Lets talk stocks right now. Joining me is heather hughes, Rebecca Patterson and greg ipp from the economist. Whats going on over there, maria . Loud. Well show you whats going on here. That was the group from home depot doing a rah rah from the company. Heather, how important is housing to the broader economy . Well be talking with frank blake in a moment. Hell give us a great window into whats going on with housing and how that gifs us a sense of what were seeing in the broader economy. Definitely homes have been the driving factor to this economy. Rising rates i guess are worrying the banks right now in terms of lending. However, they may actually ease up on their lending standards as rates rise because it would also increase their profitability in terms of margins. Rebecca patterson, based on what youre seeing in the broader economic landscape, is that reason to buy stocks . Were sitting on our hands right now. We just want to get some more clarity from some of our known unknowns, be it the fed taper, the new fed nominee, syria, the continuing resolution. You have to admit the underlying tone of the economy is improving. As we get clarity in september and assuming our risks turn out to be benign, our inclination is to add to exity exposure. Greg, what about that . Is the economy Strong Enough to warrant the fed beginning that taper this month . Its definitely feeling that way. They always made it clear that the key to winding down quantitative easing is the labor market. If you look at the jobless claims today, adp suggesting a solid job number tomorrow. It creates interesting crosscurrents for the market because thats one reason the bond market continues to sell off. Thats undercutting evaluation support for the market. The tradeoff is these stronger numbers as carl was referencing suggests we might be at an Inflection Point with stronger growth ahead. I feel better on the market that depends more on good Economic Data and less on the fed. Less on the fed. Do you think we see a big Market Reaction if, in fact, the fed comes out this month, september 17 and 18 is the twoday meeting and says, yes, well take the tapering down, take the bond buying down from 85 billion a month to 65 billion a month. I think it depends on the size of the dropdown. If they go down to 65 and stay there or maybe down to 75, i think the market can stay that. Honestly, i think so much will depend on the body language, on the way they finesse it in the statement and, of course, bernankes press conference. If they give us language that suggests we are not at all on some automatic path to take this down 10 billion every month. Were still very data dependent, that can be reassuring to the asset market. Heather, if we see that tapering begin, whats your move as a portfolio manager, as an allocator of capital . Rebecca, were you jumping in there . Yes, i was going to say i agree with everything greg just said, and i would add to that that weve already seen a lot of this taper and event tightening, pricing into the market. Just today the fed funds futures. What the market is implying for shortterm rates is to suggest were going to have a 50 basis point shortterm rate by the end of next year. Only two weeks ago that wasnt priced until august 2015. The market is bringing a lot forward. I think if the tapering announcement we get is relatively in line with consensus, the market is already getting that discounted ahead of time. So i dont think this has to be a hugely traumatic event for the markets. Let me make a quick point here. If rebecca is right that the market is anticipating the fed to start tightening within a year, i think bernanke will push back, saying we dont see anything to tell us to raise the federal funds rate. If the market believes him, that could be positive. The tapering doesnt mean higher Interest Rates. Exactly. Yet were looking at higher Interest Rates, right on the doorstep of 3 right now. Does that give you pause, heather . I think regardless of what happens at the fed, whether its a september or december and how what their language is, we, of course, have seen a mass exodus from bonds. However, only 20 of that money seems to be flowing into stocks right now suggesting that investors are still raising cash on the sidelines to perhaps buy out at a lower price. If you follow the european example and you took the whole month of august off, you would have faired pretty well. It was the worst month weve had since may of 2012. The s p was down 3. 1 . In terms of mutual fund flows, we saw another 7. 7 billion . Terms of outflows last week. It will be interesting to see if that trend continues throughout september. Would you put money in bonds right here . I lost you. I said would you put money in bonds right here . I would say no. Heather is not answering that one. Rebecca, what about you, would you put money in bonds right here . No. We have a maximum underweight to traditional government bonds. Were comfortable having a small exposu exposure. We dont have zero because if rates rise more slowly we think bonds can make more money than cash. As long as we stay short duration in our exposure. Really, i think staying in equities, looking for an opportunity to month to add the equities and dont just focus on the u. S. A lot of the risk out there this year or this month are u. S. Focused. You still have a dove Issuer Company central bank, a nice discount european stocks to u. S. Stocks. Europe fell less than half what the u. S. Fell last month. Thanks everybody. Appreciate your time tonight. Well see you soon. The big bank is taking heat. Are some banks still too big to fail . Well talk about that after the break when we sit down with former fdic chairman sheila bair. The ceo of home depot frank blake making his way over. Well talk with frank blake next. Vo two years of grad school. 