Transcripts For CNBC Power Lunch 20160511 : comparemela.com

are with us. let's start it off with you. >> this idea that it is one of the bigger sectors relatively speaking, the s&p 500, but it's also, remember, one of the fourth worst performing sectors so far. say a look at the year to date losers. interesting stories lines start to play out in terms of the particular stocks and themes drieding the trading. kohl's is down 19% and fossil, belts, watches, that sorts of thing, down 21% as well. if you take a look at some of the other stocks that perhaps are on the other side of this, you see the winners. off price retail, tj max up 5%. ulta budy up 10%. lulu lemon is up 17%. the biggest one everyone talks about is one that hasn't gained a lot so far this year only up 5% year to date. it's amazon.com. but remember, one of last year's top performers and courtney, i got to sashgs one of the interesting things about this whole discussion is this idea of these stocks as melissa, i don't know if there is a theme that drives all these together. but retail definitely a big focus. why is this happening now? >> melissa, there are fundamental shifts happening in retail. it didn't happen overnight. it's not changing tomorrow either. some of it happened in the wake of the financial crisis. some of it happened as a result of our 24/7 online culture. consumers are asking it is worth the price? so for many mid tier, the saens no. even looking at my own shopping habits and my peers, clothing budgets are skewing towards fast fashion tlachlt is h & m, zara, top shop. because of the price that you get, it feels right. now many shoppers don't feel the need to spend $200 at a department store to get an on trend dress. that used to be different. that is working for outlet stores and tj mark. when it comes to category trends, at leisure, whether working out or not, it is very strong. but so is beauty. thanks to selfies and social immediate yashgs everybody's phone has a camera. you can't be caught bare faced at any time. and convenience is king. there is a reason that amazon is eating everybody's lunch. they showed declining spending for nonathletic apparel, accessories, watches, fine jewelry. consumers that count on tourists or retailers that count on consumers tourist spending, they're suffering. when the collar is strong and tariff tax increase, shoppers aren't coming to those places. let's turn to disney shares down more than 4% right now. after the company reported its first earnings miss in five years. martin crockett with fbr capital markets has an outperform on disney with a $111 price target. revenues are up 4% year over year. is yesterday a problem with disney or a problem with the estimates? >> thanks for having me on. the reason the stock down 4% here, really two reasons. they missed on revenue. it is rare to see. it doesn't happen that often. i think this is something like in 12 quarters that they missed on revenue. it was due to the college football play-off. they had a tough comp yielded from last year's college football play-off. it's really that simple. there was succession planning on the call. he says he has no plans what sofr to extend his contract beyond fiscal 2018. that made investors uncomfortable. >> interesting s the problem really that people didn't like alabama versus clemson there? or it is a deeper problem at a foot at disney? >> there's not a problem here. the stock should not be down 4% or 5%. this was an inline quarter. disney is different than all the other media conglomerates. they don't really steer the street a specific number in a quarter. bob eger plays this very interleinte interleinte inter -- intellectually honest. they missed the street because there is very strange accounting and consumer production licensing tied to the fact that quarter started on january 3 thrd year and start ond december 28th last year. that drove year end minimum guarantee payments. that was it. i think that the tv sbiz doing good. that there are some concerns. i think cp licensing is 18% to 20% better. the theme parks will get a big jolt from the launch of shanghai. and bob eger will be here for another two years. there is nothing to worry about here near term. they have time to figure out the leadership transition. >> answer david's point that investors were concerned not to hear bob eger say i'm willing to stay longer and obviously there have been some succession issues with the recent departures. >> yeah, i completely disagree with. that there is no way he can say that if they want to hire someone to replace him. say he wants to extend his contract right now. that would kill the search process. so that was not on the table. if anyone is expecting that, that is unrealistic. >> david, can you respond to what barton just said but your price target is marketedly higher than his. you both sound positive on the stock. >> well, on the succession planning issue, the problem right now is that there is just really no clear cut candidate. can you make a case for, you know, ben sherwood, the media fet work's co-chair. but he's, you know, somewhat green in the role. and he probably doesn't have the level of experience required to be ceo. you can make a case for cheryl sanberg from facebook. it's unclear whether she would even take the role. can you make a kiss for john skipper. i'm not sure if share holders are quite comfortable with that. everyone is comfortable with tom stags. >> right. >> everyone was comfortable with him. and now he's out. there is just no clear cut candidate at this point. >> all right. gentlemen, thank you very much. we appreciate it. both of you see the stock moving up. $110 in barton's case, $129 in david's. >> we'll get to the third stock rec in a second. first a news alert. ten year notes are up for auction. let's get to rick santelli. rick? >> auction day. yes, 23 billion of ten year notes found new homes about 7 1/2 minutes ago. the yield at auction, 1.71. that yield is lower than the lowest yield i saw in the one issue market which is probably around 1.72. lower yield, higher price. we give this auction an a. everything about it is stellar. the last time we had a yield at a dutch auction, this low was 12/12/12. it's been a while. we've had some 2.70s, fwhaut is still a stellar amount of demand. 73.5 on indirects. i have a 15 year data base. i couldn't find a higher indirect in this 73.5. 11.8 on directs matches. the 12% ten auction average, 14.7 goes go to primary dealers. this is the first auction, of course, but we'll see two reopenings. stellar auction. corporates are all the range, seems though anything with a decent yield the find a fier, manufacture them. sully, back to you. >> all right. rick, thank you. let's get to our final stock recs of the day, staples and office depots. shares of both are costing investors a lot of money after a federal judge ruled the two cannot go through with a merger. but are these drops just the buying opportunity you were looking for? senior equity research analyst with bbnt market analysts. are you recommending your clients that they buy either shares of staples or office depo depots? neither, or both? >> neither, quite frankly. this is a real big setback for both companies. you know, there is very compelling strategic and financial rational for this deal. so now this deal is off the table, it's really hard to make a compelling investment thesis for either stock. i think both are maybe lal oversold today the but for a long term investor sh it's really hard to get behind either of these companies right now. given the secular headwinds and increased competition. >> what is the long term outlook for staples and office depots? do they have a long term outlook? >> i would say that, you know, staples will survive. i don't know if i'm necessarily sure they will thrive but they'll survive. stap slz in a good position to take advantage of the fact that office depots sort of is dazed and confused. they put the oice max integration on the back burner waiting to see if this deal would happen. they also lost a lot of really good employees. office depots, i think the long term outlook, it's mercury. they don't have the scale, balance sheet that staples does. they don't have the profitability. it's clear staples will be around in five to ten years. with office depots, not as clear. >> yeah, and now the two are competitors again, anthony. so they're going to hammer each other over price. you may see deflationairy environment in that sector of the economy s there anybody that may benefit from the fact that this deal is not going through? >> there is one clear beneficiary and that is amazon business. amazon business was established a little less than a year ago. they're already doing a billion dollars in sales. and that's growing 20% a month. in addition to that, amazon business is adding more and more b 2 b capabilities. they can do customer specific pricing. they can now invoice the customers. they can do tax exemptions. and that's one of the many reasons that we think the ftc's decision was plain wrong, nonsensical, ludicrous. >> we're going to talk to them about a official that is going to tune in. thank you. >> is there any segment of the economy that amazon is not involved in? >> i don't know. i just bought blue jeans from amazon. >> get out of here. >> i d i bought a nice pair. they actually fit. >> there you go. >> queen he lelizabeth unplugge. we're going to give you a look at elan musk's hyperloop test in las vegas, nevada. phil lebeau is live there. phil? >> brian, they think it's the future of transportation and as you mentioned, we're just a few minutes from a test run from hyperloop one. we'll show what you it's about and have reaction coming up in a little bit on "power lunch." i'm in vests and as a vested investor in vests, i invest with e*trade, where investors can investigate and invest in vests... or not in vests. wherthey found out who's beente who? cking into our network. guess. i don't know, some kids in a basement? you watch too many movies. who? a small business in china. a business? they work nine to five. they take lunch hours. like a job? like a job. we tracked them. how did we do that? we have some new guys defending our network. new guys? well, they're not that new. they've been defending things for a long time. [ digital typewriting ] it's not just security. it's defense. bae systems. a rare moment from the queen of england shedding light on how she really feels about the kline he's, the exchange taking