveling, people stockpiling worried about spending money potentially. On the other side of the ledger, you do have gas prices that are continuing to get lower, we have this incredibly based on the most recent data strong job market, and you do have these low rates and what we know is already shaping up to be a big surge . Refinancings. Thats going to be a help every tick down in the 10 or 30year puts more mortgages in a place where it would be profitable for people go and refinance. If i guess in this market they can get a Mortgage Broker on the phone. That would be ones aspect of it. Low gas prices in this environment today, cut two ways and i mean deepry in two ways. Youre right on the one hand consumers will do much better, but notice over the course of time we put the economy of saudi arabia inside the United States with 12 Million Barrels of production a day it wont be a painless process which that readjusts to 30 oil. Parts of this country will feel a depression because of 30 oil. North dakota is one. Parts of texas would be another. There are places that have been boom towns because of the Oil Explosion in this country. That could perhaps go away theres high yield debt in the oil market thats something to watch. On the other hand, you have the possibility that some businesses that do well when people stay at home could do better its hard to find all of the pros on this, especially with the market coming down the way it is because thats going to be a wealth extraction from the economy. I think the best thing you can say about that, morgan, is we went into this at a reasonable rate of growth around 2 we had a low Unemployment Rate theres going to need to be some form form of adjustment from a decent level, better than europe had going into this problem. As youre talking, steve, new york state Governor Andrew Cuomo with the press conference saying a couple of things one is interesting, some of these policies are going to get institutionalized if a school has a student that who tests positive, that school will close for 24 hours also, a new policy of manufacturing their own Hand Sanitizer for schools and mta, government agencies, simply easier to produce than it is to purchase at this point bob pisani thats the kind of thing on a state level at the same time Washington Post saying the president will meet with mnuchin today to talk about the list of potential policy ideas. I cant figure out if thats brilliantly innovative im surprised they can pull that off, theyre able to produce that on a mass level i would think there would be enough stockpiles of existing, you know, go on youtube and they will tell you how to make it. The executive director of the new York New JerseyPort Authority has tested positive for the virus. That comes a day after ted cruz put himself in quarantine. Brings up an issue for the markets, coming into the weekend i think one of the Big Questions was, have we stress tested the market under its current levels and valuation and sentiment for these inevitable headlines for the barrage of more and more and more and were still on the front end and do they lose their ability to shock the markets because weve reprised this much you know, this is the process of figuring that out. Were going to get a lot of these. Like the post9 11 period where you had shock value and then it was like i guess this is the world were in and we fight through that you cant get around the fact that we all know intellectually that this is still going to get worse in terms of the numbers. We dont know if weve priced Something Like that in look at how trading goes. We were down at the open, were essentially down 500 points, i follow the down stocks i dont see weird gyrations. Everyone had their immediate had to get what they needed done it got done. Were sort of sideways now this could change quickly. It goes to your point, mike, about quickly the market reprises and everybody kind of calms down for the moment. Yeah. Rick santelli, weve been talking about stocks weve talked about bonds a little bit are the bond market and the stock market do you think telling us the same thing right now . Were reaching around for data points trying to understand whats going on, what kind of bets people are making, but is the message consistent i think on some level its consistent i think unfortunately that the treasury market is really telling us more about the global since weve committed trying to get healthy for the last ten years. When you make lower rates, the main tool pretty much combat everything, no matter what crops up, thats the first cry you hear from anybody who has a financial position we got have to have lower f