20 years with the company. Thousands of presentations. And one hard earned partnership. It took a lot of work to get this far. So now im supposed to take a back seat when it comes to my investments . Theres zero chance of that happening. Avo when you work with a schwab financial consultant, youll get the guidance you need with the control you want. Talk to us today. Female narrator sleep train challenged its manufacturers sleep train challenged its manufacturers to offer even lower prices. But the mattress price wars ends sunday. Now its posturepedic versus beautyrest with big savings of up to 400 off. Serta icomfort and tempurpedic go headtohead with three years interestfree financing, plus free sameday delivery, setup, and removal of your old set. When brands compete, you save. Mattress price wars ends sunday at sleep train. Your ticket to a better nights sleep welcome back. Home building stocks have been losing ground this year while Home Improvement companies have been seeing double digit gains. Sheila has the story. Over to you. Lets take a look at the numbers behind those trends. Take a look at the s andb 500 Home Building index, down nearly 15 year to date, names like lennar, dr horton among the hardest hit. You compare that to the Home Improvement stocks. Those names have had tremendous runs. Home depot up 20 , lowes up nearly 30 . Lumber liquidators up more than 80 this year. So what gives with this die very generals . The team at barclays recently had an extensive note about the difference in performance. They point out two things. First of all, rising rates weve been talking about this theme all day. They say its a big negative when it comes to demand and general housing sentiment. Also, too, they point out that the run we see in new home prices may finally be overextended. Now, it is a very different story when we talk about these Home Improvement names though. Barclays points out that remodeling, also Home Improvement projects, big lagarde when it comes to that sector. So really right now is the time for a lot of momentum in those stocks and certainly the sectors to keep an eye on it if youre looking for a bet in those names, maria. Of course, home depot a frontrunner in the housing recovery. Just look at the numbers. For the Second Quarter profits were up 17 at home depot. Sales rose to above 22 billion. Check on the stock on fire which is up 20 year to date. Sweet looking chart there. With me, the man making it all happening, leading this recovery, home depot chair manned an ceo frank blake with me. Good to have you on the program. Thank you so much. So nice to see you, particularly now at this time we can call this recovery real in housing. Weve got a lot to talk to you today about housing. But let me first get to why youre here at the new york stock exchange. This is very important, near and dear to you. Employees ringing the closing bell, your third annual celebration of service. Talk to us about this. This is a push to improve the lives of veterans. What are you doing . Thank you very much for highlighting that. Were very pleased to have our associates here ringing the bell. Weve committed over 80 million over a fiveyear period to help our veterans in need. Well be doing over 300 Service Projects around the country with volunteer labor from the home depot working with local communities and local veterans groups. Weve got a big push on hiring veterans. We know this is a need that really goes to the core of our values at home depot and were thrilled to be able to help. Thank you for that. I know the country thanks you for that with the courage and the strength that our veterans have exhibited servicing our country. Coming home, they have to start anew and that begins with jobs, but their homes as well. What are you seeing in the Housing Market . The Housing Market continues to improve. We had very strong, as you pointed out, a very strong Second Quarter. We had doubledigit same store sales growth for the first time in the Company Since 1999, strongest Second Quarter in over 20 years. A lot of that has to do with recovery in the Housing Market. Our anticipation is that that continues through the back half of the year, maybe not at a brisk pace, but a good pace, a good solid pace. You cant expect brisk in an environment where were just coming off the worst financial crisis most of us have ever seen. We talked about it in the commercial break, 6 trillion in value lost in terms of home equity during that 2006 to 2010 time frame. Exactly. The Housing Market started to crash in the back half of 2006. And in a fouryear period of time, homeowners lost half of their home equity, over 6 trillion. Thats been a drag on spending, not only in the Home Improvement space, but in other spaces, and its great to see the start of the recovery which for us really started last year and is continuing into this year. What are you seeing in terms of how people are behaving around their homes and in this recovery . Are there certain areas that youre seeing real vibrancy and other areas where were still sort of waiting for the recovery . A lot has happened in the areas that were hardest hit in the downturn. California, nevada, arizona, florida all coming back. Within the individual consumer strength, larger ticket projects like kitchen remodels were hit very hard in the downturn. Very important for us, our pro customers are also starting to come back. Actually our pro customers were the hardest hit during the downturn from 2008 on. The professional customer. Professional customer. Why were they hit so hard . If you look at the performance of our pro customer, you can almost track it to lehman in 2008. They were going down around the same pace as our consumer. Then following the fall of 2008, they started declining even twice as fast as our consumer sales during the downturn. It was credit availability. You saw that market shrink post fall of 2008. Has now started