Transcripts For CNBC Fast Money Halftime Report 20240714

Welcome good to have you with us on this wednesday from the New York Stock Exchange our Investment Committee at the table, joe terranov ajim lebenthal, liz young, bny mellons director of Market Strategy and mike wilson, Morgan Stanleys chief v. Officer also with us from hq, senior economics reporter Steve Liesman. The markets. Stocks down sharply. Lows of the day. 637 the loss for the dow the yield curve inverting for the First Time Since 2007 and thats raising fears thata recession could be on the ho horizon. Mike wilson, i joked with you when you walked in the grip reaper has arrived. Youve been negative on the market for a while what does this tell you about what we should be thinking and doing . Yeah, look. I think the market has been telling us this all year weve had the fed dovishness covering up some of that theres been hope for a tread deal which has been viewed as a put and both of those puts expired in the last couple of weeks meaning the fed did their 25 cut some viewed that disappointingly. I would agree. The curve and obviously, bonds agree with the view theyre behind the curve that put is not in the money anymore. Its probably expired in some cases because people think they probably cant catch up and thats not going to change things anyway. Thats been our view all along this is not about the fed. This is about the business cycle. And this hope for a trade deal which looks like theres been cold water thrown on that in multiple ways. We had the tweerkt this week whc got a big rally. Were trading below those levels, after we got the looks like its not going to be as bad so those are now off the table we have to focus on the fundamentals which have been deteriorating all year weve had a benefit of falling rates which helped valuations. And i think the data is going to continue to get worse. We stand by our call for 2700 this quarter what about the socalled trump put. Has that expired as well thats a trade put, same idea meaning the trade situation looks to be unresolved and its going to be hard to resolve this in the short term. Even when the administration backed off a little bit yesterday, it lasted it was a oneday rally. The market is telling you this is not going to save us from the deceleration and growth were now seeing with the bond market and with the stock market has been telling us all year tell us what you should tell people to do in this kind of environment if mike wilson is right. The game has changed, so to speak. The game has changed. But i would urge people not to overreact to Something Like this in a oneday move. We were up drastically yesterday. Down drastically today the mark set going to watch those signals like a twos tens inversion. Its not a meaningful inversion yet. A meaningful inversion is somewhere in the tune of 25 basis points for a longer period of time. We havent even seen one full day yet. Lets give it a minute and then you have to wonder how important is an inversion anymore. To mikes point, we need a tail wind and have to figure out what thats going to be trade is putting pressure on business spending. We need that to pick back up to drive through the economy. Might need Central Banks to go in a coordinated effort around the globe and really agree to save us. Steve liesman, mike wilson with some provocative thoughts about this fed put, if you will, having expired and at the same time, the president just now on twitter says, quote, the fed has got to do something the fed is the central bank of the United States, not the central bank of the world. Federal reserve acted too quickly. Now its very late too bad. So much gained to the up side. Were talking about jackson hole next week. Whats the fed thinking today . Im surprised it took the president this long to blame the Federal Reserve. You remember things were okay before the latest round of tariffs came through and i would point out, scott, something thats not, i think, given a lot of credence for a lot of discussion today is wilbur ross, when he was asked this morning, are there discussions going on, and he said there might be a phone call remember we were trading yesterday on this idea that the chinese and the u. S. Were going to talk. So i think the fed has sort of two different ideas going on the first is, i dont think the fed thinks this is their circus, so to speak. They were planning for an economy that maybe had trade talks or didnt have this risk since the other tariffs came along. The other is theyll not ignore what the market is saying. They dont really want to be playing this idea. More tariffs, more rate cuts on the other hand, if the market is really forecasting a recession here, and the history of these things is, once the a yield curve turns negative, it tends to stay negative the second thing is the last several times weve had inverted, inverted meaningfully, we do have recession so the fed is going to take a look at that i think the idea that theres the three circles before the last three recessions. The yield curve does invert. I dont think it causes the recession but its an indicator of what is to come so i think what it means is the Federal Reserve is going to cut. I would say it enhances the possibility of a 50basis point cut come september if this lasts. I would say, listen very carefully to the interviews that are going to be coming out of jackson hole next week so in that light, joe, mike wilson is not on an island, other than manhattan, suggesting the stock market could trade meaningfully lower rbc says risks skew to the down side near term could trade down to at least 2725or lower before rallying back oh, i can see it going to 2775, but i dont think it sits there for very long. One of the reason yes is 2725. Well, 2725, excuse me but one of the reasons why is economically, when you look where we are globally right now, its fair to suggest there are select large economies that already, scott, are in recession. And those economies being in recession, i dont necessarily extrapolate to mean that they will export their recession here but youre seeing significant flows of capital that are trying to find a home and the only place globally they can find the home is in u. S. Assets we began the show talking about, how do you protect your portfolio. This is a classic lesson for investors in diversification and ownership of things like Investment Grade like municipal bonds, like reits. Gold is trading at levels we havent seen in seven years. So i think this is a diversification story and diversification seems to be a word that because of what happened in 0809, investors lost faith in. I think the flows of capital because of the economic weakness globally, theyll continue to come to the u. S. So whether you have a recession in the near term is almost irrelevant. You could have an imported slowdown thats what we have. We have a slowdown around the world that is the fear that we are going to feel it here. The stock market will react to a slowdown whether or not theres a recession 6, 12, 18, 24 months from now yeah, youre exactly right. And to joes point, you look at german gdp numbers you look at japan, theyre terrible and going into a tax increase so we will import that slowdown. The question really is, okay, whats going to be