place at a garden party at buckingham palace on tuesday. it was filmed by a member of the queen's own staff which makes you wonder why the palace decided to release that video. interesting off camera or on camera remarks. >> there is always that layer where you are like what do they really think? and then there is this other layer with this particular piece of fill clm is do they want you to know that's what they really think? >> yeah. >> all right. the uk and china to brazil. the brazilian president could be impeached today. majority vote of the senate would force her to step down for 1 wi 180 days to undergo a trial. take a look at the brazilian market. if rousseff is out, what will that mean? let's bring in our analysts. lady and gentleman, good to have you here. >> katherine, this is an incredibly tradable event. even her relection was tradable. when her polls went up, the stock market went down. when her polls went down, the stock market went up. what do do you when we go the event that has driven the stock market there? >> the correlation is one to one. the market is banking on imimpeachment. i think today is the last day in office as the president. i think if here on out market upside our down side will come from vice president selection of the cabinet. then his reform agenda and after that, either execution or potentially new elections by 2018. >> faces a lot of hurdles when it comes to execution. >> reforms are so necessary and so structural in nature that i think it's such a big laundry list that he's lucky to get two or tleef them done. >> bottom line, sell on the news here? >> i think there is upside. i think if he does come through, which i think he will come through on something, then there will be more upside. michelle, i recommend brazil bonds, u.s. bonds in december. we've seen tremendous run. i think that you could see some more upside. with inherent volatility. >> david, does anything really change in brazil if rousseff is pushed out of office? >> i think it proves that the society and political institutions in brazil are work clg is a great sign. i think it's important for developing the societies and developing economies like this to prove that the institutions work. once we're through this, investors can focus on the underlying strength of brazil. there is a great country. it is self-sufficient in food and fuel. $200 million population. they have a lot of dry powder. interest rates are 14% there. they do vin flags at 9%. but there is a lot of things that could go right for brazil if you get this political corruption out of the way even a little bit. >> but on that note, david, there are so many other members of the congress, of her party. the vice president who presumably is going to take over has issues himself. irmean, a lot of people look at this situation and say okay, yeah, they are battling corruption, however, it's so pervasive, the place can't be helped. >> two-thirds of the members of the legislature are -- two-thirds of the members of the legislature are under indictment for something. so you're right. it is very pervasive. it's a big problem. but being able to remove this very powerful party that's been running brazil is a major accomplishment if it takes place. >> two-thirds of the legislature under indictment. what kind of investment vehicle you would recommend here, david? >> you know, the main etf, ewz is an easy one to get at. you mention it moved a lot. if you look at the five-year chart, it was almost double where it is today back in 2012. so you can see more upside in this as they invest in the environment. >> so if the currency weakens, you get a double whammy, right? >> exactly. what you've enjoyed recently is streng njt currency and equities which i think will continue. >> katherine, last word. you want to say something about the parliament? >> i agree. i agree with david. i would say to that the netflix series coming out which is the "house of cards" equivalent for brazil is going to be very, very good. this corruption scandal just keeps on going. >> it's not a real one, right? >> no, they're actually is one going on right now on netflix. >> wow. that will be incredible story telling. thank you so much. iran, iraq, isis, north korea, rush yashgs just a few thing onz the u.s. defense secretary's plate right now. today he's in sill con valley working to get big tech back on the government side. defense secretary ash carter joins us live if a "power lunch" exclusive ahead. ♪ the first stock index was created over 100 years ago as a benchmark for average. yet many people still build portfolios with strategies that just track the benchmarks. but investing isn't about achieving average. it's about achieving goals. and invesco believes doing that today requires the art and expertise of high-conviction investing. translation? 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>> absolutely. it was a barn burner auction. if you look at the intraday chart of 10s, the auction came at 171 for the new guy. as i said, it hasn't been since december 12th of 2012 that we had an auction with a yield that low. so let's use that date for several charts. let's look at a ten year. boy, there's a lot of 160 handle bottom there's. we haven't seen one at 170 on this move since the seventh of april. let's look at the hyg-etf. it's in the low 80s. it was at 94 last time we will a ten year auction at these levels. maybe a lot of room to the upside. dollar index was at 80. currently at 93 and coming down. maybe the most interesting chart of all, you know what it's going to look like. the s&p 500. that was around 1400 the last time we had an auction under 170 for a ten year. currently at 2074. what markets you think are a bit vulnerable? back to you. >> thank you, rick. still ahead, a small cap stock that one analyst says will double. we'll tell that you name ahead. plus, we're just moments away from our exclusive interview with defense secretary ash carter. stick around. hello sh everybody. here is your news update. paul ryan scheduled to meet with donald trump on thursday to see if they can unify the republican party. here's what he told reporters. >> this is a big ten party. there is plenty of room for different policy disputes in this party. we come from different wings of the party. the goal here is to unify the various wings of the party around common principles so we can unify. >> about 1300 u.s., british and georgian troops starting joint exercises to day aimed at training the former soviet republic's military for participation in the nato response force. the two week exercises are being conducted at a military base about 12 miles from georgia's capital. wildfires continue to burn in eastern rush yachlt firefighters and adjournists were running from the fast moving flames. large areas of the forest have been burned and the fires have been blamed and flamed by hot and dry weather. >> and a group of italian students presenting pope frances with a prosthetic handmade out of bottle caps by a 3 live d printer. they invented it with the help of their parents and volunteers. 60 have been made so far. >> and that is the cnbc news update this hour. melissa, i'll send it back you to. >> thank you so much. we're going to take a check on oil and specifically owl futures are spiking right now. this is on the heeflz a bullish eia report this morning which showed a drawdown in gas supplies. 1.2 million barrels on the oil drawdown. we're seeing oil, of course, on the move as well. but that report was out this morning. we're seeing that spike right now. tyler? >> thank you very much. stocks up yesterday. today, not so much. not at all. pulling back triple digit loss for the dow. better for investors to look at small caps or large caps? this environment? let's bring in martin gilbert and bernie williams from usaa investment solutions. you like small caps. why? >> i think it's a more inefficient market which gives you better opportunity. the average small cap is followed by three or four anlives and the big cap is 20 plus. i think theer rit beingly they grow faster. they're not as dependent on -- sorry, i ment to say the strong dollar is not a head wind for most of them. >> they're more domestic. >> fort domestically inclined. so it's just more opportunity there. >> so it's a real growth opportunity rather than an income opportunity. we have so many people on lately who have said what you want are big blue chips that pay juicy dividends. this is not they. >> number but you do want some big blue chips. >> where are you on the debate between small and large caps in today's marketplace? [ inaudible ] >> bernie williams with -- >> i'm sorry. i didn't hear you. yeah, we're a little underweight small cap just because we do think valuations are a little bit pricey. we feel that way about large caps also. u.s. markets in general is a little pricey. we think there are better opportunities overseas emerging markets. >> like where and what kinds of companies? >> i don't follow specific companies emerging markets. but given what i think is a stabilization in dollars and the commodity markets, emerging markets in aggregate being so cheap but with much better earnings prospect, i think that's better setup for future returns. >> do you like some overseas companies? is that anywhere you go? >> we love emerging markets. we're one of the biggest emerging market managers. but i agree with bernie. there's great opportunities in emerging markets at the moment. the average pe there would be probably 10 compared to 15 in developed markets. do you like he see the head twhandz have bedevilled emerging markets abating? >> yeah, i think. so i mean the strong dollar, these sort of things. but the growth is. there i mean, the imf recently said that two-thirds of the world's growth is going to come from asia. but as i say, it's about choosing the companies rather than just sort of taking a view on markets generally. >> so you don't start with a sort of top down theory with respect to the emerging snashgts. >> number. >> in other words, we like southeast asia. it's company specific. >> it's definitely bottom up. you have to have a common sense sort of approach on the top down as well. you don't wantal your money in brazil or something like. that. >> certainly not now. bernie, you like airlines including two of the bigger carriers, united and love. >> yeah. we do. you know, they've been beaten down lately on concerns over competition and passenger reven revenue. but they do have a tail wend