Transcripts For CNBC Power Lunch 20160503

On what were seeing on major heat waves. Well be exploring the markets all afternoon for the next two hours and beyond. Lets get more now on todays slide from bob pisani on the floor of the New York Stock Exchange. Bob . Hello, tyler, and what were seeing is a little bit of a reversal of some trading trends, specifically around the dollar and also to a trading around the dollar. Modest rally. Look at the dollar index moving down all throughout the quarter here. The lows recently. Thats reversed a little bit today and some people are debating. The dollar may have bottomed and that may have factored. Energy financial materials were weak today. You know what the market leaders are. Energy financials and materials this quarter and a very specific reap. Those are cyclical stocks. Very specific reasons why cyclicals have done well this quarter. Let me show you the q2 trade, the trade everybody is doing. You have the weaker dollar and combine it with a stable china and you combine that with oil bottom and you put up the next full screen and have an accommodative fed and what you got is buy cyclicals, energies and industrials and thats exactly what everybody has been doing. Today, things are just a little bit under strain with this whole thesis. First off, everybody has been buying the cyclicals like crazy so they are overbought. 21, 22 times forward. Thats a problem. Second problem, chinas data has been choppy. Overnight we saw the manufacturing data weak. Its been very hard to read and then you throw in the dollar reversings, and youve got a little reversal of trend. Heres the big question. Is this the start of Something Big . So far its not. Just remember, nokes, 2100, thats where we were at the end of april. Right now were only 40 points off of that or so, so were about 2 from where we were on the recent high. So farins just a garden variety move to the downside. Not very aggressive, but we want to keep a close eye on whether we get any breakouts to the downside on the cyclicals. Guys, back for you. Sure do. Thanks, bob. One stock that is holding up in todays slide, apple. The shares are higher following eight Straight Days of losses. You can see higher by 1. 5 . A lot of the concern over apple recently is squarely focused on china. You might israel of the week billionaire investor carl icahn made a bombshell announcement on apple right here on power lunch. I got out for the purposech because im worried about china and i have a huge profit. Being that said, i hope one day to get back into it. Last night apples ceo tim cook came out swinging defending apples sales in china and in an exclusive interview with jim cramer. Heres what i see in china, we see in china is the middle class there is booming, and so you look back just five years ago. There were about 50 Million People in the chinese middle class. Five years from now that number is going to be almost 500 million. I mean, this is an unprecedented growth of the middle class. But you left that out on the corner on the conference call. Parsed every word and you did not talk about middle class which made us thing there was something wrong. My error for not talking about it. I could not be more optimistic about china. Okay. I think the longterm thesis is intact. Theres never been anything like it in the history of the world, and im still as optimistic as ive ever been. Tim cook also telling cramer that he sees huge opportunities in india, and seema mody is here with more on that. Hey, seema . Reporter tyler, thats right. Apple and tim cook remain bullish on china, but there are signs that demand is slowing. Just take a look at this bar chart. Sales in the latest quarter in Greater China falling by 4. 3 billion. Thats in the Second Quarter and now apple is looking to india for growth. Currently the worlds Fastest Growing Smartphone Market with an emerging middle class and compelling demographic trends. Youre talking about a young young audience as well. Tim cook, the ceo of apple mentioned that when he spoke to jim cramer. India today has about 50 of their population at 25 years of age or younger. Its a very young country. People really want smartphones there. Really want smartphones, and this year the first year lte begins to roll out. Huge market potential. Okay. But india has only roughly 2 of indias Smartphone Market, but a growing number of skeptics say india will be challenging to break into. First off its a crowded market, competition, samsung and micromax offering more cheaper and Cost Effective options. Some are sold under 200. Analysts say price point is such an important part of apples success. One strategy was to sell refurbished cheaper phones in india, but today the Indian Government rejected apples request to do so, so while india might have a young digital savvy audience, apples reach into the country will require time and perhaps a local partner that can guide the company through these hurdles. Guys . Seema, thank you very much. All right. Lets bring you back lets bring it back to the investor. What do you do with apple right now . Should you buy it . Lets bring in channing smith, an apple shareholder who says apple presents the perfect buying apple right now, an apple analyst at btig cut his price target to 115 which is higher than where it is right now. To that in a second, but walter, first, let me ask you, you have cut your estimates for how many phones you think apple is going to sell over the next couple of years . By pretty significant amount. Why is that . Is that due to china . Are you fearing loss of market share, why the lower expectations and their ability to sell phones . For those recisions for us it was about the upgrade cycle. Saw a dramatic change in the First Quarter. Little evidence of that in the december quarter but in the march quarter the upgrade rates for the developed markets, particularly in the u. S. Really came in, and people are just holding on to their phones longer. The reference to china and india, true huge opportunity, but we have seen lte in other emerging markets like brazil where lte pentation has gone from 13 to 26 . Not necessarily to the benefit of apple there because people are buying, as seema was saying, phones that are less than 200 of an asp and even with the se, still an expensive phone with that type of market. The newer, cheaper, smaller model. But you still have a price target of 115 which is higher than where it is now. Is that a buy . So the belief that you have to have, which we still do, is that they can return to growth in this december quarter. Theres concerns there that there is a structural change in the upgrade the upgrade rates of the developed markets, but we still believe that they can return to growth in this december quarter, so if you look at the valuation of the stock, the significant discount to the market multiple, if you believe that they can return a growth in the next fiscal year, then you should be owning the stock. The pressure then is, you know, what is it about this phone thats going to get people to buy more phones in this december quarter than what they did in the past december quarter, and by the way, you know, when tim cook said that he was going to grow phones in the december quarter, it was marginal, and that can be impacted by changes in your inventory, so this time around its going to have to be more than beating last years number by a couple hundred thousand units. I guess when youre talking about india, what will it take for apple to be successful in this market . Does it all come down to price point, because just from having conversations . Lets ask channing that question. Absolutely. What will it take for apple to be successful in india, just speaking to people on the ground and this morning, apple doesnt seem to have the same brand identity that samsung has and cheaper may not be enough to cut it. I think youre right and if you look at india and the price points, 4 5 of the phones are priced at under 100 so its a Challenging Market but like you said its only 2 . A bigger Addressable Market in the near term for india. It will be tough for them to have numbers that impress over the years and in the near term we think they can see growth out of india. 77 last quarter and fell to 56 . Well look at china and still think the markets are going to be attractive. We think the price point of the lower cost phone will come down so its really just getting market share, but the bigger point that we see is, yeah, it was a horrible quarter. Probably one of the worst quarters weve seen in a long time and were more optimistic on that september and october quarter. We think they return to sequential growth and the analysts are becoming way too bearish. A rough sledding for the next month or two but we think youll see a very impressive quarter in september and december. Channing, do you think then do you think that the refresh cycle is going to pick up then in contrast to what walter sees . You know, walter makes a good point. Were at the point in the Technology Cycle where you dont see a lot of innovation. Were two years removed from the big foreign factor and a number of users in the 5 and 5s so we think youll see a pretty good upgrade cycle starting in september. All right. Apple is not the same Growth Company that it was, but its still going to drive, you know, very good revenue and earnings growth. In a rut right here but we expect that investors will look forward to that starting this summer. Seema and thanks to all of you. Many apple suppliers are under pressure today as you see that list right there, all in the red. Already down more than 10 this year, many of them, so what could be next . Brian blair is grays peak capital head of research and follows the suppliers. We just looked at a list of four. There are probably many more. Right. All of them feeling some of the pullback. Have the stocks pulled back sufficiently that now or soon they might be on your buy list . I think they have pulled back enough. Theres really only one Major Company thats left to report that has, you know, significant exposure to apple and we hear from that this week and thats corvo and go back over the last few weeks of earnings and look at the results from synaptics and cirrus logic and a handful of others, weve already seen the impact of the supply chain from apples lower numbers. Many Companies Reported after apple did. Some like jable on the manufacturing side reported a bit earlier. We had a bit of an early look and then weve seen a lot of key supplier reports and i do think expectations have been appropriately lowered. Many of these Companies Reported dismal june guidance which really matched apple, you know, in many regards. The only ones that did better were the ones more diversified away from their exposure to apple with