done about it relying just on the fed doesnt seem to be enough. The ultimate cure is a trade deal, but i think we can all agree thats a long way off. You think baunk of america says they maintain their view, its going to last, quote, indefinitely its going to last for a few more months. Few more months few more months at least. You have the Chinese Communist party about to have an important meeting in early october they cant show any signs of weaknesses in the leadership going into that meeting. So theyve got to hunker down for this despite the pain they are feeling economically and despite whats going on in hong kong just months it sounds like thats too short. Im saying thats at a minimum, scott and in the intervening months to the end of this year, a lot of damage can be done economically. The fed cant offset that on its own. What has to happen is the u. S. Government has to start thinking about fiscal policy. What do i mean either Infrastructure Spending which takes a little time or they may have to do a payroll tax holiday like they did 2010 or 2011. But where were going right now, the fed is not enough to save it lets all take a step back, too, and you look at the inversion of the curve you say lets not get all crazy about that the fact of the matter is, after you have an inversion, stocks can go up. And they often do. For a fairly decent period of time before the stock market catches up to the reality of the economic picture about a year and a half on average. Tony dwyer says the inversion is an intermediate term buy signal is he right . It can be and right now the important thing to watch is that the market and the fed are on the cusp of actually being able to save it. So if you look back at what happened in 95 and 98 when we didnt actually go into a recession, the fed cut rates sometimes successively sometimes they paused in between. But they cut three times in each scenario and it saved it and it went back up and we didnt end up with the recession. Were at that cusp where they could save it. If you go through a decision tree, do i want to own stocks . Yes. Then do i want to own cyclicals or defensive yes, to both you have to be present to win. If the market is going to continue to go up, you have to be in the market to take part in the market if you think the fed is going to cut rates and maybe as aggressively as Steve Liesman thinks they might in the near term, maybe get 50 basis points, the stock market is not going to turn a blind eye to the fed even though you say you think its expired. That was your word can still have a stimulative effect on the economy and the stock market but until they get in front of it, its no point in trying to call a low in here. Last time were here, the fed was going to do the meeting the next day and we said, look. The thing that will get us bull si ish is when the curve resteepens even when the trade thing got reescalated the yields went lower. Yield curve went lower and cyclicals continue to underperform by the way, making a call on a recession now is not helpful making a call on a slowdown was a year ago, right . Thats when you had to make the call which is why you need a position in the defensive sectors a year ago and in bonds a year ago the trade is 90 done, scott, right . This is not the time to be doing that now if you havent done that in the last year, its probably too late right . Weve been harping on this for 12 months and probably closer to reverting more toward a cyclical positioning as the fed gets in front of it. Until i see evidence in the marketplace theyre in front of it i. E. The yield curve steepens or tenyear stops going down or cyclical shows some signs of life, why bother why do we need to force that hand youre talking, i look at the dow down 666 pete najarian, im told you want into this conversation i can tell you this mike wilson has been right hes been in front of this whole thing. I think thats important to bring up because mike took a lot of flack as the market was moving to the up side. As youve seen, the volatility thats come into this market place is something that essentially all of this is the types of things going on that mike was talking about, call it a year ago and now its starting to play out. I think the real key is volatility remains volatile and what i mean by that, its up 25 today. It was down significantly yesterday. So the fact that were up and over this 22 mark once again, thats pretty interesting. I dont know that thats over. Weve seen some up side buying in the volatility index itself weve seen a lot of put buying in the spys. A lot of put buying in the eem so the fact they rolled out of the august puts they put on just a few weeks ago and did very, very well, now theyre rolling down from the 40 1 2s in august going into september 30 1 2 puts 62,000 of those were bought today. Im not saying that its absolutely going to happen tomorrow or the next day they bought a little bit of time and went out to september, but it shows you that theres still a negativity out there in terms of the eem now, obviously, thats going to be something that were going to face as well here in the United States but how bad is that going to occur . And the one thing id add to all of this, today, and ill give it to you in unusual activity, i found a stock that i wanted to buy, been looking at it for a long time that i bought and can use this inflated volatility to sell calls against that to give myself a lot of room to the down side and to the up side. You hold that reveal, pete, until we get there yep do me a fauvor and do that. Jim, you want to weigh in . Jim said the trade is now old. You can see that in stock prices doesnt matter what sector youre looking at. Some of the most beaten down sectors like the energy and industrial sectors are in bear market territory if you look at their yields, theyre in a lot of cases on individual stock basis twice what youre getting on the tenyear i might throw this back to you but usually when you have that sort of differential between what youre getting yield on stocks and what youre getting yield on treasuries, that bodes well for stocks. So were talking a lot of negativity here. I was just a minute ago. Im not selling anything im a Value Investor ive seen a lot of pain already, but the prices im getting for companies that are still growing and spitting back cash not just in dividends but buybacks im fully invested already. If im buying something, have to sell something theres nothing i want to sell today. Jackson hole is coming up whats the conversation for central bankers going to be about . Is it going to be about whats your Monetary Policy or can you get the administration in the u. S. To take their foot off the pedal right now because it is so dramatically impacting the Global Economy the time for the recession call, yes, was last year but what did it correlate with . The manufacturing slowdown in the u. S. , the introduction of these tariffs, and i keep emphasizing the point the tariffs are having the most detrimental effects on the regions that are around china. And thats the negativity that im not sure how our Federal Reserve is going to cure no doubt the Global Economy turned down first. Peaked in the First Quarter of last year. But lets not smooth over the fact that the u. S. Economy