Change the game for what the fed koss or does not do, and ron will be here to make his case and well talk to a famed pen Warden School as well. Jeremy segal. Want him to weigh in on that as well. Warren buffett is ready to scoop up kellogg. Theres speculation buffet could make a play for the maker of corn flakes and so many other household names. Kelloggs market value approaching 20 billion. How much would buffet worth 50 billion in cash offer, and why would he be interested in the company . A full report coming up. The question is the kellogg brand the kind you could run with a ham sandwich . Thats what Warren Buffett has said in the past. I dont think Warren Buffett is a cereal guy. I think hes more of a coke in the morning kind of guy, cocacola. And dairy queen brands. Yeah. Also a warning for the retirement fund, the target funds that change the investment mix automatically the closer you get to retirement . Well, they may be hurting investors who are saving for retirement more than helping them. Thats what a new study says, but not everybody agrees with that studys conclusion. Its a story that could affect millions of savers, and we will hear from both sides of this very, very important issue coming up here. Yes. Now, again, heres where we stand in markets. It will be another banner day most likely. Dont want to jinx it here. The dow has added 25 point. 1670 is the level. The nasdaq a strong day yesterday and giving up 1 10 of 1 . Down about five points right now. Finally the s p 500, roughly flat, up two minutes, weve kissed 1900 today. Here we go. Let talk about in todays closing bell exchange, amy wu from Rbc Capital Markets and david kudlow and Todd Salamone and kenny pull cary is ready to go on the big board floor and Rick Santelli, of course, joins us from chicago. Kenny p. , yesterdays big rally, a oneday wonder or what happened . One day. The market, you can feel its just digesting yesterdays move, teased 1900 and broke through early on and have been struggling all day with it, right . Todays econumbers were not so not so exciting, not completely disappointing, but not nearly as exciting i think as some people thought they would be, so the market is just taking a breather. Not a lot of volume, just to tell you theres not a lot of commitment up here. People are going to continue to wait as the week goes on. We get more macro data thats two, you know, industrial production, capacity, all that stuff. I was going to say retail sales is what hes talking about, flat for april. High expectations. April didnt have the weather concerns that january, february and march is and they still came in flat. Actually i was going to ask you about the fact that after the retail sales data, some of the business inventory data, the First Quarter looks worse and worse, Second Quarter may be a little bit better. Why is it that the bond market is taking cues from the past, not from present or future . Well, i dont think the bond market is taking anything from the past. I think the bond market is thinking, oh, my god, good weather kept shoppers away. Listen, the seasonal adjustments take care of the winter month. The fact that april was minus 1 10 on the control group is what the bond market concentrates on. How do we know that, because 5s, 10s and 30s as you look at intraday charts, each down five basis points. That parallel shift didnt due to geopolitics or weather but due to a weak retail sales report, and i think that that really presents home exactly what is motivating the bond market and other issues like 75 basis point lower french tenyear than ours or 120 base points cheaper bund yield than ours. All of these things will continue to keep Interest Rates lower than many would suspect and i know that youre going to be talking about housing today and what the fed may or may not do five and a half years into zero Interest Rate policy. If that cant fix, it maybe mel watts principal reduction will work. Lets see, we tried that four and a half years ago, didnt get far. One question for the group. Why does any taxpayer want three times the exposure and a conforming loan in california than in north dakota . Is that fair . Anybody want to take that . David, what do you think . Im sorry, rick. That question was again . You have an upper limit on a conforming loan thats much higher in the likes of San Francisco than it is in rapid city, and i dont understand why i subsidize sunshine in states where houses cost more, and in this case where the government has already nationalized all the housing industry and theres no private label mortgages. I dont understand why we dont see more ire against this scenario. In terms of where Interest Rates are today, what that means for stocks and what that means for bonds, i think were in a longterm secular bear market that we called last may that will continue even though weve had a cyclical bull market in bonds the last three months, and i think were in a longterm sick lar bull market for stocks that will continue to go on making new highs again. Investors need to rotate into large cap, into value, but this bull market for stocks will continue to go on. Even though, david, i mean, the point we keep harping on is job growth is so its getting better, but it is just lumbering along so athemically. The Housing Market, one of the real staples of the economy, just not there. A lot of the things you usually see leading us out of recession, just not happening right now, and yet the stock market continues higher. Well, so both of those, the jobs numbers, the jobs numbers weve had and housing, two critical legs of the economy, exactly right. Jobs, 288,000, pretty good last month. Well see if we can continue at a plus 200,000 pace. As far as housing, you know, the concern there is exactly right because it has two affects on consumers and spenders. Consumers, spenders and on the markets in general, investors, and that is we know that housing can be a significant contributor to gdp as much as 1 and 1. 