of energy pricing being low. we think some of the metrics ease throughout the year as competition less ens. and importantly, the capacity growth settles in a little bit, not quite as steep as it used to be. so given their cheapness, we think you can see a rally at some point in time with the stocks. again this isn't a long term investment. these things are trading stocks. but i think given their cheapness in valuation prospect, i think they look like good buys right now. >> all right, gentlemen, thank you very much. martin gilbert and bernie williams with usaa go. to powerlunch.cnbc.com right now to see how bernie is playing the emerging markets. that is powerlunch.cnbc.com. thank you. yesterday on the show you might remember we had a pretty fiery discussion about the future of jobs in america. my take along with others that with automation and robots increasing in record speed, is there real possibility of a jobless future for many americans? if so, how does that play into the future of the fed and its view on jobs? the chief globe economist is joining us. we're going to talk about the fed in a second. i want to lay out, there is only a few minutes. lay out the thesis that some have positive which is that this is not like any other time in history going from a buggy wlip to a car. this is going from working on a factory floor to notaving a job because you don't -- the programmers take the job of 100 different people. do you think there is a real risk of a semijobless future down the line? >> number we've had this for hundreds of years. the 18th century england feared mechanic anization and everybody would be out of a job. it didn't. it created more jobs. if you have products that are supplied for free tlashgs is big competition for the industries. it lowers the return on capital and lowers the incentive to invest and therefore the growth dynamic. >> so your semiagreeing with it. >> i think there are lots of other thins like dem graphics and slower productivity that support the same thing. i think we have a multiple things that are leading to demand growth in the u.s. and global economy overall. >> gus, your view? >> yeah. i mean, i think automation is going to be a factor that reduces the demand for low skilled labor. it's not going to destroy demand at all. how do we adjust to that? how do we make sure that if we're producing more that if robots make workers more productive over time, how do we make sure that everybody shares in the benefits? and so that all the gains just don't go to the higher income people. >> yeah. there is a chain of japanese restaurants in tokyo that has one human employee, robots do everything else. i hope you're right. let's move on now to the fed. the jobs, paul, are part of the fed story, right? if we don't hit the metrics, we won't get rate hikes. inflation, you sort of hinted towards wage deflation in your comment. you don't think we're going to get a fed rate hike until 2017. make the case. >>, no 2018. the consumer is slowing. we see. that we see macy's, we see gap. gas prices are going up. >> but the gas prices are still low. where is this gas price related consumer boom that everybody talked about? >> it's been an gone. now it's slowing. that is one factor. corporates are getting squeezed. profits are going down not up. they're cutting investment. at the same time, the trade side looks weak. we don't seat economy growing much more than 1.5% this year or next year. i think it's going to be difficult for the fed to hike. if they look as though they're coming back in the game, the dollar is going to go up. emerging markets will be under pressure. >> which then will lead them to hike. they'll have a global rattle. gus, you're not as dovish. what is your view on the fed and rate increase this is year? >> you know, i think we'll see growth of 2 or 2.5% over the next couple of years. i think consumer spending growth is still pretty solid. we're add 2g 00,000 jobs per month, wage gains are picking up as the labor market tightens. so that's good news. and then we're also seeing a recovery in the housing market. and that's contributiing to growth. i think we've seen a slowing in inflation over the past couple months. i think that's going to pick back up again as energy prices stabilize, as the dollar stabilizes, as wages rise. i think by the end of this year the fed will see the stronger inflation and that will be enough to get them to raise rates in late 2016. gus and paul swreshgs breaking news. we're going to cut it a wee bit short. thank you. i hope you're right by disagreeing with me. thank you. let's get to sue her air yachlt. thank you. and this concerns a fire at a west fertilizer facility back in april of 2013. there is the aftermath of that explosion and authorities now say the fire that caused that deadly explosion at that texas fertilizer plant was a criminal act. they say that fire that was started caused the amonium nitrate to ignite, triggering a massive explosion which killed 15 people and injured 160. it left parts of that town which is relatively small in complete ruins. they are now saying that that fire was intentionally set. that led to the blast and it killed 15 people and left hundreds injured at that point. they are still -- they do not have a suspect. they're still investigating. but they have determined through their investigations over the past couple of years, brian that, it was indeed a criminal act. back to you. >> a tragedy now of human cause. thank you very much. all right. on a different note, here is the animation on the radio just picture this thing going down a track. but what does the hyperloop look like in real life? you are about to find out, my friends. new video from the test of elan musk's new hyperloop high speed transportation system should be coming in. when it comes in, you'll get it. plus, our exclusive interview ash carter. his thoughts on isis, north korea, russia, silicon valley even and more "power lunch" back in two minutes. medical doctor from cleveland clinic, watson, let's review the electronic medical record of the next patient.. no problem. it's a pretty huge file. done. sorry for the wait. that was quick. as part of our research, i also compared lab results with notes about prior treatments, then cross referenced it with thousands of medical journals. and i get the benefit of much more data, and a lot more time to plan the best treatments. i stay focused 24/7 and never sleep. you sound like a lot of medical students i know. i stay focused 24/7 and never sleep. hey, jesse. who are you? i'm vern, the orange money retirement rabbit from voya. orange money represents the money you put away for retirement. over time, your money could multiply. hello, all of you. get organized at voya.com. we rise above our differences. the right amount of garlic reigns supreme, and what separates us is mostly whether we're chopping or frying. food is a language we all speak. when we cook together, we find harmony in the kitchen. we make more than a meal. enjoy fresh ingredients and healthy recipes, delivered to your door each week. subscribe today, at hellofresh.com triple digit declines off the dow jones industrial average. 17,781. that is .will 8% decline. nasdaq is off 23, .5%. the s&p 500 is also off a little more than .5% at 2,072 and change. office depots and staples, the latest merger killed by the government. up next, you'll hear from a former ftc commissioner who did challenge the deal and today feels like the decision was the right one. "power lunch" is back in two minutes. olay luminous illuminates skin with pearl optics science. your concert style might show your age, your skin never will. with olay you age less, so you're ageless. olay. ageless. welcome back to "power lunch." take a look at the s&p 500. we're a point off the session lows right now. 2072 is the level. take a look at the sectors. two in the green. energy and material with a big increase. we're seeing cost of metals complex. and in the energy complex, but discretionary is the real lagger here. it is down by 1.7%. dom chu is here to break down the fallout. >> when courty and i were sitting with you and talking about this idea that discretion as ary is such a huge focus, we know that it always than way. it is back stacked. all the retailers report in the late ert part of the season. and what you're seeing are signs now that things are not really as great in terms of certain parts of the retail sector. the only one is amazon could the come. people confuse it is it a tech zmp a retail company? what is it? but the counsel assumer discretionary sector still had at least hoped to be a bright spot. it was supposed to show the best earnings growth out of all of the sectors out. there and it has noefrt part. done better than the overall market. >> yeah. >> but still, when technology is as bad as it is, financials also the other guy there's. it's going to be a huge thing for the market to overcome. >> well, i just quickly before you -- i do wonder, it's not a negative because we've had people say when people are buying homes and cars, as they are now, they don't go buy jeans. they don't necessarily take weakness and retail stocks as a bad consumer sign. >> sure. >> it may be a sign of a strong consumer who is buying bigger stuff. >> right. >> cars. they're buying houses, homes. we know that home depot is near record highs right now. so there is a narrative in the markets that's been really interesting overall. that is that people continue to perhaps deleverage a little bit. whether they do spend -- >> they're put ong a deck. they're not buying jeans. >> disney is part of discretionary. so you're going to see a big pressure on discretionary from disney. thank you so much, dom. let's send it over to michelle in an exclusive. >> iran, iraq, isis, rush yashgs a few things on the mind of ash carter. today he is in silicon valy. let's get a "power lunch" exclusive with u.s. defense secretary ash carter. josh? >> thank you, michelle. and secretary carter, thank you for joining us. >> good to be us with. >> you're here today to talk about the defense innovation unit. that really serves as a conduit between the department of defense and silicon valley. can you walk us through the news today? >> yeah. this is an experimental outpost of the pentagon and silicon valley to try to create that connection between this vital mission for which i'm responsible, to protect our country, and make a better and safer world with the great innovative nature of