Wmaq meteorologist in the house with us today. As of 12 00, category 4 hurricane, but still only a few miles away in terms of wind speeds from a category 5 still very strong and very dangerous storm. You can see it spinning here right off to the right the path its going to take is westnorthwest and go right in between the bahamas and cuba in very warm water. So i do not see this losing much intensity. I even think we could see it intensify a little bit more as we mover forward today and then it does look to make aim on south florida, as we go into really sunday early morning. So lets talk about the latest alerts that have just been issued the hurricane watches have been extended up the coast, including tampa and including orlando now. You can see it in the orange color. Anything in purple, thats actually going to be the hurricane warning. Also along with wind and heavy rainfall, storm surge is going to be a huge problem for spots along the coast, and you can see 5 to 10 feet in regards to storm surge. The bright pink, thats going to be a storm surge warning, already in effect. And sarasota, already the way to the south of sarasota, including ft. Myers and ft. Pierce on the atlantic side, in a storm surge watch. Lets take a look at the timing. As we move forward the next few days, this is really important today and saturday, bahamas and cuba timing for the florida keys in south florida looks to be sunday morning. And thats going to be early were talking before sunrise then monday morning, Central Florida and monday night into tuesday, moving up into south and central georgia. This storm is a beast. The wind field is huge so even if you are inland and you do not see the ocean, you are still going to be dealing with Hurricane Force winds were, of course, going to have all the updates for you and another look coming up in the next half hour kayleigh, thank you so much with us for the hour, rob seechen of ubs private Wealth Management also with us today from minneapolis is Pete Najarian lets get right to the markets where stocks are mixed but if one of our guests are correct, theyre about to see a steep drop in the next 30 days tom lee predicting a 4 to 5 drop why . Scott, you know, just a couple of things coming together one is evidence of risk aversion and credit markets and bond markets. Its the deterioration of market internals. Fewer stocks are supporting the index. And i think its, i think, growing and mounting concerns that therell be some setbacks in washington that affect the ability for earnings delivery to come through tax reform. And i think, in the past, i think conservatives would say that we would drop to the 200 day, which is about a 5 decline. So how reliant is narcotmark multiple expansion delivered directly through tax reform . Because earnings were expected to be pretty good no matter what happens. Thats just the cherry on top, no yeah, i mean, actually, one of the good news stories this year has been the diffusion of the companies posting doubledigit earnings. Its well over 50 now but the bulk of that earnings growth, like in terms of dollars per s p shares comes from energy and financials those are the groups doing heavy lifting. The tax reform is how you get 2018 numbers for people. And you know, if you dont get that 15 Corporate Tax rate, you know estimates have to come down there are people like Lee Cooperman who sat on this desk and said you get 10 through tax reform you agree with this forecast i agree 5 decline in 30 days i agree and disagree. I think only significant events have the potential to knock us into a different orbit over the medium term. And this certainly has the potential to be one of those in fact, any number of things has the potential to be one of those. I agree with tom and the fact that youre seeing fear in the market place in the bond market. Youre seeing it in the commodity market youre seeing it in the currency market so to some extent, and youre actually seeing it outside of technology in the defensive part of the equity portfolio in the s p. And so what i would say is, as you look at this, you use this as an opportunity to say, yeah this fall could be realized. What are we going to do about that well rebalance. If youre a foundation, youre an endowment and have actuarial spending needs, you might start to raise those now with asset prices at alltime highs and if you have investors with a lot of cash on the shriidelines you might say, lets slow this down at the end of the, markets typically tend to climb walls of worry. And so i think you could see it, but probably not our target is different than toms. Were expecting the markets to end the year higher at the end of the year. Higher than where we are right now. Tom, youre looking at almost an 8 decline from where we are right now. Bullish tom lee. What happened . What happened to you, tom. I think im on another plane, another planet i mean, im still bullish longterm. I think were only seven years into what i think is a 15year period, where markets are going to rerate but one of the challenges and something weve been worried about really since the start of this year is unless inflation picks up, the stock market is really outpacing underlying growth and, you know, if you look at the spread just between equity performance and gdp for the last five years, this is a 2,000 basis point per year gap im sorry, 800 basis point per year. Same level you were in september 87 sp 87 so that