also peaked last summer, okay and this has been our view for a while which is that this if we have a recession, its not a fait accompli. Its if corporate profits have rolled over. The first half of this year, small mid Cap Companies in the s p 500 have a negative 10 Earnings Growth in the first half of this year. That leads to costcutting, cap ex, op ex and now maybe labor. Thats a recession born in the United States. Nothing to do with whats going on in china. Thats an overheated economy last year. Cost increased and now companies are feeling the brunt of that in their margins. I think its that simple the slowdown overseas is hurting. Its not elping. And oh, by the way, the tariffs didnt help on the margin side but we have to acknowledge the fact that this is a corporate profits recessions born of an overheated economy last year, okay, fiscal policy poorly timed. And now in the and the fed overreacted to that, because thats their job now were seeing a slowdown. Its playing out classic sort of expansion contraction. So Steve Liesman, weigh in on that its a bit of a different take than what is popular is to say this is all about tariffs and the trade war and the fact of the matter is the u. S. Economy was showing signs of peaking a long time ago. I think its worthwhile to go back i agreed with mike last year or so that a slowdown was in the cards. I didnt have a recession or even zero growth in my outlook because i felt like we were going to run off the fiscal stimulus and you were going to get back down maybe a little bit of payoff to a 1. 5 to trend growth what were talking about here is the difference between that slowdown being perhaps a recession or more severe slowdown is the tariff story and the tariff story, remember, scott, it was the express intent of this administration to weaken the chinese economy. To which, at that time, i said the president should not be playing with fire when it comes to the world because trouble will find you anyway you shouldnt go out looking for it weve had this policy of weakening global trade youve had this policy of weakening some of our overseas trading partners, and now its washing up on our shores my problem getting back to what jim was saying, if the problem is overseas and its coming back this way, overseas where rates are already negative, how are lower rates in the United States going to even help its very hard for me to find a company that tells me that the problem with their Investment Outlook is the cost of capital i understand the margin might help a little bit. But its a little hard to see why a quarter or even a half lower is going to really help the u. S. In that regard. And i think jim had it right when he said the president needs to solve this tariff problem if he wants the economy not to turn down severely. I thought you were disagree with me, but i agree with what you said the fed cant save this. And tariffs are definitely eating into Profit Margins i listened to the macys call. He cannot raise prices and tariffs will eat into his Profit Margins. So, steve sort of alluded to this, liz. This notion that the administration was playing with fire with going after china to the magnitude at which they were and which they are and at the same time, expecting that you can keep the u. S. Economy immune to anything across oceans. And you can keep the stock market high immune to anything going on in the rest of the world as well. And i wonder if now were at a Tipping Point in that where tweets and this and that, they can no longer quote unquote, save the day they cant fix all the problems weve already caused. And i would agree that the fed cant do it either the fed cant do it alone. There were two big risks when we came into this year in our opinion, taking us into a recession. The first of which that we thought was the bigger one earlier this year was a basically globalization is dead. A tradeinduced slowdown that bleeds through and causes a global recession now the risk taking the front seat is more a marketled recession where we create the selffulfilling prophecy where theres not really a good reason economically for a recession but a yield curve that inverts if that bleeds through and it creates a riskoff environment that goes into sentiment, then spending slows, cap ex slows further and we create a recession when we didnt really have a reason for one in the first place. You said, mike wilson, you get more bullish when the yield curve really inverts is the steepens. Im sorry thats what i meant. Pardon me. That implies that the fed goes on a serious rate cutting they get ahead of it. Id prefer a bear steepening where the back end is moving up, not all about the front end collapsing a bear steepening would be a signal from the bond market that the fed is doing enough at this point to perhaps stop the slowdown eventually. By the way, it works with a 12month lead and the stock market works with a 12month lead its not like its going to turn around tomorrow. Weve still got to go through the bad news of a recession. Unemployment goes up theres cutbacks and other types of spending and things like that i would push back on the idea that we didnt have reasons for a recession. Lets define what an economic recession is its cleaning up the excesses in the real economy there are three excesses that built up last year excess inventory, excess cap ex, companies overspent from having too much money, and now theres bad utilization rates and the third one is excess labor. They hired too much. Macys is a perfect example. I was thinking of macys. Talking about the inventory. They cant raise prices because demand is weaker and they staffed up for a different type of year what are they going to do . Theyre going to have to cut costs and lay off people its unfortunate those are the three excesses and, voila, you have a recession. Its not a disaster. So the way that we should be thinking about macys today, i wonder if this is that moment that, remember way back, ppg you remember when ppg, and i know Steve Liesman you do as well because we were having these conversations about those warning signs. They were the first. Or one of them you were on it. Should have been paying attention. You saw it, scott in the reports there. And that was at a time when people were kind of down playing the potential impact of the tariffs. And then we turn around and the Global Economy is at or close to recession. And a lot of that blame is put on the tariffs right now i just want to say one other thing, scott, which is that i know you want to talk about macys its an interesting question about whether or not next week we start to hear a little bit of coordination from Central Banks. That has not been the case so far. A lot of International Central bankers are going to be there. The question is whether or not the central bankers can get together and Start Talking about coordinated policy while the finance ministers and the treasury secretaries are slamming each other over the head with tariffs. It could be i dont want to overstate it but were talking about potentially the most significant jackson hole g gettogether weve had in a number of years. Since the crisis probably thats where i was going on that so macys, this ppg thing told us at the beginning of this trade war that, hey, were seeing