5 if we maintain a good clip. Thats now coming into question. The other thing is the wealth effect. People just feel better when they feel like their house is worth more. They buy more and spend more and consume more. Right. So it is very important what happens to housing, and if housing does stall here, i think that theres problems for the economy and for the markets. Amy wu, you have your finger on the pulse of market sentim t sentiment. Whats going on here . We get this herky jerky back and forth. We keep hear value is supplanting growth. What do you see happening right now . Hey, guys, well, from my perspective on the options side i think were actually in the reach for upside. Youre seeing that in the Options Market even as the intraday moves are pretty herky jerky like you said. The volatility is still is coming in on an overall level. You see people starting to implement vix calls. You see people starting to implement energy upside, financial upside, but i think theres two tales right here that are fighting with each other is volatility is getting low. People are using it to reach for upside, but were now enting the summer months where people tend to sell volatility to collect income. Im not sure yet which one will win out, but i think theres real two forces at work in the Options Market kind of giving the battle to where the stock market will go next. And todd, you make an interesting point here as well which i wanted to bring up which is the parallels between today and 1994 and the stock market space, its interesting. I understand some of the concern thats out there with the retail sales report with housing, and i look at an nfib survey which is looking at its highest levels before the recession. Consumer confidence at a sixyear high and wages growing at an annualized rate lately and what looks to be a pretty good snapback in gdp, adding nearly 300,000 jobs in the u. S. Economy, and i wondering are we gearing up for a moment, forget whats happening in the bond market for a moment, but are we at a moment like 1994, potentially like 1994 here today, todd . Its interesting because 1994, First Quarter, just like this year, we had some issues in the stock market. This year obviously it was the small caps and the pullback, and weve had a little bit of it its been overused probably. Ive seen it all over twitter about the divergence between small caps and large caps. Back in 94 the small caps didnt bottom out until june whereas the s p bottomed in april, and but 1994 was a trading range, and, yes, we could see that this year. One index im looking at is the wilshire 5000 which really captures the entire market. Were right up at that 20,000 millennium mark, first time ever. Hit that back in march. Have essentially grinded sideways ever since. That said, i think for the bulls, what you guys were just talking about, all the concerns out there, whether its housing, the fed, geopolitical, russia, this market has really maintained some stability throughout this, and what we find interesting, short s p component stocks, probably about roughly about 15 above the 2012 lows when the s p finally did correct. There is some caution out there. Amy was talking about the Options Market. Were seeing almost no proput action on the vick. Put volume is really low. No one is expecting a decline in volatility so were really interested in this contrast between price action, especially in the large cap, s p and hitting highs, caution, doubt, even among equities. Were seeing bearish bets against individual equities versus bullish bets. They are at the highest level since september 2013, and keep in mind this is in the context of a growing number of concerns, geopolitical, domestic and yet the s p around alltime highs. So a contrarian perspective. Whats interesting about 1994 is in 1994 value led in 1994. Thats what were seeing now. Thats whats important now is that investors are rotating from the high momentum stocks, smallcap growth, growth in general, to value, largecap value. Those are the plays. Weve really got a tailwind with Interest Rate environment. We had a 200 basis increase with Interest Rates, and i believe that was a fed and maybe a surprise hike. We really do have a fed thats supportive of the market. Fed policy was very different at that time. Thank you for your thoughts on that. Thank you. Always seems to happen in the years that end in 4. Well see. The numbers divisible by 4, oh, and an election year, thats right. 48 minutes left in the trading session. The dow up 18 points. Any positive close, another new alltime high on a closing basis and same thing for the s p in its upper fraction. More ahead in the markets, plus Green Mountain surging near a 52week high or cocacola upped its stake in the coffee brewer. Should you follow cokes lead. And is Warren Buffett eyeing kellogg or not . The stock has been jumping over 10 this year. Much of that on speculation of a possible deal. Were going to talk about what the oracle of omaha ha may be up to coming up. And straight ahead. Ron insana sounding the alarm on the Housing Market and how it could rock the fed policy. Go check this out. Ron is up next along with wharton economist Jeremy Siegel when we come back. [ male announcer ] great rates for great rides. Geico motorcycle, see how much you could save. Welcome back. Mixed day on wall street today. This feels more like what weve had recently. Yesterday, boy, monster rally, everybody was higher. Not today. The dow is up 13. The s p up a fraction. If they close in higher territory, an alltime high. Small caps negative. Were getting the kind of divergence again that weve seen recently here even as we were noting the intraday highs. Now the question is will the dow go negative here as we have 45 minutes still to go. Turnaround tuesday. Here we go again. With all the green arrows. For quite some time the fed has been focused on two factors. Employment and inflation. Mandate after all but in fed chair yellens latest testimony things changed a bit. Mentioned housing pretty prominently. And according to the ron insana, his