A market in search of a narrative. Thats kind of what it feels like down here. The dow may have been in full on rally mode today if not for General Electric. Its the worst performing dow stock. Its down almost 3 , and that despite earnings that roughly met expectations. Why the selloff . Art cashin just told me the market on close orders flat right now. The dow and the s p continue to trade near alltime highs. The nasdaq is still a good distance away from his alltime high of a little over 5,000 set way back in march of 2000. 14 years ago. But youre wondering whether that could happen this year. Could we hit 5,000 and if so find out which stocks could lead the way for nasdaq to retake that magic mill lenennial mark. It would have to be a 20 move after the year we just had. It would have to be the late 90s all over again basically. Here is a look at whats happening in markets right now. Weve mentioned whats going on with the major stock markets. The dow adding 60 points up a fourth of a percent. The nasdaq is slightly lower at this hour down 15. Theres the chart. 4,200 is the level of the s p. We should mention the tenyear keep a close eye on this one. A lot of people looking at what 2. 83 means on this friday. Well ask rick santelli. What do you think . Sounds good. Hes part of our the Closing Bell Exchange today. So is rich peterson jim schlage, tom doyle. Speaking of technology whats the best performing Technology Stock so far this year . In north america we know its blackberry. Blackberry. What a surprise. After todays performance. Im sorry, i was leading the witness there. Rich, what do you think of the earnings so far . They not exactly set the world on fire have they . Well bill when we kicked off earnings season last week with alcoa, expectations were about 5. 8 . Now a week later were at 5. 3 for the Fourth Quarter according to the s p estimates. What were seeing its a trend. Energy and Consumer Discretionary are moving lower. Financials and telecom are moving high perer. All in all, next week when they get a clear vision, we have a lot of big names, microsoft, ibm, netflix, proctor and gabl gamble. John im curious if people are talking about this energy story and were now hearing fed officials weighing in as well. Lacquerk comments being made about natural gas. What is the best way for investors to play that because the energy space, of course generally is weak. Do you play it in the u. S. Dollar for example . Do you buy the indexes broadly . I think you do. Finally were starting to get a little clearer indication from the fed about their policy moving forward. Were in the camp of thinking that 10 billion a month is what theyre going to taper moving through the year which means easy money throughout 2014 and Interest Rate hike not until the end of 2015 perhaps. I think buying the u. S. Dollar on that taper would be a good idea but also were looking at all the indexes, all the u. S. Based indexes moving between 8 and 12 higher next year. Jim im going to ensure that we get a 10 correction by making this statement. We will never have another correction in the stock market. Why havent we had one in so long . What happened . Boy i mean the economy is doing pretty well and it continues to move forward at a much better clip than it did a couple years ago certainly. Its going to happen. We just dont know when its going to happen and i think, you know, client portfolios need to be wellpositioned to take advantage of both upside markets and downside markets. What if you had been sitting on the sidelines waiting for a pullback to get back into this market and it keeps going higher, do you still sit on your hands or what do you do . Id say first thing im really sorry about that but i would continue if youre a longterm investor dollar cost average into this market and take advantage of the downturns in the market and assuming youre a longterm investor you should do pretty well. The economy is going to continue to move forward, and if youre sitting in cash inflation right now, even though its a little under 2 is probably eroding your purchasing power. Rick santelli, what does the tenyear say . I think it says were down 20 basis points on the year. Most institutions whether you look at their portfolio adjustments, their duration settings, for the most part are short expecting rates to go higher. I think the thing to pay the most attention to is whats going on around the rest of the world. We know the term window dressing when we talk about stocks at the end of a major quarter or calendar event. What it means is what youre seeing from the window isnt necessarily representative of whats in the back of the store. And i think whether its spanish rates, portuguese rates, italian rates, the state of the european economy in general just to pick a few, that all of those issues will affect the valuation of u. S. Treasuries at a time when things are definitely Getting Better but as lumpy data shows us we can go from 270,000 to 74,000, theres going to be a lot of issue that is i think the error in judgment is that we will see logic win out in a highly indebted society. I think the u. S. Will see lower rates for first half of the year. Rich peterson i guess more important or more pertinent to our viewers is not so much how the earnings are coming in its how the market is responding to those earnings. Ge, for example, well talk about it later, they beat expectations but still the stock is trading lower. Look at what happened to best by this week. They missed by a little bit. Their guidance was not great and they got clobbered big time. Is the Market Expectations way too high going into this quarter . Well, you know, i think, bill, you have to look at it on a casebycase situations. Look at American Express, they missed by a penny according to some estimates. The stock has been responsible for most of the gain today in the dow jones. I think all in all, were looking for gains again in telecom, financials industrials. I think the recovery nascent as it is in europe will help Large Cap CompaniesGoing Forward, and i think looking at just a picture overall for the full year, were seeing earnings per share of 119. 