american society. that is always been one of america's strengths as a military. we want to keep that going. this is an experimental outpost. and what i'm doing is upgrading it today. we've learned some lessons. it was an experiment. so we're trying to be agile in how we interact with silicon valley in the same way that silicon valley itself is agile. so, to day, for example, i made a change in how we manage it. i have a managemen team that includes an f-16 pilot that also founded a company out here, a great guy. people from google, from apple, these are people who are some of our leading innovators and they recognize that defending our country is one of the most consequential thing thez can do with their lives. they like to make a difference. so it's an experiment. it taught us so much. that's why we're taking it to what i'm calling 2.0 today. from 1.0 to 2.0 simply to signify that we intend to learn. we intend to improve it. but i have very much confidence in the idea here which is to create a channel between the pentagon and the innovative community. >> when talk about that channel, secretary carter, that relationship between silicon valley and the u.s. government, used to be a lot stronger than it is now. we had tension now. so what can you do in your role to try to repair that relationship? >> a lot. i'm learning a lochlt that's one of the things that we do. they teach me how we can do things differently. whether i started in and out this business, i'm a physicist. that's how. and when i started in and out science, it was -- everybody had a connection to the u.s. government. that's a different era. i don't expect that to occur anymore. but i want there to be enough connection that we can stay the very best. and what -- what i'm learning from this is that there are some tensions. let me tell you two. one is that we're too slow, that we're cumbersome. that the government is hard to work with. and so if you're a company that's innovative and trying to move fast, the government's very slow. and just can't keep up with you. that's a signal to me that we need -- we on the government side, need to change. we need to stay agile. it's a competitive world in military things just like it's a competitive world in business. we need to compete with all those around the world who would douse harm and beat them. in order to do that, we need to be agile as well. there are also tensions obviously around how to handle technology in the context of security privacy, a free internet but also one that is secure and that is contributes to protecting people rather than harming people. that's a difficult thing to engineer. i think the only way to deal with that complicated issue is for those of us in the government, me and the law enforcement community and homeland security community, we're all trying to do this, to tek connect, to listen, to think. there is no one size fits all answer to that. so those are two areas in which i've learned a lot. there are other ones as well much that's why having an outpost out here and making it experimental, meaning that it's constantly changing. it's agile just like any start-up out here in silicon valley. i want my start-up to change and to continue to tell me how we can change. because we've got to be the best. because we're protecting the greatest country on earth. and we're wonderful people. all of the civilization that we all stand for has to be defended. without security, we can't have all the other good things in life. my job and the job of the pentagon is to provide that security to do that. we need to be innovative and competitive. >> whether you listen to some of the rhetoric, secretary carter, fbi director james come, for example, blasted big tech for locking law enforcement out of devices. he is right in his criticism? >> well, i don't want to get into that particular case of the fbi versus apple. that was a law enforcement matter. the thing i would say about that is that we shouldn't let any one particular case dictate the entire solution. this is a problem which we can only solve by cooperating, talking, dialogue, and thinking our way through it. there isn't going to be one overall solution to it. data security, by the way, including incription and strong incription is very important to our department. all our stuff works on networks now. so all my ships and planes and tanks and soldiers, none of that works without the networks. so i have a desperate interest, security interest in good, strong security. and that we share with the technology world. so i think myself, the fbi director, rest of our leadership, we're all committed to solving this, not with a simple solution, not by dialogue. and by doing it, at the same time, you know, i think it's better if america solves this itself than you can well imagine what chinese government or a russian government solution to the same problem might be. so it's important that we lead so that we can continue to have freedom and security at the same time. >> doesn't it make, though, secretary carter, your job tougher? i realize apple's fight is with the department of justice. does it make it tougher for the backdrop of that fight with apple when you come out here and part of your goal is to listen to rebuild the relationships with big tech? >> i don't think it makes it tougher. i think it makes it so that even more people understand the importance of my being here. and of us having this connection. because the innovators out here, they don't want to be at odds with the society in which they live either. but they are -- they're trying to innovate. they're trying to have a free -- the -- all the wonders of the internet, they're trying to have a successful business model and do right by society as a whole at the same time. i think they have the same motivation we do. we're just trying to find a way that we can achieve all of our goals. and i know that there are such ways. its just -- but there isn't going to be one that size fits all. we're going to have to think it through situation by situation. we're capable of that. we've done that kind of thing in the past. the only way do you it is by dialogue and partnership. >> there was a headline that dropped this week. twitter is going to reportedly cut off u.s. intelligence agencies access to the data analytics tools. when you saw headline like that, does that just highlight to you the on going rift between the government? >> i'm not familiar with that particular case. but, no, that kind of thing is an instance where we need to work with folks who are trying to accomplish their business model. we're trying to accomplish our public purpose. we understand what they're up. to they understand what we're up. to we need to find a way that we can find a middle ground and a technical mechanism, if you like, or mechanisms, that permit everyone to achieve their goals. i'm sure that can be done. >> i want to turn back to the defense innovation. the reason you're out here today. part of that unit's mission, scout new emerging technologies. for startups though, those founders are interested in an exit, right? what is the advantage to working with the dod instead? >> two things. first of all, they'll have access to and a connection with some of most important and advanced problems and technologies. we spend $72 billion a year. that isn't a bad engine to hitch up with. second of all, we're a big market. that means we can help them grow if they can become a customer of ours. if we find what they're doing useful. so it connects them to ideas. connects them potentially to funding. they and the employees, you know, they take pride in doing something that matters. our mission matters a good deal. why are people in startups? well, yeah, they want to make money. they have an idea. but they're visionary. they like to do things that matter that have consequence. and people know that what we do really matters. >> all right. mr. secretary. thank you for your time. we appreciate it. >> good to be with you. >> guys, i send it back you to at headquarters. >> if you could ask him really quickly, there was an article in the "new york times" over the weekend about ben rhodes. if you could ask the defense secretary if he thinks that article was an accurate portrayal of the way foreign policy is made in the white house. >> so mr. secretary, a question from one of the anchors whether you had seen this article in "the new york times" regarding ben rhodes and if you had read that article, did you think that was an accurate portrayal of how policy is being debated and decided in the white house? >> i am familiar with the article. i don't know the author of it. i certainly have seen president obama at work. and he's a very deliberate decision maker. he's very straight up. always with me and with us. he, by now, has seven years of experience. and i remember working for president clinton. i observed president obama a ep two term presidents. by the time they get to the eighth year in office, these are people, all of them, who know a lot, who have a lot of experience. so i find when i deal with the president on any kind of issue, i find he's already got a substantial basis of knowledge. and certainly in regards to defense matters, which is what i work with, i appreciate his knowledge but also he is pretty straight up with me. >> thank you for your time. >> one more question. i'm so sorry. i wonder if the article -- the article would suggest that previous defense secretaries maybe couldn't be believed based on what they said. i wonder if he is worried that article might undermine him as he works overseas talking with his counterparts. >> the question is whether you thought that article? any way would undermine your own job, your own mission as you continue to work in this role overseas. >> the white house, in my experience as secretary of defense, in all the things that i have needed from the president in the way of authority, permission and so forth because some many decisions i as secretary of defense have the authority to take in other cases i need under the law or for some reason to ask the president, and so, for example, in the counter isil fight, we're trying to do more every day. every time we have a new idea, every time we have an opportunity to destroy isil, to defeat isil and my experience now i've been doing this for a year for president obama, he said, yes. i find it a very straight forward relationship. he has high expectations and knowledge. he understands very much the importance of