you a lot are being cautious about the comments in the back half of the year, and its because theres some uncertainty exactly about what the iphone 7 is going to look like and what demand will be like, so what were doing at grays peak is paying a lot of attention to the supply chain and were trying to Pay Attention to exactly whats happening there. Thats going to be the best indicator of whats going to occur. So, they have lowered the bar across the board. Are you more inclined to put money to work in one of the companies that you just described as more diversified and less strictly tied to apple, or are you more inclined to go with ones that are more dependant on business with apple . We like the ones more diversified, but what we pier focused on are the ones tied to the emerging technologies that were seeing. A lot of exciting things happening right now in voice and voice at an interface, so were looking at a lot of companies that are supplying key microphones and audio features we think will be an important part of the supply chain, not just for apple but also for samsung and were paying attention to those technologies. And more diversified would mean more names. Give me two of them. Samsung and the guys exposed to the high end of china are doing exceptionally well. The same guys who are hurting apple in china. They are seeing growth right now and seeing growth they are seeing declines in china. Not a zero sum game. Brian, thanks so much. Brian blair, thanks. April, another big month for auto sales. Phil lebeau live in chicago. Michelle, she is numbers will ease the concerns we saw coming after march numbers that were weaker than expected. Lets run down what were hearing from all of the automakers right now. Most of them were in line with expectations with the exception of Fiat Chrysler which beast estimates coming in at a 5. 6 gain. What drove sales, trucks and suvs small once again, pickup trucks, jeeps, sales up 17 last month. Talked about it for some time. Jeep has been on a roll. In terms of what the showrooms were offering and what people were paying month to month, incentives, now averaging 3,021 for the month from true car and thats an increase of 13 compared to april of last year. Take a look at shares of the major automakers. Remember, we get the final sales rate a little bit later on this afternoon. Most believe its going to come in at about 17. 3 or 17. 4 million. Guys, back to you. Got it, phil. Thanks. Ahead, a bold call from bill gates on your taxes. First though, Brian Sullivan is live in Beverly Hills with a huge lineup of power players. Hey, brian. Hey, michelle. Thanks very much. Were about to kick off two or just under two big hours hat the milken global conference in los angeles. Well talk about infrastructure spending. Is there a chance for a real spend and build. Well talk with one of the biggest engineering nirms in the world, eric cantor, former Prime Minister tony blair and will talk to us about everything about the u. S. Election and some of the problems in england right now and the chief economist for jeffreys, doesnt do a lot of tv. Has some really interesting ideas about what will happen to Central Banks all around the world. Infrastructure, as we kick off a big two hours at the milken global conference. Youre watching power lunch, and we ear back right after this. Welcome back to power lunch. Were live at the Milken Institute global conference here in Beverly Hills, can. You know when youre driving on a highway and whatever town youre living in and its filled with potholes and the bridges are old and thats old and kind of embarrassing for america, lets talk about a company thats trying to fix that. They are a huge infrastructure builder, engineering firm, design firm. You do it all, mike. You can tell i have no passion about this topic at all. Right. It is, infrastructure does represent a country. And you come to america and see the state of our airports and roads. Its kind of sad, at least to me. Do you believe that in the next year or so, new administration, that we will get a huge new infrastructure bill passed in this country. I do, brian. Seen the early indicators of it. Both parties of the president ial election are talking significantly about infrastructure. Weve seen momentum, the first bipartisan significant action in the fast act, the new transportation bill. We saw there year 300 billion dedicated to transportation infrastructure. Were seeing momentum. Seeing a vast, vast attention to the the problems that youre talking about. If words built things, wed have the greatest infrastructure in the world. Theres been a lot of talk and everyone seems to agree we need to do something. They all say it. Weve got a transportation bill in december done. Do you have real optimism though that these sides are going to come together and get something done, a couple hundred billion, 1 trillion, putting people to work building new things . For decades weve underinvested in infrastructure in the United States. And spend 2. 5 of our gdp on infrastructure. Europe is spending 5 , china 9 , so clearly were underinvested, but were seeing momentum and seeing the fast act that you mentioned. A lot of states are now putting in place specific tax measures addressed at transportation funding alone. Were seeing the private sector coming into the Public Sector through Public Private partnerships, so theres a lot of momentum, and im confident that that momentum will continue. You guys are not a household name, no offense, but everyone probably knows the stadiums that you guys build. Youre in the oil business, drilling rigs. Taking that down and building ports all around the world. You kind of do everything. Where is money being spent, either geographically or on certain projects . Right now the vertical construction, high Rise Construction is booming more than its ever been in the past 15 years. Seeing in the major metropolitan markets a significant amount of high Rise Construction. Although its certainly in the late innings of that cycle. Is it slowing, because a lot of people say were basically in a real estate bubble in new york hand san fran and others. Its starting to slow a bit and were starting one in vanderbilt, new york, the third tallest building in new york city after we built the world trade center, seeing activity there. It will slow down over time. Sports, as you mentioned sports, its a big market for us around the world. Yeah. Weve designed or built twothirds of all the Major League Sports arena or stadium here in the United States. You going to get the l. A. Stadium . Hoping, hoping. Bids are in . The bids are the in the process right now and were hopeful on that. Do a lot of stuff in the middle east. Just got back from qatar two weeks ago, building a port, some of the stadiums for the world cup. They are exposed to commodities. Any sign that the middle eastern customers are cutting back or slashing projects because of whats happened to oil. In the middle east, especially in the petrodollar fueled countries, a little bit of a pause but those countries have significant financial reserves and are investing in infrastructure for the long time. Recently in doha, a fabulous 8 billion port, the largest new greenfield port in the world. Diversifying their economy and trying to engage more in global commerce, not just in the oil business, so were hopeful in that market also. Just incredible, you go to due buy and everything is new, everything is brand new. Mike burke and chairman of acome, thank you so much. Pushing for a infrastructure bill. Thank you. By no means close to being done at the milken conference. Coming up in 45 minutes former england Prime Minister tony blair will talk about. Well talk about the labor Party Scandal and a potential british exit and u. S. Election and former House Majority leader eric cantor will join us as well. A big day. A lot going on, and well see you right after this break. But i keep it growing by making every dollar count. Thats 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. Thats huge for my bottom line. Whats in your wallet . speaking japanese oh watson, your japanese is very good. Thank you. speaking japanese exactly. I can understand nuance, context and idiom in seven languages to help companies all over the world with everything from retail solutions, to banking, to cyber security. speaking japanese welcome back to power lunch. Im michelle carusocabrera. The final gold trades crossing for the day with the recovery. Seeing a little bit in the dollar and see the retreat across the entire metals complex. Gold lower by roughly 5 bucks, retreating from the 1,300 level that it crossed over yesterday, 1,290. 70 per ounce. Platinum, palladium, silver all in negative territory by at least 1 . Copper and palladium lower by 2 and palladium lower by 2. 5 . Lets find out whats going on with Interest Rates. To the bond market and Rick Santelli checking the action at the cme. Richter. Michelle, down eight basis points in tens and seven in 50s. If we close at this level, a two and a half week low yield close. Last time we closed down here was around the 18th of april. The same april 11st start to boons. Same pattern. You know, we had the Double Bottom in yields and now it looks like its terng into a wedge. In english that means more sideways action but definitely at lower yields. All about foreign exchange. Maybe too much volatility and part of the reason all the equities are under pressure. Look a may 4th start of 2015 to the aussie dollar, aussie versus the dollar. Of course, they lowered rates today. You could see the response was rather swift. October 11st of 2014, last time dollar yen was here. Thats been a swift dollar weakening trade, and if we look at year to date. Remember when brexit was under pressure, the dollar has reversed. Seems as though we all wanted a weaker dollar, but maybe we got too much too soon too fast. Back to you. Got it. Thanks, rick. As a result of that seeing a big move in oil. Right now crude is trading down by more than 23. 5 . Coming up next, youll hear from one big money manager who says that oil is at a bottom. The one big bet that hes making right now when power lunch returns. Mary buys a little lamb. One of millions of orders on this companys servers. Accessible by thousands of suppliers and employees globally. But with Cyber Threats on the rise, marys data could be under attack. With the help of the at t network, a network that senses and mitigates Cyber Threats, their Critical Data is safer than ever. Giving them the agility to be open secure. Because no one knows like at t. Thank you. Ordering chinese food is a very predictable experience. I order b14. I get b14. No surprises. Buying business internet, on the other hand, can be a roller coaster White Knuckle thrill ride. Youre promised one speed. But do you consistently get it . You do with comcast business. Its reliable. Just like kung pao fish. Thank you, ping. Reliably fast internet starts at 59. 