to recover. In the first quarter, our pro segment grew faster than our consumer segment. Second quarter they were both growing equally. Lets look around the world. The u. S. Verses europe. Obviously europe has been caught in its own web of upset and debt crisis. China, you made a decision to exit china last september. Looking back, good decision . Yes. I mean not that china isnt a great market, but we didnt have the right answer for the chinese market. And in particular, understanding the needs of the Chinese Consumer and how we could use our distribution strength to provide them better value, we just never could solve that problem in the chinese market. How is europe . We dont have a presence in europe. I follow from afar our colleagues who sell Home Improvement in europe and i think its a tough market. Is international not as much of a priority . We have a very strong business in mexico, so our mexican business we are over now 100 stores in mexico. Weve positively comped for 39 quarters in a row which is a Pretty Amazing record. Canada is very strong for us. Were positively comping in canada. Were a north american business. We shut down china and not looking to expand anywhere else. Some of the issues in the u. S. That we hear a lot about, the Affordable Care act, the cost of health care, the idea that minimum wage perhaps could go up. Talk to us about the expense side of the business. Are you worried about the Affordable Care act . We will run our business to provide great value to our associates in terms of our Health Care Coverage that we provide for them. And thats what were focused on. Were very proud of the fact that in this really horrible downturn in the Housing Market we maintained salary increases for our associates, we maintained 401 k matches and we substantially increased bonuses to our Hourly Associates. We have the same commitment to provide them great health care. Will you make any changes in terms of were hearing a lot about companies doing different things, saying we cant offer benefits, Health Care Benefits to spouses. If youre getting it somewhere else, we cant do it. Will you make any changes once you we actually made some of those changes preceding the health care you had to. We had to. Where we focused since we selfinsure, we focused on the Healthy Behaviors of our associates, so getting them to stop smoking, worrying about body mass index, things like that that our associates actually view as a great value for them because it helps them live a healthier life. Let me ask you about your giving back to employees through your success sharing program. Bonus payouts to hourly employees which you just talked about which is impressive. In 2012 those payouts totaled 200 million. Explain it to shareholders. Is this beneficial to home depot even though the cost is that high . We think absolutely. We want our associates to share in the success of the business. So as the business does better, we can pay out more in success sharing. Were really thrilled that we had 100 of our stores participate in success sharing in the United States this first half. We increased our success sharing payout for our associates 50 over 2012 levels which was a 50 increase over 2011. So it just as we do better as a company, well make sure our Hourly Associates do better. The number of stores and the expansion continues at home depot. When does too many stores we pretty much stopped our store expansion. Is it cannibalizing . This year were opening two stores in the u. S. , but theyre unique. One is in puerto rico, the other in minot, north dakota because minot is now a booming town because of shale gas. Those sort of unique opportunities, well build stores in mexico. But its ones and twos. Its not like a few years ago when we were doing 100, 200 a year. Those arent coming back. The environment is completely different. Completely different environment. Interesting that you say that. In one area of the country youve got fracking, the natural gas explosion not explosion. Amazing growth. The powerful growth of it. What are the other trends you see happening that might be a marker for you to appeal to you to say we want to open another store because this is happening. The energy story is a great example. The energy story is probably one of the dominant stories now. You see that. We mentioned north dakota. But you also see that some in texas. You see that some in the midwest. Id say you also have some growth in areas that are now, as i said before, recovering from the very hardhit housing crisis. So florida were starting to see growth again, california is starting to see growth again. I dont think well see a lot of new store opportunities there because we have a lot of stores already. But those are the areas were looking at. Continued strategy in terms of allocating capital, shareholders are watching. Your stock has done incredibly well, 20 year to date, 30 over the last year, 175 over the last five years. Dividend payouts, buybacks, what are the priorities . The First Priority is our business. We spend the make sure that we have a great business and were doing the right thing for our company. For our excess cash, we committed to giving that back to our shareholders either in the form of buybacks and weve set up policy on our dividends that well pay 50 of our earnings in dividends each year. Thanks very much for being on the program, frank blake, ceo and chairman at home depot. Thank you. Janet yellen, the vote of confidence in her from former chairman sheila bair. Also ahead, from russia without love, the latest from st. Petersburg on president obamas efforts to Win International support for military action in syria. Well be right back with more closing bell. In todays markets, a lot can happen in a second. With fidelitys guaranteed onesecond trade execution, we route your order to up to 75 Market Centers to look for the