what we're doing all over the world. so it's a good working relationship. >> thank you, sir. >> thank you. >> guys, back to you. >> all right. thank you for being a sport to both of you on those questions. much appreciated. let's get to bob pisani and give you an idea of what the markets are doing. >> the important thing that s. that we've been losing steam in the middle of the day. let me tell wlau is going on with the s&p 500. you know what is going on in retail. you heard from court nichlt but other sectors have been slowly losing steam throughout the middle of the afternoon. so we're sitting just at the lows of the day right now. i want to show you the sectors. you know what is going on with consumer discretionary. in opposition to that, health care, financial, industrials, these are not sectors that have anything to do with retail, they've been weakening throughout the day. so we're getting lightening up on their positions. let me show you the retail for the moment. macy's is a disaster all throughout the day, jcpenney, nordstrom and kohl's. jcpenney is getting the numbers at the end of the week. the big bright spot is energy. we had an unexpected draw downin inventories on the numbers in the morning. marathon, chesapeake, dechlt. von, these are the high beta names that move with the markets. they'll move above it. they suddenly pop. the whole market is up. very interesting. exxon was up on the news but then is now down in the middle of the day. what you're seeing about exxonmobil is it's used as a source of funds for other energy stocks. on days when the other income stoshgz are dourngs you'll see exxon underperform on days when the other energy stocks are not doing much. exxon will often do a little bit better. exxon kind of moves to its own drummer these days. bublg. >> all right. bob, thank you very much. so we're weight phil lebeau. he is bringing us something really cool, the latest on the first test of elan musk's hyper loop one. we should have video. first, let's discuss the impact the hyperloop, if it ever happens, could have on our transportation instfrastructure. could it change the way we travel? let's bring in a professor of transportation studies. david, as our viewers know, i've been a huge pro poen enlt of high speed rail for a long time. the hyperloop jumps that. do you believe that if this works it will be a viable transportation alternative 10, 20, 50 years in the future? >> well, thanks for having me. i think the time frame is decade away. far more than 10 or 20 years. 50 years is a possibility. a lot of things can happen over the course of 50 years. if you look at the railroads, for instance, they were started in the 1820s and they didn't reach their maximum extent until 1920s. new technologies can not be deployed overnight. hyperloop requires development of new vehicles and infrastructure. >> and from what you know about finance, infrastructure finance in particular, david, i mean listen, we can't get roads repaved. we're trying to redo. airports. high speed rail is nearly a nonstarter. everybody complained about the cost. if this gets funded privately, okay. you know what? professor, sit tight. i hope you have a monitor where you are. we're going to now show the viewers the first video coming in for the test of elan musk's test. it's brief then we'll come right back to you. >> all right. there you go. we will rerun that about 00 times f you're on the radio. it is a train looking thing with nobody on it. it is shooting down a track about a half mile. it goes quick. kind of looks like a sling shot. obviously, a very rough prototype. this may operate underground co. this environment are be funded? >> well, getting this funded is going to be hard. people are going to have to build test tracks and demonstrate it in practical cases. and so essentially, you sort of need to think about this as a deployment process. if you can test it and get it working so that somebody's willing to put some money into it for one line and one location, they'll -- can you maybe get private funding for moving products from a port inland. and if that works, people look at that and say this is a great idea. we should expand it. fit doesn't work, it will be band ond like so many other technologies have been over the course of the history. >> so understanding this and getting financing for this, apparently they have enough financing to do the testing and they seem to be cheering. so it went as expected. the question of how do they get this to a first product market niche and then from that initial market niche get it deployed more widely is the question at hand. >> professor, you're the chair of transportation engineering. you have seen a lot of different advances throughout the decade, i'm sure. you studied the history of it. when you take a look at the hyperloop and knowing that elan musk is behind it zshgs that make you look at this in a different light? that perhaps this may in fact be more viable than other purported advances in transportation? >> elan musk has a lot of credibility. he is also spread very thin. the question of can he focus on this as well as focusing on tesla and solar city and space ex and whatever else he's doing these days, i think the fact that it was his idea adds a lot of credibility to it and that is why they got as much funding as they have. on the other hand, he's not doing the day to day engineering on this. that is left to a lot of other people. and the question of how much attention does he have is important. but getting a -- an active entrepreneur behind one of these things is really important. >> all right. professor, we'll leave it. there thank you so much. professor david levinson. >> shares of office depots and staples plummeting today following a judge's decision that the two companies may not merge. granting the federal trade commission's request for a preliminary injunction on antitrust grounds. let's bring in a former commissioner with the federal trade commission. she is partner and co-director of cybersecurity at hogan lovels. good to see you again. your view is that judge did the right thing. why? >> well, first of all, thank you for having me. the decision is a very important one. what it shows is that competition enforcement is thriving and that parties that are thinking about merging need to be very careful and need to closely listen to the regulators about their concerns before they attempt to move forward. we haven't actually seen the judge's reasoning at this point. he is withholding his decision while the party's take a look at whether or not there is confidential information many there. but at this point what we know is that judge found there was a reasonable likelihood of substantially -- of a substantial likelihood that competition would be harmed through the merger. >> there have been number of deals that have been halted over the past year or so. either by the ftc or by the justice department. i think we have a list of several of them, ge, baker hughes, halliburton, pfizer and others, comcast and time juaner, our parent company. why do you suspect that is? is it because the nature of the deals has changed? or the temperament of the regulators has changed? >> i truthfully feel that nature of the deals has changed. one other merger that was -- that also was recently halted is the sysco-u.s. foods merger and the decision just came out yesterday, you know, it was a very large merger involving business supplies and business goods if one case food in, this case office supplies. and the market as it was being defined was in most people's view a clear market that needed to be protected. and that was with respect to business customers. because what happens is when costs go out to businesses, then the costs can get passed on to consumers. so i do think this is a trend we're seeing. they're attempting to be pushed through. i think the parties need to be careful about this process and know that regulators are very serious about trying to protect competition in this country. >> one of our guests in the last hour who was looking specifically at the two companies, office depots and staples and their respective financial strength stock prices, really sounded very concerned about the long term viability of office depots. he thought staples is strong enough, has a strong enough balance sheet to survive in this market where there is a lot of of competition from the likes of amazon and others. does it concern you that in scotching this deal you may end up in three or five years with the one major retail box store competitor that the ftc sought to avoid by opposing the deal? you get my drift, right? >> i do get your drift. i don't want to talk about the particular financials of any party that was involved in this case. let me kick it up a notch as emeril would sachlt let's just say that both the competition agencies and the courts take a very hard look when everyone algss a realistic concern about a firm that could end up failing. and what the courts and the agencies try to do is project out several years to understand what will be dynamically happening with respect to the competition. so it is an issue that is absolutely examined and looked at very closely. and, you know, i didn't hear the earlier segment, but it wouldn't be appropriate for me to comment on any particular party's financial condition. >> you make an interesting point. that is advance the ball. as a part of the deliberation within the commission on the staff, the viability of the companies is taken into account as part of the decision making, right? >> absolutely. absolutely. as is the notion -- i mean, competition is not static. it is dynamic. so it's a dynamic analysis that is it not just look at a picture for today sh but what it's looking at is the picture of likely competition going forward two, three, four years out. that is absolutely a very important point. that not only do the agencies look at that as the federal trade commission and department of justice, but also the courts look at that as well. >> right. and today threes two stocks under massive pressure. staples is down p 17%. office depots is down more than 30%. thank you as always for enlightening us. >> let's got reaction to what julie just said. talk about why so many deals are getting blocked. we have a partner doing m & a and he's an attorney, excuse me at sullivan and ccromwell, what do you think? >> i guess the firreaction is s at the ftc or in private practice? let me start with one thing. that