these issues going on now macys, the inventories, are Companies Going to stop bringing goods in and theyll try and work off what they have and theyll do that by discounting and margins are going to be hit and then the retail dynamic which has held up because the consumer has been so strong. If that dynamic changes, look out. If the consumer is no longer so strong, if Labor Conditions deteriorate like mike is suggesting, then we have trouble. And i think consumer sensitivity will react to what they see in terms of pricing if consumers see a month like were having right now in august, the consumer is going to pull back and frugality is going to prevail once again. I disagree that macys itself is indicative of anything more than macys is doing a lousy job managing that business women like the shoes but women dont like the athletic apparel. Whats the messaging there well, youre not selling the right product. On the call in may, i heard about the younger women coming into the store they have been totally unsuccessful attracting women under 40 to go in and buy the apparel. Yet theyre going to lululemon if you have no Pricing Power at a time where you can still say the economy is good, and Consumer Confidence is so high and retail is a bright spot, if you dont have Pricing Power in that environment macys hasnt had Pricing Power pfor the last three years i think its more about tjx. I think its more about amazon i think its more about burlington its about those retailers i cant get behind what im seeing from macys and jp penny and saying were going to see an avalanche. Pete, youre there, right absolutely. What about this retail deal for a guy who, you know, looks at these stocks as i dont know is target attractive in this kind of an environment absolutely. Or just everything now becomes somewhat of a worry because of what macys had to say about the greater environment . No, i dont agree with that i think its a macys problem. A nordstrom problem. You look back and see these names. Theyve been suffering a long time theyve been trying to navigate their way through. Look at nordstroms the last couple of quarters abysmal. A lot of that has to do with, what are they stocking who is their buyer and their buyer is no longer there because, in this new environment that were in, they dont buy those kind of clothes. At least at the same extremes they once did. As people enter the workforce. So because of that, i think its a very, very difficult spot for all of those on the other happened ynd you lt walmart. We talk about target they are moving in the right directions and have the right products and many of those products are products that people kind of must have. And so because of that, they are in a great position, i think, right now, to continue to take market share away from some of those other names you guys brought up that are suffering. And i dont know how they come out of that spin, scott, because when you look at it, they continue to put all of this on there. And its a very, very big headache for them. I mean, its one of these things where its really difficult, i think, for the present environment. As people have gone to athleisure and all the rest of these types of things we bring up, thats whats making this so difficult on those companies theyve got to get into those categories in a much better way than they have in the past and they continue to focus on the wrong thing. Too much inventory and then theyre stuck with it. What i am going to buy . Cocacola and p g . Hold on, pete, finish i own cocacola i own target why . Because the fundamental story is still intact they have some growth. Organic growth all the different elements ecommerce growth in terms of target theres a lot of different ways you can win, and i think there are names out there that were brushed to the side. People call them i never, ever buy a stock because its defensive. I buy a stock because theyve got great fundamentals and growth if they got a leader on top, those are the stocks you want to own. Pick up on where pete was talking about with the idea you can still win in some stocks in this environment, where else can you quote unquote win . If anything retail, you have to be at the top of th target, walmart, cocacola those types of names there are some rays of sunshine. Earlier this week, the red book survey which showed Consumer Spending up 4. 4 in july also, and this is very important, okay, today we got the refinance index from the Mortgage Bankers Association Week over week up 37 . So this collapse in tenyear treasuries is blowing through the mortgage market. Youre getting refinancing that puts more cash in consumers pockets that they can spend. But theyll not spend it at the Department Stores. Theyll spend it at walmart. Online so that, obviously, accrues to amazon, target and walmart youll win at american express, mcdonalds. Youll win at dunkin disney those are the places youre going to win why . Because if in the last five years weve had this conversation about liquidity and the sea of liquidity, okay the sea of liquidity is coming once again where is the liquidth going to go in the world . The names like a disney. Like a starbucks, like a mcdonalds those are the places, reitss, Investment Grade, munis. When do we have the problem . When the sea of liquidity is there and no one wants the liquidity. No one wants to take it, then weve got a problem. I dont think were there yet. The sectors that work are the ones that have been somewhat driving things the yield plays as people hunt to get something utilities, reits, staples that have a nice yield. Its important to have both of those but lets go back to the retail piece. Lets stop acting like its just bad management its a complete shift in consumer behavior. And weve had a disruption that came into retail there just arent people and as a woman under 40, there arent people that are going to go to those old school brick and mortar Department Stores anymore. Theres a shift and companies that havent kept up with it are going to get hurt. You do have to keep track of diversification in your portfolio. And i also want to go back to a point made earlier people gave up on diversification in 08 because 60 40 stopped working. Right now its working its actually working the way wed expect it to. You have to have the diversification before that. You cant buy insurance when the firefighters are in your driveway just ahead of jackson hole, a lot of fed speak today, in fact. Oh, Steve Liesman is gone. Let me bring up janet yellen saying the u. S. Economy has enough strength to avoid a recession. Bullard says u. S. Not in recession. Good time for a framework review by the fed the fed is going to try its d damndest theyre not ready for this thing to end quite yet no, by the way, its part of their job to jawbone it higher thats what theyre trying to do they paused in january because theyre trying to stimulate the economy. Jawboning is not going to be enough dont expect them to tell you that were going into a recession. Even if it was obvious, they are not going to tell you that i wouldnt look to the fed to be the guide on whether or not were going into recession or not, scott the data is clear. We are slowing at a rapid rate whether we tip over into recession, it hinges on one thing and one thing