quickly normalized and thats why we think moving to the 200 day sort of helps bring some equilibrium doc, dont couch tahe answer with how much you like tom, ow great he is guy, this, that, and the other thing. Do you agree with him or not i love that tie thank you i dont agree with the 6 selloff, but tom lee has made a living being accurate on these kinds of predictions i follow what the markets doing. I dont necessarily as much predict where its going, judge. I try to read the tea leaves from where big institutional paper is flowing so im not seeing the paper flowing in the direction that toms saying doesnt mean hes going to be wrong. But i see, i mean, just today, saw some huge paper in the s p 500, through the spider. Huge like 25 million share equivalent hits in that particular index. Big buys so that wouldnt tell me that were going to do what toms saying, but that doesnt mean that those people who are making that bet are right yeah. Well, Pete Najarian may be one of those with some of that action today pete, you disagree with tom . Well, i do. And the reason i do, i love the healthiness of this market weve had so far in front of us, which has been this absolute rotation, very rapid rotation, consistently weve had financials and technology and then weve had most recently, its within tbeee rotation to biotech. But john was just pointing out something i thought was really, truly interesting. Just before i walked over here today, 140,000 of the upside calls were bought in the spiders. These were september calls, the 249s really aggressive, scott we have not seen Something Like that in a really, really long time now, were they very expensive . No but volatilities are lower were looking at a volatility right now, weve been anywhere between 11 and 12. Here we are at the upper end of 12 and we had the big selloff on tuesday, but the rotation has been there and i think a very healthy rotation and because of that, i think that this market does have more upside i understand why somebody would want to take a spot on these spider calls i jumped on those. The second i saw those, this is very reminiscent of, if you go back to during financial crisis, seeing puts being bought in the financials but then coming out of the financial crisis, seeing calls being bought in the financials this was a very large call buy im willing to be in there with them as well, and thats why i jumped on this immediately, scott. The risk, tom, is that they actually get something done in d. C. In a week i mean, dont forget this is a sort of pivotal week if for only you had congressional leaders in the white house from both sides and a deal between the president and the democrats for the first time on anything significant over the eight or nine months that mr. Trump has been the president so the risk is they get something done and this throws your scenario out of whack i think thats accurate i think in some ways, theres a chance for policy surprise and thats been one of the positive and pleasant developments with the Trump Administration but i think on the same sort of line of thinking, ive been seeing a lot of discussion that folks thinking the hurricane is inflationary and positive for Economic Growth. If you take it to the extreme, we know that hurricanes face uninsured losses and were facing two of them both sandy and katrina saw the market down 3 , peaktotrough at least over the next 30 to 45 days so now we have irma. So i completely agree with you on the policy side, but we have a Natural Disaster risk. A good time to bring in our john harwood in washington, d. C. With some new reporting on this very topic, john what the like llihood is of tax reform with the backdrop of hurricanes and other major stories. Scott, i think its going down for multiple reasons. First of all, youve got the costs of these hurricanes that youve been talking about this morning, both harvey and irma. The congress has completed a 15 billion package today, but thats just a drop in the bucket i think were going to see north of 100 billion in before its all said and done, dealing with that. And thats a problem, because there remains a faction of the Republican Caucus in congress that is very concerned about deficits many of them are not, and they dont care if theyre deficits fuelled by tax cuts, because they think that expands growth but thats going to be an inhabting factor the second inhibiting factor is the broader political environment, the crowded calendar youve had both Steve Mnuchin and gary cohn say recently, reiterate, that they expect tax reform to be passed into law by the end of the year, 2017. It is very difficult to get all the things that theyve got to do done, between now and the end of december. And finally, youve got this rising discord among republican in washington. The ryan and mcconnell, the two republican leaders, feel undercut by what the president did with schumer and pelosi. And one of the consequences of that is increased leverage for democrats means that other spending, nondefense spending, republicans want defense spending to go up. Nondefense spending is going to go up. And all of that makes a very complicated picture if your goal is to cut taxes. Interesting stuff, john thank you. John harwood with his new reporting. Phil, what are you thinking about all of this like this confluence of events that are going to impact potentially the markets sentiment, if nothing else i think the real key is what