is we had a record number of deals last year. those deals were basically industrial combinations. so it's not unusual that we're having a lot of deals not going through this year. and again, there is a percentage. i don't think it's overly high. with respect to this particular transaction, i think that a lot of the analysis here may be a bit backward looking, not forward looking. the ftc blocked staples acquiring office max 20 years ago. but today there's plenty of competition. there's online competition. there's competition from walmart. there's competition from amazon.com, jet.com. obviously, you know, major consumers have plenty of access to discounted products. and the margins that are so thin in this business speak to the fact that there's very heavy competition. and so i think the analysis and particularly as articulated by mrs. bril a minute ago is you're looking at the situation 10, 15, 20 years ago. i think there's a need for regulation. there's need to protect consumers. but it has to be done in a way that looks at the reality of competition today. >> so to underline, you think they've been too heavy handed in this case and in general. do you think they take into account -- she said they do take into account the possible future viability of a company. you know, whether or not it could eventually go bust unless it were made stronger through a merger. do you believe they take that into account enough? >> i only think they take that into account in situations -- i mean it's the failing company doctrine. you know, if a company is about to go bankrupt and will likely go bankrupt because the deal doesn't happen, then they take that into account. you know, neither party here is about to go bankrupt. i think the point that tyler was making with her is you could conceivably see one of these two parties being in financial difficulty which leads to them being a weaker competitor over time, potentially shrinking. that's the type of thing that is not taken into account in these sort of situations. >> any deal in the last year or so or under this administration that you think, wow i can't believe that didn't happen. that should have happened? >> you know, most of the others i could disagree at the margins. you know, one of the problems is that, you know, if you're on the outside of a transaction, you don't know what the negotiations were. sometimes deals don't happen because the parties are not always willing to make the concessions necessary. sometimes the regulators give you a path to getting a deal approved and you just do not take that path for whatever reason. so it's not always possible. but here's one i think that i analogize it a bit to the deal that got blocked a number of years back when, you know, dish network was going to acquire directv. and they were making the argument, look, with the way technology is going, there's going to be tremendous competition. and it was -- the deal was vetoed. in fact, a few years later, they accepted that analysis when they let sirius and xm combine. it was the exact same argument. >> yeah. okay. frank, thanks so much for joining us. >> any time. good to see you. >> partner at sullivan and kromwe will. >> thank you. we just showed everybody new video from a test run of elan musk's hyperloop. that is a ground based transportation system. they are proposing. let's get details and watch the video time and again with phil lebeau in the nevada desert. phil? >> brian, they told us not to blink. it was going to be a quick test. they went basically zero to 60 in about 1.1 second. 2.4 gs on this test run theer was done ducted by hyperloop one. i had a lot of people ask me over the last couple of days, what is the game plan? sure they're doing a demonstration here north of las vegas in the desert. what will we actually see them building a hyperloop? here's the time frame that they have laid out that the ceo rob lloyd laid out yesterday whether we talked with them. by next year, hyperloop one believes they'll have an actual production schedule for a project somewhere in the world. they expect that to be completed and to have cargo moving through a hyperloop system somewhere by 2019. and then perhaps by 2021 have people riding in a hyperloop somewhere. they know that it's a moon shot idea. they believe that everything is coming together to make this happen. >> moon shot ideas are possible at a faster pace than any other time in human history. there is a whole generation of entrepreneurs that are evolved, the skills and the confidence and the insights both through successes and mistakes and the access to resources to go after really big ideas. >> until we get a more lengthy test that we can shoot on camera, we have to rely on a lot of animation to give us a sense of what the hyperloop will look like in the future. hyperloop one secured a series being round of fund-raising for $80 million. that will help them as they develop this first full scale proto type about it fourth quarter of this year and then move forward hopefully with a xbroekt. one last thing, brian. we talked a lot about how elan musk cave the idea for the hyperloop. elan musk has no direct affiliation with hyperloop one. they're also working on a version of the hyperloop. i'm sure he was watching this demonstration today as an early indication of where the hyperloop is headed. >> i sure hope it's going to work, phil. i really want to ride on it some day. exciting. >> so musk has -- i was like elan musk. he has nothing to do with where you are? >> correct. aside from giving the idea three years ago, he has nothing to do with hyperloop one. >> i've been horrifically wrong like 16 times in this show. >> why outside the u.s. will hyperloop likely first gain hold? >> oh, i wouldn't be surprised if it's in europe. last night there was a presentation with a number of interested parties, entities, governments, utilities that are interested in working with hyperloop one. and there were a number of representatives from firms and municipalities in europe. i would not be surprised if you find some municipality or government in europe that will say, you know what? we have two cities, 50 kilometer as part. let d.c. a hyperloop run there. they will be the first. i bet they could clear the hurdles much quicker than in the u.s. that is a huge hurdle in the u.s. getting the regulators to sign off on. this as the people in california how that high speed rail is coming along. >> exactly. >> we're also tend to be a little more judicious with taxpayer money here you might argue. that is another conversation for another day. >> yes. >> another rough day for retail. what is wrong with these stores and what can be done to fix them? those store there's. and the lending club mess. are we making the same financial crisis mistakes ail over again? and we're going to take you inside celine dion's mansion. we know you want to go there. wait until you see the closeted. >> i can't wait. >> all that and much more coming up on "power lunch." [ soft music ] e.t. phone home. when you find something you love, you can never get enough of it. change the way you experience tv with xfinity x1. we're always looking for ways to speed up your car insurance search. here's the latest. problem is, we haven't figured out how to reverse it. for now, just log on to compare.com... plug in some simple info and get up to 50 free quotes. choose the lowest and hit purchase. now...if you'll excuse me, i'm late for an important function. compare.com. saving humanity from high insurance rates. have we seen these sorts of periods for retail before where the consumer is spending, it's just that they're not spending on things the department stores are selling. >> the retail business is cyclical. the ups and downses of the retail industry are well known. i think the jury has come back today and the verdict is guilty. auto mote sieve doing fine. >> i want to bring up a chart. we mentioned the xrt. it's a chart of retail versus oil. there was a clart that said retail is going to boom. actually, the xrt retail is below where it was whether oil began to fall. why haven't we seen this big oil and gasoline related boost to retail? at least the stocks don't appear to be benefiting. >> well, it may not be to the retail stocks as mark and i know it. but i think people, first of all, there should be another part of that graph. that's what's happened to savings. i think savings have gone up over that period of time also. but i think the real issue is all the things we can spend on. i was recently on -- at theater with our granddaughter and there is "lion king", families two, three, kids in a family spending $150 a person. leave out hamilton, look at broadway, record sales. look at disney in the report today. there were ups and downs. but 27% ahead in the movie area. people are willing to go out and spend because it's about an experience. people are spending. they're spending it on an experience and something with a sense of entertainment and social activity. i think that -- i said this 100 time over. i think that people have been going to the markets since the time of the greeks. it's a social experience. not just about buying medicine we need. i think one of the challenges of the stores you had up on that chart is people are -- retailers are appealing to people who need merchandise, not people would want medicine. and there is a very big difference. >> so what do the stores like macy's and gap, what do they do at this point? do they have to just wait it out until the consumer comes back or say, you know what snt stores are too boring. we're going to make them more exciting much we had a retail analyst on this morning on cnbc fr cowen. can retailers reinvent themselves to that degree to bring the consumer back? >> macy's and others like them have painted themselves into a terrible corner. they've been doing that for at least two decades. they've focused primarily on apparel and accessories. they deemphasized some parts of soft home and most of hard home. they're now stuck with large stores that are not productive. they haven't taken advantage of the wonderment of the intermet. they're stuck in a promotional rut that they can't escape from without starting from scratch. the economy is not the reason they're struggling. the weather is not really. the u.s. dollar or the tourists not spending. that is really not the point. >> and to parra phrase something you said, some of the merchandise carried by stores are just simply crappy. you're pointing out at