only the labor market docompanies decide to start laying people off en masse in a way where the Unemployment Rate starts going up . Were seeing some signs thats happening with hours worked going down and wages coming down again. They are doing what they can without laying people off. If this get s worse, theyll lay people off once again it will make it perfectly clear. The time to make that call is not now. Its important, though, scott. I dont like people panicking now and buying staples and things like that now theyve already been buying staples. Theyll still work and theyll continue to work i dont understand what youre advising feem people to o then if youre already positioned defensively in those sectors, stay in that sector. If you have too much exposure in Growth Stocks, thats where id be trimming. Thats the one area of the market thats not priced in a true recession cyclical stocks have theyll go lower but they dont have as much down side as a growth stock thats price forward perfection and theyll not miss numbers thats where the risk is its in quality and in growth because thats where people have been hiding. Expand on that. Well, thats avoiding the high betatype of name mike, you were fantastic in january. The faangs and otherwise . Exactly i have been talking about, i dont think you need to be there. I like an intuit, a microsoft, a motorola solution, adobe i think they get you where you need to be you dont necessarily have to be in the faangs. From the Asset Allocation standpoint to scotts point, do you see that clients have already positioned defensively or they are sitting out on the ledge thinking, okay, here comes the Federal Reserve just like they have in the last ten years. Any time theres a problem, theyre going to bail us out thats right. Its not just retail clients active managers are showing some of the lowest net positions they have so people have been using that as a positive spin people arent invested the reason theyre not invested is because theyre looking at the data saying its not that exciting this bear market started in january of 18 that was the orthodox peak for the average stock market in the world and most stock markets around the world are down well over 10 from there. Weve been churning for 18 months, okay, and investors have been getting less bullish every time we make a new high. So there isnt as much selling that has to happen now they are in a better position. They have been buying bonds. They havent been buying stocks. And thats good. And Asset Allocation and portfolio diversification will get them through because were not in the camp that the bottom is about fall out. Even in the case of a recession. We dont think the market has to go down 20 because the market is already somewhat priced for that thats a really important point. Im glad you made that i hope people listen to that, take that to heart one of the things that ive seen clients do a lot thinking that its defensive is to be short on the curve because it insulates them from Interest Rate moves when being more defense sieve having some traditional longer duration and you would have benefited from that a lot in the last few months dont look at duration as risky. Its the only thing that can offset too late for that now because you have an inverted yield curve. It is inverted. Were at 155, 160 on the tenyear here, 1. 55, 1. 60 above almost everywhere else if were looking at cash, we get about 1. 50 in cash why should i take the tenyear duration theres a difference between diversification and derisking. Cash redisks you but also dereturns you. Diversification can bring down the correlation to that betaheavy side of the portfolio and be more effective and give you more return. I want to bring things back to where we started this notion that mike wilson was saying that the thought the fed is going to come to the rescue and be able to do that, thats kind of expired. The ability for a headline or a tweet from the white house to come to the rescue if thats expired. I wonder how many are offsides in their thinking about where the market could go as a result of a perceived fed and trump put. If that no longer exists, then you truly have a gamechanging environment in which you have to navigate the market, joe i think the exposure is in the high beta Growth Stocks. I think thats where, if you are correct, scott, and as you describe the environment, thats what unfolds and i think mike said it before. The high beta Growth Stocks are where youd be most concerned. But i also think its fair to reason that we could make this cyclical turn at some point. And in making that cyclical turn, i heard pete before. Petes got unusual activity, bearish activity in the eem. You can lets just do that now. Pete, youre with us still, right . Yes, sir, i am. Ive got my brother with me, too. Heres jon its a big day, scott. Were jumping around a lot. A lot of breaking news the market down 615. Thats the dow we may not step away for a break until the end. Lets do it now if we could. Ill start it off im going to talk about gld. Weve talked about this since may 31st it hits almost every other day, scott. Youve almost gotten tired of it started at 120 now 143. Its 52week highs today and it continues to see activity what were seeing today is december now they were going out to october. They went out to november. Now were seeing an extension go all the way out and theyre going out to december. By the way, those are the 31st expiring or Something Like that. The last week of december. So the 160 call. So theyre buying the entire year 2019. So theyve got all of december for these to perform and they bought nearly 5,000 of these calls. Ive been in this. Im actually over into all of these medals right now but thats the paper weve been seeing gld, slv, so ive been trimming but then when i see Something Like this, it holds me back from trimming even more because i should be taking more off. Im overexposed. Luckin coffee. This is going right into china this is a recent ipo what i like here, thats where the stock was trading when they bought these calls earlier in the day. They went out to early december. Theyre buying these calls its had a really rough last week in terms of the stock down about 10 in a week but look at all these calls being bought a little over 5,000 of these calls paying huge premiums i dont like paying huge premiums i bought the stock ive been waiting for an entry point. Its a down day. Buy the stock. And selling these big, fat calls up here. I stretched up one more strike to sell calls against what im buying in the stock. I like what im seeing here, scott. I think this is one of those opportunities that you see on days like today. Guys, gold, silver, that trade going to run out of steam any time soon . Not any time soon, no, no, no you do not give up on liz is so correct in identifying the environment. Diversification is what is going to get you through and endure right now. And youll be able to go back to your favorite equity names i hear you, but with all due respect, its like an empty word to me. No, its not. Diversification tell somebody how to be diversified right now. Municipal bonds, alltime high Investment Grade alltime high. Reits. Josh brown talked about reits 36 times in the last six months near an alltime high. Precious