6, looking at valuation of 15 times 4 on the s p. Its not an excessive valuation. I think equities should be attractive to many. Rich one more question here because im looking across these indexes which again you have the dow effectively a head fake for the investing public if they think were rallying today because its basically American Express, visa. The s p 500 is down and this dispersion between the dow and the s p 500 has been a theme of this short year. What do you do . Do you think that because the components have changed the dow is becoming less reflective of the broader trend . Well again, in your opening remarks youre saying this is a market searching for a narrative and were at the first chapter of a long story thats going to unfold throughout the year. That story is going to have a section about janet yellin. A market thats going to have a section about how tapering will or will not transpire. A lot of variables will come about. I think where investors should be poised to look at again, were seeing a positive growth in earnings the economy is growing modestly, inflation has been checked. The issue is whether its a revision come this month for decembers jobs numbers. So all in all, i think the bias is positive for equities Going Forward. All of those questions, thats what keeps us employed. I just something has changed. Absolutely. When the ball dropped on december 31st the sentiment definitely changed on wall street. You have to figure out what the new sentiment is. Thank you, all. Heading toward the close and the dow is not telling the whole story today. The s p and nasdaq is trading lower but the industrial average is up 40 points. As long as we are up at least 20 points today, the dow can be positive for this crazy volatile week. And the dow and the s p may so far be down for the year but 2014 has been pretty nice to the nasdaq. Will this be the year that indeck finally retakes the 5,000 level . It was nearly 14 years ago when the nasdaq last traded there. And also, you know what happens in Puerto Rico May not stay in puerto rico. Were going to look at the damage a potential default by puerto rico could have on the nearly 4 trillion muni bond market. If you own a Municipal Bond or are in a Muni Bond Fund you want to stay tuned for this segment coming up. And what did Peyton Manning mean when he was shouting omaha during the broncos playoff win last weekend . Omaha is a run play that but it could be a pass play or a playaction pass. Cant give too much away. We want to know what you think he really meant. Tweet us your thoughts and well hear from a Top Executive at omaha steaks coming up who is considering signing manning to an endorsement deal on the back of that. Youre watching cnbc, first in business worldwide. vo you are a business pro. Seeker of the sublime. You can separate runway ridiculousness. From fashion that flies off the shelves. And you. Rent from national. Because only national lets you choose any car in the aisle. And go. And only national is ranked highest in car rental Customer Satisfaction by j. D. Power. natalie ooooh, i like your style. vo so do we, business pro. So do we. Go national. Go like a pro. Welcome back. Well, its massive. The 4 trillion u. S. Muni market. Probably many of you watching right now, that market is facing some major headwinds. One in particular the threat from a small island of puerto rico with 70 billion in Public Sector debt and concerns are growing the country wont be able not country, the territory . Territory, yeah. Wont be able to repay it. So how worried should investors here in the u. S. Be worried about a possible puerto rican debt default . Joining us is larry mcdonaldcdonald, Doug Lockridge and also with us is our own michelle carusocabrera. Michelle, put it in perspective. Whats the possible threat of default . How real is it . The possible threat of default, it really depends on issuance to issuance. Puerto rico has so many different flavors of bonds and you really dont know if theres a restructuring how its going to play out. I would say though if you hold a u. S. Muni bond fund here in the United States, you probably have exposure to debt from puerto rico and here is why. Here are the numbers from morningstar. Of all the Municipal Bond funds in the u. S. 69 hold at least some exposure to puerto rico. That number is down from several months ago. Used to be 75 . Why is that . Because theres a triple exemption from puerto rico. You dont pay federal, you dont pay local, you dont pay state tax on revenue you get from a puerto rico bond no matter where you live in the United States. So if its yielding 8 wow, youd have to get 12 in something thats taxed to get the same kind of return. So a lot of funds have bought puerto rico over the last several years. Yeah and im curious, a lot of people were looking to puerto rico to juice returns in muni bond portfolios. The bonds themselves have very strong legal protections. When youre talking about the general Obligation Bonds, and michelle is right, there are many different types of issues on the island general obligation bondholders have a constitutional protection. The constitution of the commonwealth places debt service on those bonds first ahead of any other expenditures ahead of any other pension payments for instance, or any vendor payments. Its a strong legal position to be in. Furthermore, the territory is not eligible to file chapter 9 bankruptcy. Nor can any of the agencies on the island were up against the limits of feasibility here. I understand why they prioritize investors, but at some point they simply wont be able to service the debt. Well lets talk about that. Because of that constitutional hierarchy, gl bondholders have nine times Debt Service Coverage ratio. Their General Fund Budget will be 9. 