the gap right there is a stripe shirt. let's actually -- >> i got hate mail from french sailors. >> they can send hate mail again. let's take a listen to what you had to say. >> horizontal striped blue and white t-shirts. nobody looks good in that unless you're a sailor, french, or a french sailor. >> i would say maybe even a tv anchor because here you are. it is an early present. >> wow. you got me one? >> yes. gap. >> so michael, before i open this let's go into this. >> before you open it -- >> michael, what you're saying is right. there is no reason to believe it's not, by the way that, the experience trump's striped t-shirts, what does that mean for the future of what you used to do? >> first of all, we're -- as i said earlier today, some people that, you know, people talk about a sea change. raily believe that we're in an ocean change right now. i think the internet is part of it. i think the way the millennials think is part of it. i think when you walk in a store and see a 65-year-old lady who is young for a 65-year-old lady walking up and down the aisle with her phone checking prices, we're in more than a sea change. and i think that maybe we can't all be like them at the mall and we can't all put in samsung shops, they have a street downtown. but these are senses of engagement. >> all right. we have to leave it there. a great duel on retail. there you go, america. [ speaking french ] >> the french sailor's t-shirt. we'll back in two minutes. you pe premium like clockwork. month after month. year after year. then one night, you hydroplane into a ditch. yeah... surprise... your insurance company tells you to pay up again. why pay for insurance if you have to pay even more for using it? if you have liberty mutual deductible fund™, you could pay no deductible at all. sign up to immediately lower your deductible by $100. and keep lowering it $100 annually, until it's gone. then continue to earn that $100 every year. there's no limit to how much you can earn and this savings applies to every vehicle on your policy. call to learn more. switch to liberty mutual and you could save up to $509. call liberty mutual for a free quote today at see car insurance in a whole new light. liberty mutual insurance. oil is high aert had hour by gain more than 3%, steadily climbing, a gain of $1.51. crude is heuer. that is gain of more than 4%. we had an intraday spike there. just about early in the morning. gasoline prices soaring as well by gain of more than of 6%. nine cents, $1.58 at the wholesale level. sue herrera standing by with a cnbc news update. and here's what's happening at this hour. authorities say the fire that caused the deadly explosion at a texas first lieser plant in 2013 was a criminal act. they are investigating who was responsible for that blast which killed 15, injured hundreds and left part of the small town in ruins. a reward of $50,000 is being offered. three separate car bombings in baghdad killing at least 93 and wounding 165 more in the largest attack a car bomb ripped through a commercial area in a shiite neighborhood killing of 36 and wounding 85. then later in the afternoon, two more car bomb went off. isis claiming responsibility for all three. brazil's senate in the spotlight as they prepare to vote on whether or not to impeach their president. she will be suspended immediately and then the vice president will take up to six months pending trial. and kentucky derby winner nyquist was let out on to the track at pimlico as he prepares for the second leg of the triple crown, the preakness. nasdaq ten days. tomorrow, he's going to go jogging for the first time. we'll keep you posted. get it? posted. all right. that's the news update. work with me, brian. >> hey, i love it. you've been hanging around me too long. you're falling down the same tunnel i'm already in, sue. >> through go. >> you should at least chuckle. >> i'm not horsing around here. >> exactly. >> time now for "street talk." thank you. >> that is terrible. you need know google alphabet. positive comments from analyst james chalkbalk. he reit rates his buy rating. he says amazon's new video product presents no material cause for concern for youtube. the entire goal of amazon is to convert people into the prime membership and notes that product tartses, you have to put in bank account information. so it's sort of a larger more commercial operation here. anyway, so james there reiterating his $900 target on alphabet, 20% upside. >> amazon hitting a new all time high today. next up, sea world. two notch downgrade on this one. credit suisse down grades to an underperform from outperform with a price target of 15 to $27. expectations for sea world too high. they see down side to estimates in multiple compression. the stock will go down. credit suisse believes the them park sector offers a good pure play on the recovering low to middle end consumer but specifically there will be more competition for sea world, less pricing power, and the turn around thesis will lose traction. >> they want to go more to the roller coaster model. our company universal, six flags, disney. good luck. next up, new mont mining, goldman sachs upgrading this stock to a buy from a neutral. it comes with a gold price increase in their forecast as well. goldman sachs thinks that gold will average $11 au1$1150 an out year. that should boost their margins. now newmonlt and others lowered cost by 30%, kind of like what happened in the oil patch. goldman sachs upping the rating to a buy. upping tprice target to $36. that is about 8% upside. still, it's had a gun r goldman sachs late to the game. >> you have tried on the french sailor t-shirt yet from the gap? >> i will. >> that is the next stop. the gap. under pressure goen day. getting a downgrade by fitch to junk. the rating goes down to bbb minus. so many ininvestors cannot buy noninvestment credit. reduce in sales and kpektations of continued gross margin. gap needs to do something big with the real estate or large scale cost cuts. no mention of striped t-shirts. >> that is one sale for them this month. listen, the gap usually stocks when they collapse like that sh they get a bid the next day. nothing today. finally, your final name, the under the radar stock of the day newrelic. it is a software servicing company. >> eye ronnic th ironic. >> it's like jumbo shrimp. they reiterate a buy and $50 target. so double an eps. it says the expansion rate is reaching the highest level in the public history. big corporate customers. again, a $50 target on a $26 stock. >> on that big call, "power lunch" will be back in two. this just got interesting. so why pause to take a pill? and why stop to find a bathroom? cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right. plus cialis treats the frustrating urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. do not take cialis if you take nitrates for chest pain, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. do not drink alcohol in excess. side effects may include headache, upset stomach, delayed backache or muscle ache. to avoid long-term injury, get medical help right away for an erection lasting more than four hours. if you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away. ask your doctor about cialis for daily use. insurance coverage has expanded nationally and you may now be covered. contact your health plan for the latest information. this cit added this otherred. level of clean to it. it just kinda like wiped everything clean. my teeth are glowing. they are so white. i actually really like the two steps. everytime i use this together it felt like leaving the dentist's office. crest hd, 6x cleaning, 6x whitening. i would switch to crest hd over what i was using before. time now for "trading nation." your "trading nation" team today, jonathan crinski, max wolf, jonathan, the s&p 500 hasn't hit a 52-week high if nearly 52 weeks. cause for concern? >> not yet, brian. we've seen this rolling bear market that started with the energy materials industrials in late 2014. we saw in health care biotech and now we're seeing it in retail. so as these kind of sectors have gone throughout mini bear markets, the overall market traded side ways. we haven't hit a new 52-week high since last may. and that's pretty unusual. in the last 25 years there's been 11 times where we have gone this long without hitting a new 52-week high. what is interesting though is once you actually do make a new high, after such a long period of consolidation, the forward returns are very bullish. they've been up one year later every single time for an average 16% return. but that doesn't necessarily get us ready to play the hero card and anticipate that breakout yet. we still have a lot of issues. you're seeing with the department stores and the retailers today, european banks. rather than anticipating and, you know, looking for that big breakout, we would rather wait for confirmation, get a new 52-week high and then start talking about that. and if we look back, the last time went this long without a new high that wasn't within a bear market was 1994 and '95. i think we have a chart there. you can see the similar pattern. went about a year. consolidated. then once you got that breakout, there is plenty of runway to the upside. we would rather be patient and then jump aboard. >> okay. max wolf, your view on what the market is doing right now and more importantly what we're likely to do? >> yeah. so we see a little differently n our mind what we're seeing in the markets here is there is selective strength. we had a long explosion to the upside here. partly as money ran from all over the rest of the world into the relative safety and appeal of u.s. equity markets which we thought got a little bit out in front of the skis, a little bit of clean this dirty shirt and hamper factor. and the most recent two earnings season pronounced most recent one. if you did well, you blew out to the up side. for a lot of folks, they didn't do well. overall indexes are going to underperform for the next six to 18 months with some select names being strong. intact, where we cover most closely, we see this really strong. so you see things like amazon breaking out to the highs and apple dragging down the indexes. otherwise, a lot of pressure on things still at 18 multiple and a little bit overbought by global and historical standard in our opinion on a relative value basis. >> okay. we appreciate it. thank you guys very much. by the way, speaking of weakness, stocks are weak right now. the dow down 185 points. session lows. four stocks higher. 