metals near a sevenyear high. Those are the things in your portfolio that are going to diversify the pain that youre absorbing right now. Relative to i mean, so how big is your stock position supposed to be thats the problem is that investors have grown so comfortable because of passive investing in the last four or five years that all of the exposure in portfolios is on the equity side. Because you have the Federal Reserve feeding liquidity. Global Central Banks feeding liquidity and market is in a very benign environment with an 11 vix just go up 30 thats not reality reality is what were facing now and the diversification of other assets get you where you need to be in a portfolio. Last year i would say, look at the emerging markets if this cyclicality is coming back, look at the emerging markets and say as ugly and as bad as it feels right now from a rebalancing standpoint, ive got to increase my allocations jon well, i dont disagree with joe on that point but that xlv, rather, the eem, im sorry, that pete cited earlier was big buying yes those put buys were huge. 62,000. If you are buying 6. 2 million share equivalent, theyre betting this thing drops a fair amount over the next several weeks. Doesnt mean theyre going to be right. But thats the bet right now and then you can flip in right around that strike level right around 36. The risk reward level is staggering when you can get in for 40 or 50 or 60 cents to the down side you have all kinds of room on Something Like that to be right and you dont have as much risk on the table take a look at this one, scott. Xlv. Here theyre buying the end of august puts. These are puts that relatively short term, obviously, going into labor day, the stock has just slipped or the etf has just slipped below 90 thats the strike theyre buying these are the 90s yeah, not 19, 90. 90. Thats the strike theyre buying august 31st is the expiration at the end of the month so big buys on this one. The health care etf. Also big ones in the spy, spot 276 puts out in october. Im just letting you know that one because i wasnt on here with you at the top of the show. But those are big buys, and theyre not that far under where we are here. It plays into what mike wilson is saying. People are betting on maybe a little more down side and they want insulation or protection from that. But theyre not betting that we just bore through and keep going after that hey, scott, one last thing id like to tell you cboe hit a 52week high today. Why is that . Leverage leverage in the options world. I bring up these volumes all the time august has absolutely been on fire in terms of volumes weve had a huge year as well. So keep an eye on that as well you guys talk about diversification. Where is a lot of the flows . Where is a lot happening in the stock market well, its really in the Options Market and trifative ativderivt look at that run spectacular. Thank you for pointing that out. Rich bernstein was on the Network Earlier this morning and said were in the ninth inning sounds like you agree . We could be in an extra inning or two. The market has been look, tom lee says this week were in midcycle of the bull market back up the truck is what midcycle for the secular bull market, but were very were at the tail end of a cyclical bear market. That was the call last year. I want to go back to the diversification point. Its important that the listeners understand diversification is not something you turn on and off. You have it all the time thats what portfolio diversification is youre always invested in stocks were fully invested weve been bearish last year weve tilted our portfolios to the defensive sectors and weve owned some more duration thats what Portfolio Management is its not shooting for the moon, chasing breakouts, trying to sell everything at the bottom at the perfect time its being fully invested and tilting your portfolios ahead of the changes that are going on to cushion the blow we want to stay fully invested throughout the cycle thats a great point. And the blessing that those who did not use diversification on a consistent basis over the last couple of years, the blessing that they had was a vix at 10 or 11 maybe the right question to ask yourself right now and maybe pete or jon know the answer or you guys know the answer, but are the days of a 10 or 11 vix, are they over . If they are over, that means something much different to investors once again pete, why dont you take that one. They are not over i mean, absolutely i say that with absolutely no hesitation well see those levels again we talk about it all the time, scott. Buy when you can, not when you have to. When the vix is trading in the 1 to 13 range we talked about the idea that, hey, now is the time to buy protection. I remember somebody on the panel earlier talked about you dont buy it when the storm hits the storm is hitting right now it might get worse, but the storm is here. Thats why were at a 22 vix right now. And because of that, theres a lot of nervousness out there thats why you can use this implied volatility thats jumped up as much as it has to use that against stocks if you can find them wilsons point is that the storm was hitting a long time ago. Its just you had a few sunny days mixed in to get people maybe to think that the storm was passing. And here we find ourselves again with the rain coming down. Yeah, and to that point, scott, when youve got the storm hitting months ago as mike said, and we talked all the time about, yeah, but its a big rotation youre seeing people rotating into or out of whether it was utilities, health care, technology, whatever it might have been. That smoothed out the line so we didnt have sustained 20 vix and so forth and i dont think were going to see sustained 22 vix for very long on this move either were still, like you said, about 30, 35 points above the regular session low of last week perhaps 50 points above the premarket lows of that evening so when we get down to those levels, then well see now were a lot closer if were there to that level that mike wilson has talked about. That 2700ish level that we could see, but im not really thinking we sustain on that. Another tweet from the president as of two minutes ago. Quote, tremendous amounts of money pouring into the United States people want safety i dont know what the calculus of how much money is pouring in, whether its tremendous or not, but the point that you made hes watching the show. But the point you made is about where else are you going to be in a turb lent world and a sea of liquidity. You want to come to the u. S the u. S. Is where youre anything to be able going to be able to absorb the liquidity. Have a constructive environment that continues to absorb that liquidity, because, mr. President , if youre watching, you dont have an environment that absorbs liquidity blame whoever you want were going to have a problem in all asset classes. What, liz young, is the sector you absolutely want to avoid . Want to avoid i mean, well, the trade war is still going on. Stay out of the things most sensitive. I think technology, obviously, is going to be at the epicenter of that for the long term. I would also be watching out for things like too much industrials because that gets hit just from a cyclical