95 a month. Comcast business. Built for business. Hello, everybody. Im sue herera and heres your cnbc news update for this hour. Republican president ial candidate ted cruz campaigning in indiana in a lastditch effort to deny donald trump the gone nomination. Later at a news conference, he laced into his rival. This man is a pathological liar. He doesnt know the difference between truth and lies. He lies practically every word that comes out of his mouth, and in a pattern that i think is straight out of a psychology textbook. His response is to accuse everybody else of lying. Trump responding by calling cruz a desperate candidate trying to save his failing campaign. He says it proves once again that cruz doesnt have the temperament, in his opinion, to be president of the United States. Mass teacher sickouts have forced dozens of detroit Public Schools to shut their doors for a second day in it a row. Teachers gathering for a rally at the headquarters of the citys Public School system and the district says it wont be able to pay teacher salaries past june 30th. Thousands of people gathering in central paris to call on lawmakers to vote against the governments controversial reform of frances labor laws. Several trade Union Leaders and musicians took to the stage during the twohour protest. That is the cnbc news update this hour. Ill send it back to you, michelle. Dont touch the labor laws. As you well know in france. Good forbid they work. Stocks are well off the lows of the day, but were still deep in the red. Right now the Dow Jones Industrial average is lower by about 1111 points, almost 112. The s p lower by 15 and the nasdaq lower by 35 which is a decline of half a percent or threequarters of a percent. Lets bring in bill stone and the chief Investment Strategy at Janney Montgomery scott. Bill, ill start with you. We rallied a lot after those february lows. I mean, are we due for a pause here or is this more than that . I think as much has anything were due for a pause, and i also think the market is kind of waiting on the news that the u. S. Economy is actually going to start picking up again. You know, i think it forgave the low First Quarter in terms of Economic Growth and we all know the rest of the world is pretty slow as well, but we really havent seen a whole lot of evidence of the pickup. The wait and see game in terms of defending the multiples here, justifying them. I think so. The hard part is youre in a fight against really low Interest Rates which make, you know, stocks more attractive. I mean, where else are you going to put your money. Still the winning place to be. Its just, you kind of have to wait it out because we do think youre going to see at least a u. S. Economy pick up here. Mark, what do you think of the markets right here . Largely the same thing as bill had mentioned. We think we might lose a couple of battles before ultimately we win the war with equities and expect continued volatility and some of what we saw in february is in fact the new normal. That said i expect that well see earnings, sometimes in the third or Fourth Quarter this year as the base effects begin to lap and both strengthen the u. S. Dollar and oil prices, and as a consequence i think thats enough for Equity Investors to begin to bite off on an improving earnings picture, something we dont have at the moment which will at least help to resume the advance if not necessarily at a terrific pace, at least that which outpaces that return that you can expect to get from bonds or cash. Im reading here you think oil prices have found a durable bottom. Thats a bold call because commodities is tough. If you believe that, what are you doing in terms of your portfolio . Quality names in the energy patch clear will, the major integrated, the exxon, chevron, exploration and Production Companies that will benefit. 18 to 24 months hence in terms of the amount of Capital Expenditure destruction thats taking place that will ultimately benefit or spend an up cycle or spending on the oil services and the equipment thats been obviously obliterated because of the appropriate to us decline in oil prices. At the end of the day xle and etf, exchangetraded fund captures all of those kinds of securities in a simple boston death and offers a little bit better than a 3 yield and investors will be rewarded at 12 to 24 months from now as the oil markets come into balance. Bill, what do you think of energy . Is that where you put money or other sectors you like better . You think the economy is going to improve later so maybe energy isnt bad . Dont mind it too much. Were not overweight. Like Consumer Discretionary for a few reasons. One is youve got even in a weak First Quarter, consumer still spending, maybe not as much as people would have liked but the fact is they are there and well see today vehicle sales will have hit their alltime april high had. I think you are seeing the consumer side and thats the bouncedback and if youre looking at earnings as we was talking about, the earnings season isnt looking that great but actually Consumer Discretionary is probably going to be the top year over Year Growth Rate of any of them, so, you know, again, interestingly you have to be careful where you are. It was really i went to the Berkshire Hathaway meeting and maybe buffeted it out. You and 40,000 other friends. Exmarketly, but the interesting thing is he spent a lot of time talking about the disruption so you do have to watch where you are. We like names like home depot where its really difficult to dislocate them via some sort of mobile or Something Like that. Buying lumber on an app is still difficult. Probably can, but still have to get it delivered and oreilly automotive, auto parts are difficult as well to dislocate. Right. Got to go in and get them. Thanks, guys. Bill stone in studio with us and mark lachenney. Go to powerlunch. Cnbc. Com and see how they are investing globally. Powerlunch. Cnbc. Com. Now, back to brian in Beverly Hills. Brian . Tough gig, michelle, tough gig. Thanks very much. Because we have all these great guest interviews not forgotten about street talk, our daily dive into the key analyst calls we think you need to hear about. Three stocks, lets bang it out right now. First one is a twofor bd and a tail of two retailers, rbc capital is initiating walmart as an underperform. Analysts see more competition from ecommerce, especially on the grocery side and same analyst initiating costco as an outperform, high growth traffic year so basically sell walmart, price target is 66 and buy costco, second day in a row for positive commentary on costco. Next up, republic services, barclays upgrading this to an overweight to equal weight and a better than expected firstquarter results and numbers were released last week and analysts also likes the favorable valuation relative to the other waste. The 10 upside seen on rsg and swiss re, the biggest under the radar name that weve talked about because its a 33 billion market cap company. A swissbased insurance. The u. S. Adr and trids under the ticker ssrey, five letters, adr, jpmorgan upgrading the stock from a buy to a hold and keep the target at 104 swiss franks. Stocks at 16, so about 20 upside. They posted blowout earnings last week, Profit Growth in all categories and the company says it remains well capitalized. There is your trunk ate the l. A. Version of street talk. Back to Tyler Mathisen and in cold, rainy new jersey. Cold and raw, but i dont feel cheated even though it was three stocks. Very good stuff. Lets get another quick check on the markets now on this down day. A bit of a comeback, a bit of one. The dow had cut half its losses for the day, and its still down very sharply. A couple of sectors turning into the green from the top of the hour, as you see. Consumer staples and health care. The gains are really miniscule. 1 100 of 5 and 1 10 of 1 for consumer staples. Leading the downside is energy, off more than 2 , but that is a slight rebound from the lows of the day. Still to come, a bold call from bill gates. He says hed like to see a tax hike aimed squarely at wealthy investors like him. Well tell you what hes talking about, plus the fight over florida begins. The latest in the world of Electoral College politics. Power lunch returns in two minutes. You wont see these folks at the post office. They have businesses to run. They have passions to pursue. How do they avoid trips to the post office . Stamps. Com mail letters, ship packages, all the services of the post office right on your computer. Get a 4 week trial, plus 100 in extras including postage and a digital scale. Go to stamps. Com tv and never go to the post office again. Welcome back to power lunch. Im tothsion. The Capital Gains tax, a much contested top earning over the years in this country, particularly in election seasons like this one. Bill gates chiming in on the issue on cnbcs squawk box yesterday. Listen. Always been the question of whether taxes on capital should be a lot lower than taxes on labor. You know, i tend to think that they should be pretty much the same and that thats an opportunity to be a bit more progressive. Cnbcs robert frank is here. Maybe a surprising bold call from bill gates . Surprising given who it is and the fact that hes probably one of the largest investors in the world, calling for the rich to really pay more, and he said he would start, of course, with increasing the tax rates on Capital Gains. Basically capital should be taxed the same rate as labor. Capital gains are taxed at 20 and you add that 3. 8 health care levy, 23. 8 and while the top tax for salaries and wages, thats 39. 