piece right now on cnbc. Com is getting a lot of attention about that. It says here mr. Insana joins us right now. Yeah. When did you start calling me that. Just now. Also with us, of course, is wharton schools jeremy seeingen. You dont think housing alone would cause janet yellen to do anything different . I think its the whole economy. Of course, housing is an important part of the economy, but i dont think housing alone, if it disappoints, would do it as long as Consumer Spending and many other investment spending were strong enough. Right. Its an important component, but i dont think its going to be an overriding factor. Ron, do you think, a, the Housing Market is in bad shape right now, and, b, its going to get worse . Certainly its bounced, you know, considerably off the lows. We had a fiveyear bear market in real estate as everyone knows. What really struck me is fed chairs very rarely single out particular variables unless it happens to be on their mind and on the mind of the fed more broadly, and i think when ms. Yellen last week talked about the protracted slowdown in housing it added a new dimension in policy. Nothing different than what jeremy is saying other than there are some things to be done here. Lending standards, many bankers stay, are still too tight for people to either refinance or get a loan, and the fed is still paying 25 basis points on reserves held at the fed by the biggest banks. There are ways to push back. Why would this come from the fed and not the fha with mel watt finally speaking about it, about a series of things that fannie and freddie could do. As i discuss in the piece. Not just the fed. The fed does oversee the entire Lending Community and the fda and fdic and, of course, controller of the currency all have a say in how lending standards are set so i think in concert theres something that should to be done here. I argue that the fed would taper the taper. I doubt thats the result, but the fed could do some things that would loosen policy and make capital more available to home owners who want to get into the game. Jeremy, as you would teach your students at wharton, i would imagine, housing typically will lead us out of the recession. Its employment numbers that will lag a bit and this time around, housing is just not there. Why is that . Why do you think were stilllanguage lagging in that key component of the economy. Well, i think ron is right that i think lending standards are too tough. I think banks were shellshocked from that what happened and whats strange in 2007, you know, they would lend anyone at prices that were 30 , 40 higher today, and now that theres so much reasonable relative income and relative Interest Rates, you know, they tighten up, and i really think that they are too tight, and also on ron, you know, ive been one of the critics of the fed paying 25 basis points of interest. I think that helps mobilize those 3 trillion worth of reserves. I dont think its going to happen though because, as ron mentioned in his piece, the banks are certainly depending on that income. You know, as far as the housing sector, we read all about the millennials and young people. They dont have the income or the down payment, and now they have to come up with 20 . Wait, wait a minute. I want to be clear on this because weve talked a lot about this on the program and theres a lot of discussion in the community out there right now about whether in fact standards are too tight, because isnt it the case that you can get a mortgage in certain cases, depending on who is supplying it, the fha, whatever, with only in some cases less this a 10 down payment. Your credit score does not have to be over 700. Jeremy, in other words, should we identify it if this is a demand side problem its not one where the underwriters are getting in the way, simply not enough demand because many of the individuals trying to buy the houses are not in good enough financial shape themselves. Theres an argument that debt to are being ratios and ive had this debate that debt is still too high and the consumer or buyer is still too levered. By the same token, if you talk to bankers, they are telling us that examiners dont allow us to make community loans. There are still constraints on lending. Certainly we dont want to go back to the sub prime days when youre doing 125 of the value of the house, that you dont that you needed no income documentation. The liar loans. The ninja loans, no income, no jobs, pay option a. R. M. S, but theres a case to be made that credit is not flowing to folks who need it most and available for some but certainly not those who would actually drive the Housing Market forward. Jeremy, what now . What can we do to very vive the Housing Market here, or do we just have to wait this out . Dont forget. We had the most severe contraction in 75 years to levels, you know, Housing Starts down to half a million, that the our demographers and economists tell us its 1. 5 million. Weve gone halfway. We got up to that million. It sort of stalled out there. My feeling is over the next two or three careers it will grind higher, but, again, there are challenges. Down payments are challenges. Few fha loans that are available, and they are constrain constrained. And many of those dont have the income or the down payment to do it, but i think, again, as our economy improves, well see housing, and im hoping by year end we get back to a million and a quarter, Housing Starts of a million three. Very quickly. There are some constraints. If youre trying to finance and your home was under water, you had a discussion, kelly, i know you did the other day, the bankers getting bailed out but the average individual not getting help. Theres documented cases of individuals not being able to refinance even though they have more than adequate income. Their house was under water so theres that issue that was outstanding there. Has to be a mechanism either by which the fed or others make housing more affordable in terms of getting legser expensive credit or