perspective but at this point, theres not really one sector that i would say dont invest there i would say there are sectors i wouldnt add money to, but i would still be diversified sectorwise and when we go back to the diversification point, not to beat a dead horse here, lets not forget that diversification is not a set it and forget it game you have to take profits there are a lot of investors that have run up in equities and just didnt want to pay a tax bill on capital gains. They stayed in it and end upped accidentally overweight. Its probably time to take profits there. Who would buy a semi stock today . I own im sorry, jimmy wlngets its a semi stock or a sector, the key for me is yield. Because im listening to joe, what youre saying about muni bonds. Thats in my familys dna. And i grew up learning that the income from those bonds has to be greater than the rate of inflation. Right now onmunicipal bonds, i isnt. Were losing purchasing power. When i look and compare reaching for 2 on a muni bond to the yield that i can get just as an example on the xle, the energy sector, right, thats a 3. 4 yield. Yes, yes, you have equity risk we all know that but for me, i want to preach a little caution on the fixed income market. Im a Value Investor i dont like to buy high you make a factual statement that munis are at an alltime high its a factual statement for me, that moves me away, still saying diversified, but i want to move away from that and look to yield that is better even on an aftertax basis in equities the market is down 647 as were talking. And there is a lot of perceived negativity but mike, going back to what were talking identifying this liquidity that comes to the u. S. Is there an economy globally in the world where youve got Consumer Spending as strong, resilient as it has been where youve got labor humming as strong as its been where youve got buybacks that are going to increase 13 and even though cap ex is moderating, cap ex companies are still going to grow 7 8 . Is there an economy where i can find that type of favorable environment . No, thats why the s p 500 trades at the highest multiple of any market in the world this is the whole story, right so everybody has been watching the s p 500 as a barometer of the health of the economy. And the reality is that the s p 500 has been benefiting from throws because its the most defensive stock market in the world. Also the most liquid stock market in the world. The fact the s p 500 was outperforming that much and so greatly was a negative signal about what was supposed to happen ush usually what happens at the end, i dont think its a sector call, its quality so basically, what the market paid up for is quality whether were talking about industrials or were talking even within software or technology or health care, the market is paying up a ridiculous multiple for high quality companies, okay . And they should be thats exactly what they should be doing but its just gotten a little extended now we have a debate if you are an investor today and this is more of a shortterm call if you have got a portfolio of barbell of defensives and high multiple Growth Stocks, typically at the end when theres a true growth scare, the Growth Stocks underperform and the defensive stocks hold on the longest. You have to be careful there those defensives then will come under pressure were just more comfortable in the defensive bucket than in the high multiple growth stock bucket i dont want to completely dismiss, even though we keep reading these tweets from the president. The ability of the administration to pivot in a more positive way for the stock market so we got the delay in tariffs what happens if what follows is an easing and dramatically so of restrictions on huawei then do i ask you, would you buy a semi stock and your answer may be different next week than it is today your answer on tech and hardware may be different next week than it is today. Thats a great example. Yes, if i knew today the huawei ban was going to be lifted id definitely be flooding into chip stocks you saw in their earnings just released that just about all of them had an impact and a significant one from the huawei ban but your question is bigger than that, scott. What can the government do and right now, it looks like we know the president doesnt want to sit there and watch the stock market heres what he can do go to hell in a hand basket hes not going to tolerate it. He can he can convene a meeting with the leaders of congress and say were going to put together an Infrastructure Spending bill were going to juice the economy. We are going to prime the pump he can also get together with those leaders, it was helpful about six, seven years ago, do a tax holiday on the pay loll tax for social security. Take a year off of it. It was helpful seven years ago you do that snow, that signals the market that you dont just have to rely on the fed because the fed isnt enough you need fiscal stimulus they can nonetheless be effective . Sorry, jim. I disagree with the idea that huawei if they were to say that were not going to, you know, not allow this trade with huawei we already know they have a years worth of inventory. They told us that. Right . So lets assume that huawei ways, well, i dont have to worry about getting parts. They may stop buying for six months because theyve got plenty of parts. I think it persists more when theres a risk that huawei gets cut off. Then they try to build inventory because they know theyre going to maybe get cut off in six months look, this is the problem. None of us know, right the point is, is that stocks are gyrating around in a volatile way off of these news events, tweets, whatever you want to call them. Thats not a way to invest i understand. But in some respect, you play the probability on the likelihood of things occurring the stock market going down and being unsettled after a tweet that these new tariffs are going to go in effect on september 1st leads to perhaps the delay in the tariffs. Further unrest in the stock market may, if we want to play a probability, it becomes greater, lead to the easing of restrictions on huawei these conditions that have caused sectors of the market to become unsettled can be changed. Right somewhat quickly. Thats what we saw so lets just go back to the semiconductors they got hammered in may when the first tweet came out that the deal was not going to happen and they were down 25 in the straight line, probably too much then it became clear that there was going to be some easing of these tensions and the stocks went up 25 . Half of thats just positioning and moving around. I would argue pretty strongly that tech hardware is weak, and the end markets are still weak and the chip stocks are probably\the inventories are really, really bloated and these are very volatile stocks probably for another six months at a minimum. They are going to be Good Investments at some point, i would not be guying this Group Wholesale today. I think earlier in the year it was a great opportunity. Lets just do this. Weve talked about a number of different sectors. We havent really gone deep on the banks. Let me also know the dow was just down 680. Both the kre and the kbe, the bank heavy etfs are in correction territory lets kick around that