6 . Cap gains are mainly earned by the wealthy. For the bottom 99 of americans, more than threequarters of their income comes from salaries and a few percent from cap gains. Look at those making more than 10 million, cap gains accounts for more than half of their earnings and add on dividends to that, almost threequarters. Gates, of course, one of the worlds biggest investors through his private fund Cascade Investments and through the bill and Melinda Gates foundation with more than 40 billion in assets. Can i just check with one little thing. Larry is here, larry kudlow is here. Going to introduce you but the man needs no introduction. Im larry from cnbc. List of all, first of all, its not a rich mans gas. Cap tail gains is a double tax on corporate profits. Yes. A double tax on corporate profits so youve got to really say 20 times two, plus the surtax from obamacare. Second, lots and lots and lots of middle class people, including unions, most particularly Government Union people, are invested in pension funds. Right. Which are invested heavily in stocks. Thats true. Stocks would react very adversely if you increased the double tax on profits. Stock value has to come down, so it isnt just a rich persons tax. We have gnarled bernstein with us, a senior fellow on the center of budget and policy priorities. Larry, your problem, like mine, isnt with the idea that labor and capital might well be taxed at the same rate. Yes. Its just bring the rate on labor down. Listen to match capital. There you go. Thats and gates mentioned that as a possibility but said that would ruin the revenues. It would be the ruin the revenues. Every time you lower the Capital Gains tax the revenue goes up. Would i like to see all taxes equal. Im a steve forbes, art laugher flat tax guy, have been for 40 years and boy say take them all down to 15 or 20 , corporate, capital, dividends, individual, personal. And dont let people hide income. Right. Get rid of all the loopholes. Mortgages, everything. Exactly. Clean it up. All the cronyism. Jared, well get you in one of these days. Clean this thing up. I think jared might have a different point of view, jared . Actually, my point of view is not as different as you might think in the sense that we waste a ton of resources in this country by people seeking to avoid paying the highest rate, which, you know, i understand, thats built into the code, particularly taking advantage of the very gap here that bill gates is very smartly trying to get rid of, so on this this may surprise you, but i agree with Larry Kudlows idea that equalizing rates is a good idea, not because of the supply side growth effects which really wont happen, but because of all but because of all the tax avoidance that you would obviate. Okay. Where we disagree though is on the level. If you went to 15 or 20 , youd kill revenue collection, so heres the idea. We have to make sure that we harmonize these rates at a level thats better than revenue neutral. I have a deal for layer. Bring up the Capital Gains rate, cant really do much on the personal side and bring down the corporate rite. I think youre definitions of better than revenue neutral would be different from what i would say. This is the 3,102nd time jared and i have debated this, and i just have to point out them again. Just did in in the great metropolis of richfield, connecticut, and i love jared, one of my totally favorite people in the world. Agreed. I mean, ill just say it for the 1,000th time, growth would rise. Get 4 , 5 growth for half a dozen, ten years and revenues would rise and all the rest of it, but i do want to note this thing, too. Capital gains tax, soap studies, a huge tax not just on growth but on investment, and we desperately need new business investment. We are virtually in a business recession right now. If you look at the fourquarter change of business fix the investments, structures and equipment its gone negative and ditto for the Industrial Production index so in a business recession i dont want to be jacking up a tax which is a primary supplier of the investment for new businesses and jobs. Look, theres a large body of research on the impact of capital tax gains taxes on investment and what it finds is a big boost. Finds about zero. Ive done some of that research myself. Let me quote Warren Buffett. Warren buffett said ive never seen an investment that someone would pass up based on a tweak in the Capital Gains tax rate. Thats just not the Way Investors think and the data bear that out. The real problem is that these differential bill gates is actually really nailing an important point. The differentials trigger people to get into all kinds of tax avoidance behavior thats really economically wasteful so that kind of equalization. Thats true, so the same could be said for all of the deductions and tax preferences that people use. Thats a great point, too. We waste a lot of money that way. All it is is cronyism and corporate welfare. Look, i look, Warren Buffett is a genius, okay. Bill gates is a genius, believe me. I understand that. We just disagree on the Political Economic debate. Thats all, and i get that. And mr. Buffets been on this side for a long time. However, im going to buy jared a subscription im going to buy jared a subscription to twurnl the wall street journal editorial page and stop reading the new york times. I dont understand why there should be any Capital Gains taxes at all. You have to start the company, youve paid fees and paid taxes on everything youve bott. Theres so many places along the value chain that you have paid taxes on and now the governments got to take a big chunk again now that youve actually made some money. Im speechless because theres not one comma that you said with which i disagree. Excellent. Im speechless hon that, but i do think, look so i want to make this associated point. Business looks to be in a mild recession. Thats not good and that includes profits, okay, which have fallen three straight quarters. This aint the time, believe me, to talk about raising the double tax on business and investment. This is not the time for in a. All right. For the 4,2774th time we have to leave it there. One of the problems let me just one quick thing. We have to be mindful of the revenue impacts. We can have all great conversations about how wed all love to have our tax cut but at the end of the day there is obligations, challenges, Government Faces and we cant ignore them. Revenues will go up, jared, trust me. They will go up. Can we move to florida, is that when were doing . I wish it were that simple. Theres no free lunch. Lets talk a little bit about florida. An interesting article that i want to lay out there that indicates in a race between Hillary Clinton and basically anyone on the gop side all hillary has to do is win florida if, if, if the states that over the past, what is it, six elections. Six elections have reliably gone democratic continue to go democratic. She doesnt have to flip any other state. Except florida. Except florida, which has vacillated between democrat and republican. If the map holds. Okay. I just want to say this. We always go through this, and i agree, by the way, the dwop needs to expand its state base. Its a much harder electoral map for the gop. It is, but having said that, you know, take a look at your National Polls the last couple of weeks. The battleground poll which is bipartisan have clinton and trump even. Shes plus three, thats inside the error of margin. The rasmussen poll has them flat even and ibd poll gives her a sevenpoint lead and it was 15 not long ago, and all i want to say its way too early to talk about who will win states in the general election, way too early and the other thing i would make is this. Trumps appeal. Im going to assume is the nominee and i think it will be clinched tonight. Trumps appeal is just different from a lot of prior republican candidates, and by the way, its different in one way thats good and one way thats not so good. Very good that hes the outsider and wants to shake up the establishment, and ornish use like immigration and trade he is a hi peeling to both white and blue collar middle class people, okay. Thats his advantage. He may pull in independents and democrats. On the other hand, i do not disagree with Chris Cillizzas article, mr. Trump has to pay more attention to nonwhite voters. I think with respect to hispanics who favor Legal Immigration and also africanamericans. Now, hes done rather well in the republican primary, but not the numbers overall, so thats his challenge, frankly. You look at florida, over 20 Million People now, half of that growth over the past five years is nonwhite voters. I agree, i agree. Also a lot of wealth thats moved there. As a tax avoidance structure. Thats a new group of voters, people from the northeast. Can i make a comment on this. Sure, sure. I think there are two critical populations to consider in answering this question about florida. Hispanics, immigrants and retirement security, think about Social Security and medicare. Which candidate is likely to do better with immigrants and hispanics in particular and protecting Social Security in terms of Social Security and medicare, got to be Hillary Clinton over donald trump and in both of those cases so i think those are huge factors that make this a very heavy lift for donald trump. I dont disagree about the heavy lift. I think its up for grabs, i really do. I think the trump candidacy which has always surprised is going to continue to surprise, but i acknowledge the nonwhite population, but let me just add. On this point though. Youve got a lot of republican governors, 311 or 32 if im not mistaken and they have switched around states like nevada and maryland and illinois and massachusetts. Wisconsin. Wisconsin, thank you. Those could be leading indicators, and trump primaries dont determine general elections, i get that, but trump has done extremely well in these primary states in the northeast which is a big surprise and won big in florida, so im just saying net, net, net, its a little early to start making these prognostications. I agree. Look, thats a great point about how early it is. I will say that donald trump tends to do better with an angry working class who has been really hit hard by trade and by wage stagnation. Thats probably less an issue in florida where, again, immigration and preserving social insurance, medicare and Social Security, thats got to help the democrat in my view, but larry is right about its being early. It absolutely is, but its getting late for ted cruz. I mean thats true. The issue of trumps success is partly that hes done it without really appealing to what we would call the gop party faithful, right . Probably so, but, i mean, hes carried enormous amount of republicans in these primaries, you know, frankly several million more than senator cruz. To tylers point this morning, the president of the club for growth was on and so antitrump and thinks he cant beat hill pare. A dear old friend of mine, on the board that have club for many, many, many years, they have hated trump from day one, thats all i can say and they have been lost and they have the short end of the stick. This is an election that is going to continue to surprise a whole lot of people. Thats all i want to say, and this outsider business, this outsider crush the establishment, get rid of michelles phony loopholes she discussed so eloquently before that. Stuff matters a lot so we will see. Folks, thanks. Jared, thank you very much from california, robert, thank you. Love you, jared. Larry works needs no introduction. Love you, buddy. Late day comeback continuing there as you see, still in the red but not by as much as we were at noon or 1 00. Nasdaq highest level of the day. But still in the red. Well be right back. Youre down with crestor. Alright now theres a way you can get crestor for 3. Adding crestor, along with diet, lowers bad cholesterol. Crestor is not for people with liver disease, or women who are nursing,pregnant, or may become pregnant. Tell your doctor all medicines you take. Call your doctor if you have muscle pain or weakness; feel unusually tired; have loss of appetite, upper belly pain, dark urine or yellowing of skin or eyes. These could be signs of serious side effects. Ask for the crestor 3 card. Ask your doctor about crestor. music pl throughout uh oh. Whats up . Does nobody use a turn signal anymore . M. L. M. L. M. L. Welcome back to power lunch. Shares of adp are recovering from an intraday fall after a report from the Circuit Court blog saying that the Payroll Processor had a possible data breach in which identity thieves reportedly stole tax and salary data affecting more than a dozen customer firms. The report going on to say adp says the incidents happened because companies mistakenly published Sensitive Information online themselves making them possibly easy targets. The breach appears to affect 6,000 of the small Customer Companies of adp. Shares are now back to where they were before the circulation of that report. Now, stay tuned here because a big story line coming up, your way here on power lunch, the likes of which include tony blair, eric cantor and david zervos. 