7 billion and Debt Service Coverage requirements is about 1 billion. Furthermore, their plan to ultimately balance their budget is right on track. Halfway through the fiscal year theyre right spot on where they want to be. Theyre anticipating their total revenues to be 1 billion higher than last year. So there is concern about their ability to pay. Pay. I believe its there and theyve always showed a strong willingness to pay. We heard again this week how the government said were going to do what it takes to honor all our debts in the monday market. Larry, are you concerned . Should muni bondholders in puerto rico be concerned . Keep in mind the bonds are down 30 points on the year. Im talking to larry now, dan. Hang on. They factored in a good part of a mini default. The Senate President of puerto rico reached out to me last week and he mentioned that constitutional protection and i did some research and its true some of the bonds they have 70 billion of debt. Five times detroit. But out of that 70 billion, only 64 are constitutionally protected. So not all the bonds are constitutionally protected and thats one of the things investors have to know. Meaning . Meaning that out of the 70 billion that some of the bonds dont have that could, in fact default. Dont have that protection. One of the black swans nobody is talking about is whats called gatsby 68 and 67. It forces pensions in states like illinois, puerto rico territory, to take a risk adjusted rate of turn. A lot of these pensions are assuming 7 8 assumed return but thats not a risk adjusted return. The new regulations are going to put that down to about 4 which means that puerto ricos obligation on their pension goes from 32 billion up to 38 billion. It spikes. Do we know who owns this debt . Has there been a rotation from the Retail Community dan owns ton of it kelly. Hes the guy with the most of it. When you look at all the funds that morningstar has out there, dan has got the biggest exposure. Are you worried . Everybody else is on the other side of this trade compared to you, dan. Keep in mind that between 25 billion and 30 billion in bonds are owned by retail individual investors in the bonds directly themselves so theyre widely held not only among the funds but individual investors and the hedge funds now. The smart money have been buying. Thats actually helped dry up prices so far in this yeartodate. Long g. O. Bonds are up 7 . What about the 36 of the puerto rican bonds larry was just talking about that dont enjoy that constitutional protection you were just alluding to . Yes, thank you. Do you know if you own any of those bonds . Yes, yes, thank you. Some of those are Revenue Bonds that have strong protections ring fenced by themselves. Look at the bonds that are known as cofina, they are backed by sales taxes. They dont have the constitutional protection but right now they have close to two times Debt Service Coverage on all bonds including senior and subordinate. So that means sales taxes have to fall by half before theres not enough money to pay them. I also wanted to ask you about this look we all know the status quo for the way this is supposed to be handled, but weve also witnessed the example of europe in which, you know, it seemed as though theyre often deciding i dont mean to contradict you but this was the point itches going to bring up. We dont know the status quo. That doesnt help. Its neither fish nor fowl. It is not greece it is not detroit. We dont know what a bankruptcy looks like. Thats the issue. So a lot of attorneys that work in distress are trying to figure out what on earth would happen. Its not really clear. People wonder could they change the constitution the way greece went and changed its laws retroactively to screw bondholders. Could they do the same thing in puerto rico . Good point, and right now it is not a latin american sovereign. Its a territory of the United States of america. So its a good position to be in now. Okay. Larry, what about what dan was saying about those bonds that are not covered or i have been in the distressed business many years, special shout out to acg analytics. Weve been advertising hedge funds. The interest weve seen the last 10 15 days from puerto rico from institutional accounts is spectacular. Theres a lot of people looking at puerto rico credit. But from a longterm perspective, remember one thing, every day 92 people leave puerto rico. Every single day. Their population has gone from say 3. 9 Million People down to 3. 6 million the last ten years. Its completely not sustainable. Their tax laws. Their tax laws are not effective for keeping a population. For those people who own Oppenheimer Funds or themselves own general Obligation Bonds out of puerto rico should they be concerned about the possibility of default . Short term i think they get the deal done. Its a third lien bond. Theyre doing a third lien bill on the cofina revenues. That deal probably gets done so the bonds will get a rise but i think late in the year theres a black swan with like i said this gatsby 68. It really makes it difficult for puerto rico. I think people should be concerned about a default late in the year. Well revisit this im sure at some point. Thank you all for your thoughts on this. Thank you. Thank you, guys. Thanks michelle. We have 40 minutes into the close. As mentioned, the dow is supported by the likes of am ex and visa. Its up 20 points which would put it in the black for the week but the other indexes are lagging. Well keep a close eye on that. After a rocking 2013 General Electric shares one of the worst dow performers so far in 2014, has gotten hammered today on earnings that frankly look kind of okay. So whats going on with