trade for a moment, the dow sitting just at 256 what do you think about the banks here well, what the banks are telling you right now, they are stocks are telling you that theyre worried correction, theyre in bear market its ugly, scott. And you can look at the Big Money Center banks like a city group. Theyre telling you that they are worry birthday going into a europeanstyle economy where you simply cant make money from lending. Somebody i think norway now you actually get paid to take out a mortgage thats not an environment in which banks can make money and the continual decline in Interest Rates is whats driving this now the only saving grace, and it is an important one, is that cash flows are still good at these Big Money Center banks and theyre buying back shares in. A lot of cases well below book value. Thats a creed to earnings on a date that the yield curve inverted it would be odd if the banks werent down. They lend long and borrow short so theyre not making money on that im not surprised. If we think that the yield curve eventually steepens if the fed save its, then the banks are going to be fine and theyre still better capitalized then all the banks around the globe citis down 5 . Jp morgans down 4 . I understand the environment that were talking about if we get into a cyclicly momentumoriented environment, is that going to mean that financials are going to rally first and foremost no i think the 2020 election is critical to Financial Institutions and i think thats preeminent on the mind of investors that are allocating towards financial. So that head wind of the 2020 election and what the democrats are talking about is going to be there. Look, there was a note yesterday that said that the banks were going to be in bad shape no matter what the outcome of 20 was, whether its a democrat winning for the reasons you say or even if the president gets reelected and the bombardment of the fed is likely to continue, those issues arent going away let me wrap it all up. We only have a few minutes left with you, mike wilson. The existential threat that hong kong and these other geopolitical issues may be, if that goes over the Tipping Point, if you will, how do you think about that kind of stuff well, i mean, look. First of all we havent even talked about the valuation the equity is actually quite attractive again so the market is once again being very efficient in discounting a lot of these risks, whether it be whats going on with trade which is sort of independent of that and also related, and of course geopolitical risk. I like to say im not smart enough to know whats going to happen with geopolitics. Nobody is. These are random events. Thats why you get paid a risk premium to own stocks. Look, if that goes really bad, yeah, its going to be a couple days of violent moves in the market every time that happens historically you want to buy so if it goes over the top, it would probably give you a really pat pitch. Wed be at 2,700 quickly. And thatd be it it wouldnt change my fundamental tarkts is what im saying but if we did get to 2,700, your thinking on the Bigger Picture would change a bit not really, no. Because i dont think i mean, look, lets not unless its a catastrophic event this is just another, you know, revolt riot which are terrible events and theres some flight to quality and money leaves the region those are temporary events typically. Like, i dont think this is the end of hong kong or the asian markets. It would be a temporary event. And those tend to be very good buying opportunities it would just accelerate pricing of all the things weve been worried about. The foots been on the gas pedal slowly the dow is now at the lows of the day down 703 703 1 5. Lets do this in the three minutes we have left lets get a final thought from everybody. Pete, tell us what we should be thinking about as this day has a few hours left in it, what investors should be looking at and watching most carefully. Yeah. I think youve just got to be disciplined. You dont just buybecause somethings sold off some of these sold off probably for the right reasons. So i think youve got to be really be selective. You absolutely should be at least looking. And im hearing mike wilson and he sounds a little less bearish than i have felt like he sounded in previous sessions so because of that i think you are looking for those opportunities, scott its been in gold and silver for a while now. I still tlink theres some upside there and those can be part of your diversification portfolio i think right now. Joe i think the economies need a little bit of global coordination i know thats hard to do right now. But germanys got to kind of wake up and get involved with whats going on with the trade dispute with the u. S. And the chinese. Because it is so negatively impacting them in terms of stocks to own, i am going to stick with verizon, a jm smucker, a walmart. Okay. Jimmy, farmer jim. You know, judge, it wasnt two weeks ago that everything looked just fine it was two thursdays ago, its wednesday today, that we got the tariff tweet that sort of sent things over the edge and i think what were going to see today is going to provoke powell and the chairman to do a cut. A,quote unquote, emergency cut . I think scott minors was talking about that in the last few hours. I dont think they can wait till, you know, september the end of august, not with the momentum thats picking up the foots on the gas pedal to the downside thatll be a shortterm hit, but for i mean a shortterm boost, but for longer term youve got to get trade fixed and youre going to have to get fiscal stimulus. We need a bigger tail wind than tweets. Thats probably a coordinated Central Bank Effort or some kind of deal on trade i dont expect the latter to happen any time soon but i still think the markets investable even with volatility. How about that, mike wilson, some coordinated effort next week, jackson hole thats what its going to take its going to take coordinated effort on both monetary and fiscal and we just got to let this thing play out lets get the numbers down lets get the earnings estimates down to achievable levels, and then look at the valuation and say, okay, now it makes sense. The valuation makes sense and lets get some of this bifurcation between overpaying for certain things, really high quality assets and thatll lead to what i think could be a really powerful cyclical move once the bottom is put in but its august and september. Let it come to us. Easy to push it around, too and to your point, lighter volume, et cetera. Its been good having you. Thank you thats mike wilson from Morgan Stanley dow, pushing near 3 decline that does it for us. The exchange begins now. Thank you, scott hi, everybody, and welcome to the exchange. Stocks are selling off sharply today as the bond market flashes that recession warning we have now given up all of yesterdays gains on the tariff delay and then some. In fact, a lot the dow is down 737 points right now. And in terms of sectors the banks, retail, energy, they are getting pummelled. This is not at all just a u. S. Story. Markets in hong kong, china, japan higher than now but down more than 10 from their recent highs. We are going to get the details on all of this, pluls the record moves in the bond market