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This is healthier, powered by optum. From health plans to providers to employers. We connect all parts of health care. Healthier is here. Welcome back to power lunch. Im michelle carusocabrera. The markets are lower, still making a comeback well off the bottom. The s p 500, lower by about 15 points and a lot more green than we had earlier. Look at the heat map. What was the worst selling stocks here, a lot of energy and material down here in the lower righthand corner. Some financials as well. Lets get to bob picksy on the floor of the New York Stock Exchange with more on maybe why were coming off the bottom. Bob . Michelle, things are look hag little better midday. Hard to keep a lot of the sectors down. Remember the player here, buy cyclicals has been the big story. Take a look at the major sectors, energy, financial materials and industrials. These were all the stock sectors moving up this quarter on the cyclical play so today a bit of a reversal. China manufacturing data was not great. Oil has been down and the dollar weakness, big trend this quarter, kind of reversed a little bit. Some people talking about a dollar maybe bottoming. Thats why youre seeing the commodities etfs, countries like brazil and south africa and the Oil Production etf and the metals hand mining etf all weak here today because a lot of people bhig cyclicals, thats been reversing a little bit. Call it the return of the old deflation worry, particularly Companies Like the metal industry, iron ore moving up aggressively this quarter and yet its been flobbling and metal names running up on hopes that china would stabilize and have come down a bit. Is this Something Big . Not at the moment. 22800 is where were at the end of april on the s p, 40 points, 2 to the downside. I would say that its not big yet but cope an eye on whether that deflation worries continue. Guys, back for you . Thank you very much, bob. Our next guest thinks market fundamentals remain positive. Hank smith is cio at Haverford Trust and joined by David Lafferty with a Global Asset Management company. Gentlemen, couple to both of you. David, why dont i start with you. The third longest bull market in the postworld era and may become the second longest. Why dont people trust it . Why has money flowed more out of money equity incomes than the opposite . Well, i think risk tolerance has changed on a secular basis. I think two bear markets in the last 15 or so years has has really changed the mindset. I think its scarred people. We used to see mutual fund flows follow past performance and havent seen as much of that in the past few years and some regret behind it. People dont necessarily want to jump back in. Missed the beginning of the real the first five or six years and its tough to jump back in at 18 times earnings. We dont hate stocks, but they are certainly not cheap at 18 times forward earnings. You know, hank. Give me a chicken investors recipe for putting my money to work and not keeping so much in your phrase my powder dry which in this environment basically means my powder is looting money, certainly in inflation terms. The chicken Investment Strategy, tyler, which i think has been in play throughout this entire bull market is using stocks as your primary source of income. In other words, you can create a diversified highquality portfolio and having representation and every s p sector with companies that have dividend yields better than bond yields and better than not only the uncompetitive tenyear treasury and many cases better than what they have to pay on their own tenyear debt and here we are into the eighth year of a bull market, as you said, one of the strongest bull markets, and that opportunity still sits in front of investors and selloffs like today and the last week only enhance the yield opportunity that equities give investors. Yeah. Ive thought a lot about that. You know, david, the conversation you had with tyler reminds me of way back, go to that business week comfort, the defendant equities, everybody so fearful. I mean, these are generally the moments when its best to be in, right, when you talk about that secular square that everybody has had from living through you call them a bear market, they were bad, right, worse than bear markets. I know you think the market is expensive here, but generally speaking longer term, when you talk about that kind of sentiment, oftentimes thats the best time to get in . Yeah, certainly. You certainly dont want to get in when, you know, the view is euphoric and everybody is jumping in. I would say you have to Pay Attention to the fundamentals though. In terms of equities, as i mentioned earlier, price earnings ratios are sort of capping the market out at about 18 times earnings and 2100 on the s p and when and if the fed ever decides to raise rates, its not likely multiples will expand, then have you to look at the other side of the equation which is the earnings, and earnings were down a little bit in 2015. They look like they are going to be flattish at best in 2016 and so i think its hard for investors to get real excited about stocks. I wouldnt be selling out of them at this point, but i do think, you know, maybe more of a dip your toe strategy and stay closer to your sort of longterm target allocations. I dont know if this is where you want to be sticking your neck out in equities. Hank, a lot of people might like to take your advice and buy those blue chip paying stocks, but they dont trust themselves to be the stock picker necessarily. They would rather do it for a mutual fund. What kind of fund would you suggest that they look at under those circumstances . Well, weve been dividend investors since 1979 so i would look at our fund hhvgx. Ivg, if you want international reputation, developed International Representation focusing more on higher yielding stocks but the key you is need to focus on the dividend and the increases of dividend and not worry so much about the the ups and downs of the stock price. Look at it more like fixed income. You buy a quality bond and dont worry about whether its trading up or down. Give me a specific name. I think about this a lot actually, where the companys dividend is way higher than even the bond, that if you bought a bond from the same company. Must have some names that youve thought about. Absolutely. Exxon would be a good example and chevron would be a good example. Wells fargo and jpmorgan are examples there and pepsi, coke, attila examples, really you can go right throughout the entire spectrum of s p sectors and find examples of that. You can keep reciting those names as we go to break. Well keep listening. That will be good. Hank, thank you very much. David, thank you as much. Power is back in two when we expect to be joined by the former uk Prime Minister tony blair. Sic plays throughout 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 isnt about achieving average. Its about achieving goals. And invesco believes doing that today requires the art and expertise of highconviction investing. Translation . Its time to bench the benchmarks. E. T. Phone home. [ soft music ] when you find something you love, you can never get enough of it. Change the way you experience tv with xfinity x1. Man 1 man 2 i am. Woman exmilitary . Man 2 four tours. Woman you worked with computers . Man 2 thats classified, maam. Man 1 but youre job was Network Security . Man 2 thats classified, sir. Woman lets cut to the chase, here. Man 1 whats youre assessment of our security . Man 2 [ gasps ] porous. Woman porous . Man 2 the Old Solutions arent working. Man 2 the world has changed. Man 1 meaning . Man 2 its not just security. Its defense. Its not just security. Its defense. Bae systems. Were here at the milken global conference in Beverly Hills. With us our special guest the former Prime Minister of britain, tony blair. Welcome. Thank you. Lets start out with a very serious topic, labor Party Scandal, more than 50 Labor Party Ministers have been suspended for antisemitic comments in england. Your response . Theres been an inquiry established by the leadership now. Im sure that will come out with some very strong conclusions, and let me say as somebody who has been a member of the labor party for the best part of 40 years theres no place for antisemitism of any sort. I detest that prejudice and we should make sure its rooted out of the labor party in whatever way we can because weve always been, you know, campaigners against this. When i was leader of the labor party had a very, very strong and clear position on it, so, anyway. You both the party to the center left, known for bringing people together. This is not two people. This is 50 people reportedly, thats a systemic issue. There are obviously real issues that are going to have to be gone into here because we cant have any taint of this at all. Any suspicious of it, so, look, the leadership, we should let it the take its course but just to make it, again, absolutely clear, this has got no place in our politics and there are many, and im sure i speak for the majority of the Labor Party Members here when i say whatever is the situation, you know, there is no place for that type of thing in our party. What should happen to Jeremy Corbett . Hes taken the decision to set up the review and he needs to do everything he needs to do and by the way i believe the whole of the labor