26 stocks in the dow are lower. for more trading nation go, to our website. "power lunch" back in two minutes. what's going on here? i'm val, the orange money retirement squirrel from voya. we're putting away acorns. you know, to show the importance of saving for the future. so you're sort of like a spokes person? more of a spokes metaphor. get organized at voya.com. [alarm beeps] ♪ ♪ the intelligent, all-new audi a4 is here. ♪ ♪ ain't got time to make no apologies...♪ stocks continue to slide at this hour. the major averages are around the session wloez. disney, home depot, united health, nike, walmart. you can see they're having the biggest negative impacts on the dow. "power lunch" will be back in two minutes. we'll talk more about shares of lending club which are down 40% this week. we learn more details about what the company's business, are they making the same mistakes from the financial crisis all over again? stay tuned. ♪ i built my business with passion. but i keep it growing by making every dollar count. that's why i have the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy for my studio. ♪ and that unlimited 2% cash back from spark means thousands of dollars each year going back into my business... that's huge for my bottom line. what's in your wallet? take a look. we just took a leg lower here. the dow jones industrial average is down by more than 200 points. that is a loss right now of 1.2%. the nasdaq is down by .will 8%. the s&p 500, this is session lows for that index and right now we have eight of the ten s&p 500 sectors in the red. utilities and energy right now getting small gains. this is a leg lower. happening in the past ten minutes or. so. >> yeah. headlines crossing there on alphabet about the ftc maybe taking a look at search. we'll take a look at that as well. shares of lending club down 40% since the surprise departure of the founder and ceo easterly earlier this week. but a board athat is who's who of wall street, larry summers, morgue an stanley's former ceo john mack that begs the question, shouldn't they have picked up on the problem earlier? we've been following the story. our analyst come on the back of an excellent article in "fortune." dan, thank you very much for joining us. i thought lawrence's piece was amazing. they compared this in a way to what happened in the financial crisis. how do you tie together what happened at lending club to 2007-2008? >> right. they're not perfect analogies. but part of the argue bment the financial crisis is you had lending desks and trading desks start to get intermingled or the lending and trading businesses started to get intermingled which caused conflicts. at lending club, there is two issues. one is this question of this loan which doesn't have the right characteristics. the other one, the one that seemed to get the ceo kicked out, was about purchasing this fund which -- or purchasing a stake in this fund which then buys up lending club loans. and so there was this conflict of interest that gets tied up with itself. that is the comparison that lauren is making. it's a good one. >> yeah, because lending club and some of the others, we're just talking about lending club here, lent itself out to be they need money. sullivan puts it into lending club, you pay back lending club and then they pay me back. a lot more kblechl it turns out, dan, than just. that plus the presence of john macon the board, how does that sort of muck up the picture? and i said muck. muck. >> it's very mucked up. i don't know what mac's role on the board is compared to the others. as you say it is a wall street heavy board. summer, mack. although not necessarily the most experienced board. actually on the board of square which is also in the online lending business. when they made the announcement monday morning they were o cagey about it. the original statement was almost intelligible. you couldn't understand what it said. a bunch of us said to each other what does this mean? people on the call didn't seem to know what it meant. i don't know why the board hasn't come clean and said this is exactly what happened. instead they led this giant breech of trust with shareholders and buyers etc. and i think it is one of the things killing the stock. >> we showed their statement saying we took swift action and got that out. it sort of appeared. there are others out there. it's going to kill wall street, change finance, disrupt everything. does this set that entire model back? or maybe this is just a lending club issue? >> it certainly sets the model back in the sense that lending club was considered the original innovator and driver and still has the largest leading company in this space, the idea this is peer to peer lending though has kind of shut up the lie to. jeffreys and wall street and -- this isn't just me lending you money or me lending you money. wall street is very involved in this still. >> really interesting article. thank you for coming on the program dan. do appreciate it. >> thank you. >> let's get to donald chu. >> something you mentioned earlier. calling tx to what's a happened with shares of alphabet. they had been lower all day along but did take a noticeable leg lower towards their session lows on the heels of a politico report saying that the federal trade commission possibly could be asking some questions about whether google has abused its dominance in the internet search market. this is another look at google, had closed a case in terms of overall abuse of the internet search market without any charges being brought. but the story is saying that at least senior anti-trust officials have discussed the matter in recent matters saying that it could be that these guys are possibly looking into the google's dominance in search again. the report did they the spokesperson don't comment of an investigation or the existence of an investigation. this is what's been moving the stock to the downside. >> correct me if i'm mistaken but haven't european regulators been concerned about the tame thing? >> for years. it is not just our government but governments across in europe as well. governments all over the world have looked at alphabet a lot these days because of the dominance in search and. >> eu. >> just recently. >> -- wondering if they put their -- >> search above others on their browsers. >> exactly. >> basically the tying thing we saw in the microsoft case. >> shopping their services above other shops services. >> and also going above mobile phones. >> google has about a 64% market share in search. yahoo still has 12.5 but who know. the thing about anti-trust. having a monopoly is not defact illegal. if you created it. en invented it. it's your work. having a monopoly is only illegal, if you use it to a, crush competitors. or b what microsoft got this trouble for which is we're going to install windows with explorer and you have to use it so i wonder, google is probably close to monopoly in search but is it a harmful one? >> you got to show damage and i don't know enough to know. >> experimented with other search engines and i always come back to google. there is a lot of junk in the other ones. >> duck duck go. >> i tried that one. i like it. thanks dom. >> few minutes ago. stocks hitting session lows. pretty much all of them having the most negative impact on the dow. more on that and the ftc and google next ♪ ♪ for decades, investors have used a 60/40 stock and bond model, with little in alternatives. yet alternatives can tap opportunities that traditional assets can't. and even though they're called alternatives, they're actually designed to help meet very traditional goals. that's why invesco believes people should look past conventional models and make alternatives a core part of their portfolios. translation? goodbye 60/40, hello 50/30/20. stocks sliding right now. session lows. the dow down 208. wob's going on. >> we're at the lows. i want to put up the s&p 5 hundred. and we're seeing slightly broader weakness than earlier. obviously concerns are what's going on with retail but also to a certain extent with disney. the s&p 500. this all stems from disappointment with disney, retail earnings in general, home depot and walmart. an unrelated group, healthcare is also showing weakness across the board, including bio tech and pharma in general. this retail sector weak all throughout the day. not a lot of movement here. this is not the source of the weakness we're seeing late in the day. this is all the source of the weakness earlier in the morning here. walmart a lot of people were wondering why consumer staples were week as weak as a group. the problem is walmart considered a consumer staples group. should be consumer discretionary. but it is not. it's staples. that is a major reason why the staples is weak overall. healthcare is interesting. here is the source of the weakness late in the day. and right across the board weakness in bio tech, as well as the overall pharmaceutical group and even the medical device company there is and i think this is worth a little closer investigation, kelly. making calls on that right now. back you do guys. >> thank you bob pisani. let's bring in brian more on the development in the google story. what is your take on this reported ftc investigation? >> well google is dominate, full stop. they have probably 90% share of the search market. when you think of revenue. most people when they talk about search you talk about search queries by individuals. but the reality is by revenue it is probably closer to 90%. so the real question is whether or not they are abusing that position. that is what the ftc is concerned about. >> your reaction. is this a buying opportunity? >> to the extent that google gets hit it is always a buying opportunity. they are always going to have fines. >> all right appreciate it. >> much more on this market selloff coming you have later. thanks for watching. "closing bell" starts right now. ♪ hi everybody. welcome to "closing bell." i'll kelly evans. >> and i'm wilfred frost. stocks taking another leg lower in the last hour. a disappointing quarter for macy's sparking a selloff for retail and a rare miss for disney weighing on the dow. >> and now research shows the odds of hillary clinton winning the white house not as high as many assumed. former head of the economic council for george w. bush joins us to discu h

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