party will want this to happen to route this problem out. Do you think its important . Its important to do everything that we can. Lets put it like that. Lets talk about another big issue facing britain, the vote. Five, six weeks off right now. The polls leave the eu, stay in the eu are within a margin of error, mr. Prime minister. How is that going to go down . Will britain leave the eu . I want to say confidently that i think we will stay. Okay. But youve got to look around the world today, and its and its an unpredictable place politically. I believe thats the rational thing. The biggest commercial market in the world and its the biggest Political Alliance in the world. Our allies around the world, people here at this conference would regard it as a very foolish and unwise risk to take to leave so i believe we will stay but youve got to qualify this today by saying politics is in an uncertain state. You can see it here. The brexit, as they call it, i detest that term, but the breksist is one of the biggest topics here because this is not an england issue. This is a global issue, real fear among some of the nokes weve talked to last night, dinner panel that we will have. Our Federal Reserve waiting to see what happens in england. What do you think would happen if the vote is approved . What happens to the british economy, to the eu and to the United States . I think we face a prolonged period of uncertainty, and youre absolutely right. It doesnt just affect us in britain. It affects europe and affects the Global Economy, and one of the things i think is actually quite important is that people back home see what comes out of conferences like this when here youve got probably some of the biggest investment institutions, pension funds, you know, the big institutional investors. Most of them globally are here and as far as i can make out there only is one view is this would be a really bad idea. But yet its so close, and we had a conversation yesterday where it was suggested that perhaps the the pro leaving portion of Great Britain is selling is selling the people false hope on what it would mean, that they are overstating the costs of england being in the eu. Do you agree with that . Of course. I mean, they are massively overstating that and minimizing the costs of going because one of the really absurd things is that if you if we left the european union, because we have to get back into the Single Market in europe, because our trade is with europe, we would then have painstakingly to renegotiate every single item in order to get back into where we were, so, you know, theres no doubt what the sensible thing to do is, but, you know, there are very powerful voices, some in the media, for example, who are pushing this and very, very hard and there is a there is a dissatisfaction with politics which is i think a global ge nom none and in addition to that, you know, its not that europe doesnt require form. Now, because theres lots of things that should change in europe, but the best way to do that is for britain to be in europe leading that case for change and out of it. There is a wave of populism around the world and you look at europe and you look at the rise of the far right in france and to a point in germany. You look at golden dawn in greece, basically a Neonazi Party that actually has members in parliament. Youve got this migrant crisis, millions of people dislocated. How does it look five years from now . Well, thats a really good question. That depends on the decision we take, but i think in europe weve got to take the Big Decisions that are necessary to sort out the eurozone, you know, continuing anxieties and worries about the economy and the Banking System and i think it requires a big plan to do that hand not just a series of incremental steps, and then i think on the security side, you know, we have to to have the right combination of measures, military and others, that are going to take on the security issue and really deal with it, but, you know, these are big challenges, and they are challenges unlike when i was first starting in politics and it was after the fall of the berlin wall and, you know, the Global Economy looked in reasonable shape, decisionmaking at that point looked relatively steady and relatively predictable. If you fast forward 20 years to today, we live in an era of almost extraordinary unpredi unpredictability. Also i would say at that time it was an era of it seemed like extraordinary optimism. The wall is down, countries are opening up and theres work to do, but were rising. It feels like were caught in this global wave of pessimism and negativity. How do we get out of that . Well, i think we partly get out of it, by the way in, taking a step back and understanding that if you look at the broad sweep of history, even over the last 20 years, theres been hundreds of millions of people globally lifted out of poverty. Okay. But if you take our societies, i think there is a real sense amongst middle hand lower income families that incomes are flat lining, that their children do better than them and there are two types of politics in the world today. There are one i call the politics of the anger and the politics of the answer and the politics of the anger are very easy for populists to ride, left and right and the curious thing which i notice both sides of the atlantic is the populism of the left and right at seven points they meet but they arent answers. The answer is not to try and globalization is a fact, right, technological things are a fact and these things will carry on changing the world and the real questions is what are the solutions and answers that allow us to access the opportunities and minimize the risk . Its a hard story to sell. Tell somebody out of work in indiana, sorry, your job is in mexico, but dont worry youre enriching a mexican family hat your expense, a hard political story to sell and very hard. Youve got to add something to that at least which is to say were going to equip you with the skills and the opportunities you need in order to be able to function in this Global Economy. To do a better job. To sell them false hope saying we can stop this process of change happening. You know, look, i know theres big arguments around free trade here as there are on the other sides of the atlantic, but you look back in history, the one thing for sure is that the more the world is trading and open with each other, the more you create jobs and opportunities. And so, you know, these are very, very difficult arguments, but there are arguments that have got to be made and one thing that i spend a lot of time studying, because as you rightly say theres a problem in america and europe, how does the center right and the center left, you know, how do we get our mojo back . How do we recover . Think figured that out . Well, im thinking about it hard because for sure. If you figure it out let everyone know because thats thats the problem. We need we need to really one of the things thats fascinating to me about Politics Today is when i look at the mainstream political parties, i often think were not even asking the right questions, never mind giving the right answers. So. Who is the next president of the United States . Thats your decision and not mine. What would would you like to see . One thing i learned very early on is not for me to tell you how to vote. I mean, look, im on the labor party and democrat side of the line so its pretty obvious, but lets get back to your panel pretty quickly. The cover of barrons was isis will be defeated soon basically and havent heard that in a while, barons , financial publication and do you believe isis is on the retreat and can be and will be defeated . I believe isis will be defeated, yes, but i dont think that ends the problem because i dont think the problem is not just isis and these groups engaged in violence and extremism, its the ideology. Lurched from the taliban to al qaeda to isis and just in that part of the world. And al news rah and boko haram and the one in the philippines and a whole series of these groups so what i focus on with the work i do in my foundation is to say weve got to tackle the ideology, the education of large, large numbers of young people, millions of them every day, to a view of the world that is hostile to those that are different, to a view of the world that isnt about educating young people to think creatively and openly towards others but is, you know, based on a warped view of religion and a very narrow view of the reading of the religion of islam and a false view of the religion of islam and its happening day in and day out at a scale that we havent yet understood. Weve got to take the action necessary to defeat isis and any of these other groups but if you dont deal with this problem of ideology you wont deal with the root of the problem. Left us with a note of optimism and we need that right now, sir. Thanks very much, the honorable tony blair, appreciate it, mr. Prime minister, thanks so much for sitting down with cnbc. Pleasure, thank you. Up next david zervos will talk about some of the stuff we spoke about and frame it from an economic perspective. All the stuff going on in the world, how will it affect you and your money . Well find out in tube minutes. Stick around. With us the chief Market Strategist david zervos. I dont know new heard the Prime Minister, talking about the possibility of a brexit, whatever. These are big issues and tie it back to our viewers and our listeners and their money. If the eu, if britain decides to vote to leave the eu, what happens to the u. S. Dollar . . So i think the dollar would strengthen and i think the story line is we have to go a couple different directions. Not a british story line. One that goes to europe and one that threatens the integrity of the eu project. For us its more about people leaving europe because one of the premiere members of the club just said see you later, im out and when one of your best club members goings. The quality doesnt look as good. Exactly. We think that could send some people away from the Euro Currency into the dollar which is a natural place to go and the problem and what weve seen in august and january is when the Dollar Strengthens the chinese go, hey, wait a minute, we dont want that so they loosen the beg and we get this nasty side effect of Dollar Strength. I dont want to call it a currency war but maybe a currency water fall. We which will is chexit, the chinese exit from the dollar and china is linked to the u. S. In the zone and trying to break that and its very difficult in the market. For us the brexit trade triggers the risk of the chexit trade. Could you see euro dollar parrot. I think we could and the question becomes what does the ecb do about it because it would like a weaker euro but they dont want to be seen as a manipulator and they dont want to do it and with a brexit they get a free right. The upside it brings a lot of financial instability and relive august and january and not very good. And thats the point, so if youre sitting at home watching cnbc, i dont care, own shares of ge because that will crush ges earnings. Exactly. If the dollar spikes a lot in a quarters time. Everybody is having a good time for the last 6 to 8 to 12 weeks because the dollar is not going up anymore. Thats really whats happened and whether there was a concerted effort out of the g20 in shanghai as weve alluded to in our writings or whatever it is or just happened to work for everybody, the point is thats what sent oil higher. Thats what stopped the em route and what saved most peoples portfolios out there from had a really bad start or the worst start. If they vote no and they dont leave and everything stays the same after june 23rd what happens . It becomes a sort of question of trump versus hillary and if you get trade negotiation issues with a sort of surge by trump you could have similar dollar spike issues that get people nervous, not a good dollar real, but a sort of safety dollar rally. If trump looks like he might win, a lot of antichina rhetoric and china my react how, or the market may move china how . I mean, i think tin creases the tension so that the split between the currency really could happen sending the dollar much stronger and emerging weaker and it sort of fits the trump story line, so, look, i think a lot of the reason geopolitically behind the scenes why the dollar has been stable for the last two or three months is that the establishment knows the Dollar Strength probably brings Donald Trumps poll ratings up and the establishment doesnt like it, so thats another overriding theme in all of this. Look, the two big events to me with brexit and the election and they really make it a tough trading environment but investors should key themselves off Dollar Strength. Dollar strength is the thing thats driving us into a complicated place for exit. The case in january, off the table now and everybody is happy but it can come back. I dont know how anybody can tie together the british exit vote, the dollar, china. You had tony blair on it. David zervos, thank you very much. Now we go to shearon epperson. Democratic president ial candidate addressing the Drug Overdose epidemic in the u. S. During a Substance Abuse discussion in West Virginia saying treatment and recovery are the keys, not incarceration. On average it costs around 3,000 for treatment, recovery, drug court, the kind of nonincarceration solution. On average it costs from 18,000 to 33,000 a year to put somebody in jail or prison. Clinton rival Bernie Sanders having breakfast with labor leaders in indianapolis meanwhile as the states voters head to the polls. Afterwards we talked about trade hand how important the issue is to indiana voters claiming hes the best candidate to reform trade policies. Nine people accused by federal prosecutors of a scheme to manipulate the price of a worthless penny stock resulting in 131 million of losses for the investors. The new charges come one year after the companys chairman was accused of improperly inflating the stock. And under armour announcing a Multiyear Partnership with bryce harper, the National Leagues reigning most valuable league player. Espn reporting the deal is for ten years and is believed to be the biggest endorsement deal ever for a Major League Baseball player. Thats the cnbc news update at this hour. Back to you, michelle. Kaching. Exactly. Thanks, sharon. Oil market closing for the day and Jackie Deangelis is live with the details. Thats right, 2. 5 slide on Oil Prices Today though were closing off of session lows just under 44 a barrel. The dollar index, the major culprit, the little bit of a rebound certainly pushing prices down but not enough is changing quickly enough is what im hearing out there. U. S. Production is coming down slightly, but, remember, its taken almost a year to move the needle and international producers. They continue to bump oil and have the saudi and iran standoff so it doesnt appear that anything will change on the horizon and we have the opec meeting on june 2nd, trading the range and 40 to 45 is probably where were going to be. Back to you. Small businesses all over the condition try are competing with much Larger Companies and succeeding. Kate rogers has the story of one woman taking on lululemon and nicky. Hi, tyler. Tyler hane grew up running, biking and never liked the look or feel of traditional athletic clothes so she made her own. Take a look. People used to be scared of working out in gray but a gray that doesnt make you sweat. Cant see any sweat through this. Better, faster, stronger, it motivates some but doesnt work for everyone. Tyler haney never quite got it. While youre running over hurdles in high school track, that makes sense but realize that there was a powerful combination about being membernism and athletic that wasnt embodied in the blond. Another thing that never worked the materials in most athletic lines. Sick of the shiny thin black spandex. She was meant to go to college to hurdle but took a year off to attend parsons in new york city and. And while in school became obsessed with materials. From there outdoor voices was born. Launched it out of college selling in boutiques. Outdoor voices comes like when youre little and your mom says use your inner voice and the brand has youthful energy. Being young without experience was helpful at the time because i would ask to be in peoples offices that probably if i had more experience i wouldnt have. There werent boundaries. There werent rules. Unlike the uber competitive nature of the athleisure business and many of its biggest consumers today the 27yearold haney is running her own race and its working. In the last year sales have increased eightfold. I tell this to the team. My mom was like the best kind of coach growing up, and she had this saying tybb, try your best, baby. And trbb, for us theres no start or finish in activity, its very much like the participation award, getting out there and working for you yody for your mind is a lot of what weve seen. In the same price range as nike, lululemon and a bit more fashion forward and toned down when it comes to colors. One of the celebrities is lena dunn hamm. Who carries them . A popup shop in new york city, so successful, getting set to open a physical retail store in good in the city and also in austin, texas. Kate, good to have you back. For all of our make it stories visit cnbc. Com makeit. Martin shkreli appeared in court and may soon have new legal troubles today and so might these guys. Well explain whats happening in this video when power lunch returns. The former pharma ceo who has become a lightning rod for the outrage over soaring drug prices appeared in court today and meg terrell has the latest. Reporter the big news is u. S. Prosecutors may file more charges against Martin Shkreli and his former attorney. This in a very, very short court appearance, u. S. Prosecutors saying this, that they may fight charges in the next 30 days. As a reminder shkreli was arrested in december and charged with seven counts of securities fraud, conspiracy to commit securities fraud and conspiracy to commit wire fraud. Left the courthouse after his hearing with his lawyer and heres what they had to say. Today was a good day for Martin Shkreli. We were before a judge who clearly understands the complexity of preparing this case, and we are pleased that the judge was willing to work reasonably about scheduling. Substantively we do not believe that this indictment will change in any way that affects mr. Shkreli in a negative fashion. Now, he wouldnt comment on any new indictments. Michelle, back to you. Put it on the calendar. Thanks, meg. Energy stocks tumbling today as crude oil drops. Lets discuss with the trading nation team, Craig Johnson with Piper Jaffrey and Boris Schlossberg is a strategist with bk asset management. Craig, youre charting the energy etf. What does the chart tell you . Michelle, when you look at the etf here on the xle, from my perspective were starting to reverse a longerterm downtrend, a downtrend thats been in place since 2014 and for us this kind of downtrend reversal in combination with moving above 50 on the rsri suggests that a trend change is starting to happen. Also pretty interesting that in our work that we do, total return and relative strength work, this is the first time in about five years weve actually started to see improvement in that work and in this fact morning we went from the u. N. Weight to neutral on the technical tools for the First Time Since 2011. Again, good things are really starting to happen here in the Energy Sector, and it looks like perhaps theres more room for the Energy Stocks to work. What do you think of what craig just said when it comes to the fundamentals . Were rewitnessing the end of the commodity bottom, or have we actually got a real bounce here . I think the opposite. Its interesting. Even if we have we may have a trend change. Theres always a correction off of this very, very strong bounce that weve had and from the fundamental point of view whats happening here is that all of the Commodity Movement has really been much more of a Short Covering movement rather than demand drive. If you look at china which is really the key driver of commodity demand, their economic fundamentals have actually deteriorated over the last couple of months and the other thing thats interesting is last night reserve bank of australia, the most commodity sensitive of all the Central Banks actually lowered its Interest Rates. Part of is because the Australian Dollar has gotten so strong and another reason they may be anticipating the fact that the commodity sector will stay there and they want to increase their credit ease the credit for them, so for all these reasons the fundamentals are showing we may have peaked in this commodity rally and were due for a correction. Two sides to that story, so to speak. Thanks, guys. Got the chart and a fundamental view. Find more at tradingnation. Cnbc. Com. Coming up on power lunch, former House Majority leader eric cantor is going to weigh in on the president ial race, and then as we head to break take a look. It has some of the most wildly traded stocks are on this down day, alphabet, known as google, apple, apple bouncing back from an eightday losing streak. Well be right back. And now the latest from tradingnation. Cnbc. Com and a word from our sponsor. Trading on margin is a process that involves borrowing money in order to purchase stock and while margin trading can be very effective if the stocks you buy go up,ful stocks you buy go down your losses can count very quickly, but the most important thing about trading on margin is to make sure that you never use all of your available credit. A huge fight in turkey parliament. Thats how they do it over there between the ruling party and the prokurdish opposition, the meeting had been postponed from last week because of fighting. The matter at hand, a proposal to take away immunity from lawmakers. Now, if anybody needs immunity its these guys. They are going to need it because they are subject to assault charges. Back to brian in Beverly Hills. Much more sedate here, i can assure you. That was something, tyler, thank you. Okay. The president ial candidates entering the remaining primaries all ahead of the convention this summer. Lets get color and insight with everything going on. Were joined now by eric cantor, former House Majority leader and now a managing director at the investment bank. Good to have you on. Nice to be here. Did it ever get that bad in the u. S. Congress . Almost to blows . Almost. It was not that bad though. We talk about the dysfunction. How bad was it . You know, theres a little bit more decorum than that. Clearly theres just real differences in terms of the direction of the policymaking in this country. Weve seen sort of a dysfunction set in and really over the last seven years so hopefully well see a breakthrough come november. And its amazing, and i know its probably an uncomfortable topic but your defeat saying what happened to congressman cantor. This is just the first step. This was a turning point. I would say a populist, not so sure to the right but populist and there are similarities and what donald trump is experiencing now because he does best when its open primaries, where he gets indpersons and those who feel disaffected. Same thing that happened in the primary. Overwhelmingly onethird of the votes in my primary were democratic primary voters and independents, and, again, i think theres a sense in our country right now, real anger, people feeling like they have been left out and look whats going on in washington. Theres not much happening. Solutions to problems have not made their way into law, and theres just a general frustration and i think thats what were seeing. Youre still close to party leaders. We go to cleveland. Whats going to happen . Will donald trump be the republican nominee . I think today will provide the answer to that, i believe. Even if he goes to cleveland, youve got some who have said no way. Youve got these unbound delegates. How is it going to go down . I think if he wins indiana today, most are saying that hell get to the magic 1,237 votes and at that point he would be the nominee. About a month ago on squawk box you were saying basically, and ill summarize, screw the rules, well do what we want. Were going to vote how we want. Basically the primary voters vote didnt matter. Thats what i took away from the interview. Could they do what they wanted and go rogue and pick up paul ryan . They being who . The delegates, some of whom have to vote for somebody and some whom doesnt. But they are the people that will make up the rules committee that will set the blueprint for the operation. Convention and that rules committee will meet a week before the actual convention begins. They being the delegates, trump and cruz delegates for the most mart. I do not think that the party is going to change the rules and deny an individual if its donald trump that gets to 1,237. They cant. You believe if he gets 1,237 hell go up against Hillary Clinton. Yes. Does donald trump have a real chance to become president of the United States . I was predicting way back when that donald trump had a chance and many of us were. I was, you know, jeb bushs effort in virginia and didnt think donald trump had a chance. Ive stopped the business of predicting, and i think, you never know. Hillary clinton is not a strong candidate. Clearly shes not inspiring those on the democratic side of the aisle and Bernie Sanders has got the intensity, and donald trump has sort of the changed the rules of the game here so we talk about it as a natural story. Realistically is it a four or fivestate story, virginia, ohio, maybe pennsylvania, florida, maybe colorado, i mean, are there other states that matter or we have to focus on that . Thats the conventional way of looking at it and im not so sure when you have a donald trump in the race that you look at it in a convexal race. I think more states could be in play because i do not think that the American People overall want to see more of the clintons. I mean, and thats what Hillary Clinton is up against, and and youve seen her from a policy position drifting further and further left because Bernie Sanders is out there breathing down her neck, and then youve got somebody, you know, on the republican side saying we dont need that. You think trump could take some democratic votes from some guy who hasnt had a raise in ten years, working in the assembly line, ticked off about trade, you know, ostensibly hes a democrat, do you think that vote could go to trump . Look at the numbers. It goes back to the primaries. Look at the numbers and the turnout in the primaries. Many states are shattering records in terms of primary participation. These are voters who are not typically involved in primacy processes. The question will be whether that translates into an increased turnout in november. Have you backed anybody . I was for jeb. And hes not there any more and sat it out until now and well see. Well see. Eric cantor, thank you very much for your time. Do appreciate that. Thanks to eric cantor, former House Majority leader. Thanks very much. Your day, your stocks, your money, everything from power lunch returns right after this. Here at td ameritrade, they work hard. Wow, that was random. Random . No. Its all about understanding patterns. Like the mail guy at 3 12pm every day or jerry getting dumped every third tuesday. Jerry every third tuesday. We have Pattern Recognition Technology on any chart plus over 300 customizable studies to help you anticipate potential price movement. Theres no way to predict that. Td ameritrade. Welcome back to power lunch. The markets are lower. You can see the Dow Jones Industrial average lower by 138 points. Had been down 220 points, so off the lows off the highs as well. S p lower by 18 points, the nasdaq lower by 47 points. What sectors are in the red . All of them. Health care the best performer. Down the least. Energies is the worst performer. We had the dollar improving today, which has pushed all of the commodities lower. Thats one reason why oils are lower. Materials down pretty sharply as well. Next up, aeropostale preparing to file for bankruptcy. Just the latest retailer do so. Can you still make money in this space, or is it just a teenage wasteland . Thats next on power lunch. But not every Insurance Company understands the life behind it. For those whove served and the families that have supported them, we offer our best service in return. Usaa. We know what it means to serve. Get an insurance quote and see why 92 of our members plan to stay for life. Five years ago it was a 25 stock. Air postel now reportedly preparing to file for bankruptcy and closing more than 400 stores. Other teen retails have done the same. Others have filed bankruptcy in the past two years. So why is teen retail in such trouble . Joining us is liz dunn. Liz, whats the problem . Why are so many of these Companies Going bust . Ily are so many problems. Overstoring is a start. A big problem for air postell and also discounting. I think new competitors, the fact that so much of the business has moved to digital and the consumer has changed. Theyre looking to different brands and not really as enamored with some of the traditional tee age brands that there once were. So its not a shortage of teenagers. No, i dont think thats it. Who are the good ones that have gotten it writer than not and what are the ones that havent . I think American Eagle and Abercrombie Fitch have been two of the better kind of addressing some of the changes in the marketplace. Abercrombie fitch is particularly interesting because they started Closing Stores a lot earlier than others, and so now theyve really streamlined their store base quite a bit, and so you look at some of these others that are having to announce hundreds of closers and take huge charges. I think that was a smart move. Theyve also tried to get into the dna of how the consumer is changing, and theyve brought some new fresh talent to the organization. How are they changing . How are the tastes different now . What do teenagers want . You know, i think past generations wanted to fit in a lot more than the current generation of teenagers. So what i mean by that is theres like a teenage uniform of a tshirt and jeans and you dont want to stand out too much. That was my generation. But these days teenagers do want to be a lot more individual lis tick. They want to discover things that not everyone is wearing and they dont want a brand to dictate to them. Really . I walk into a room and i feel like every guy is wearing a plaid shirt with the tails that hang out the back and the pants that go to the knees. To me i laugh at them. Because they think theyre such individuals and to me they all look the same. There are subtle details that youre not picking up on that make those outfits unique and inspired by some celebrity or some blogger or something that is not starting in a mallbased retailer. Got it. Okay. I missed nuances, got it. I miss them sometimes too. Liz dunn, thank you. Were going to go to dom chu for a market flash. We talked about a breach. Adp has issued a statement. A small number have been victimized by fraudulent information. Anyone who has had their information compromised previously prior to adp. They go on to tell how this happened with their own the clien clients portals. They go on to say that a combination of unsecured Company Registration codes also with that stolen information is what caused the fraudulent access. They have no access that its systems housing employee situation has been compromised. Additionally theyre working with federal Law Enforcement to work with it. Just a statement from adp on that. They say their systems were not hacked. Back over to you guys. Thats it for power lunch. Thanks for watching. Closing bell starts right now. Hi, everybody, and welcome to the closing bell. Im kelly evans with the no. New york stock exchange. And im bill grif equity. This looks like it has more conviction than yesterdays rally. The Energy Sector so far is the biggest loser today, materials and financials are not far behind or ahead depending how you look at it. Were well off the lows. Also coming up, hedge fund giant kyle bas