happens with confidence. And i would like to hit something and ask tom a question about this how much and this is based on a conversation i had with block rock yesterday, where they have had inflows of 175 billion into etfs yeartodate. Its a Staggering Number and how much does the deterioration and market breadth have to do with the indexification of investing, meaning renting markets over the short run. Market capweighted indexes tend to do that, right . How would you react to that and then we can get the question its a great point. In fact, our strategist has talked about how index and etf flows have really caused a spike in the correlation of peer group stocks, stocks in the same industry groups. Something umpbt seen in a long time he says its unsustainable so i think its created low vix now, but its creating the potential for a huge spike in volatility i think its generally positive, this etf development i think its good for active managers, because its easy to beat an index, when you know what the strategy is, which is its essentially buying a market cap weighted basket of stocks. Let me switch the conversation to another spread, so to speak. And that is the spread between twos and tens and the issue that has been broadly affecting the banks. Rates continue to go down. Whats the message in 205 on the tenyear, do you think you know, if we were just looking at it from a helicopter and not thinking about whats happening on the ground, its not a bullish signal because a flattening curve is a disincentive for capital indept investment its obviously a huge headwind for banks and in the past i would say you want to brace for slower growth. That being said, commodity medals arent corroborating that i think its fear in the marketplace. Its evidence of how fear is manifesting itself maybe its no that either maybe its a representation globally of where Central Banks have been, where they are, and how slowly theyre likely to go to the next phase. And i think this is the pivot point there. So youre starting to see Balance Sheet reduction, right so theres going to be a lot of news out of the fed and you have out of the ecb in the next few months that will bring some clarity. My suspicion is youll see a lot of pragmatism like youve seen thus far and markets will not be that spooked well, the financials, they clearly have been spooked to some respect yesterday well, lately. With rates this low, doc, banks cant get out of their own way its hard to make a compelling Investment Case to viewers when they look at a tenarea at 205 and some of the others, whether its 2s, 5s, 10s, 30s. 100 correct. And they have been trading sideways for that reason for a different reason, the f. A. N. G. S have been trading sideways like we addressed yesterday. Trading both facebook and apple, in particular those two, because theyre almost mirror images theyre bouncing back and forth between the 157 and 164 in the case of apple and so forth apple has that Event Next Week that maybe thats a significant driver ive already decried it, saying i dont really believe that the announcement itself is going to because its been so telegraphed, that i dont think thats the significant driver. But i think two and three and four weeks down, that is when youll see the move out of the f. A. N. G. S to the upside. On the f. A. N. G. S, since doc sort of pivoted there, what i dont get about your view of the market, and weve gone back and forth over this very topic several times, is that even in a declining market and one you think could go down 8 , you still see the f. A. N. G. S performing well. And that seems to be a dramatic disconnect from the reality, somewhat of how the markets gotten to this place to begin with well, i mean, yes and no. At the start of this year, we liked the notion of bar belling, right . So being overnight f. A. N. G. And some of these value groups like the telecom or banks or old tech or energy. The common thread, though is they are the f. A. N. G. Is defensive growth so if you get enervous abonervo growth, you should expect f. A. N. G. To do well. So i think in some ways, a low bond yield is positive for f. A. N. G. And if we have a drawdown, i think its one of the names people want to own when the market spurts, though, f. A. N. G. Has done the same if you look at, over the last three months, s p is up one. Tech and f. A. N. G. Has been a big driver of the tech trade, is up two. Yes it hasnt been any sort of diverging performance from either side. I mean, scott, i would say, just to add to that, the top ten stocks, which really include f. A. N. G. This year are accounting for half more than half of the return in the s p. So what we what we wanted people to own f. A. N. G. Over the s p, but we see a lot of value in owning the value successorecs well i dont think f. A. N. G. Is going to take down the tape. I think its youve got a lot of stocks that have just gotten expensive. Remember, the median p\e is 19 times forward. I mean, not every company is a blue chip secular grower, but thats the median p\e. The only times its been higher has been 99, 2000, and 2001 let me get pete in on that. It is an interesting point of view, pete, where tom is on the f. A. N. G. Stocks. And i know you either own a lot of them and you certainly have strong opinions about the whole group. Sure. And the one thing that tom didnt mention, he was talking about all kinds of other factors, but how about the weaker dollar . And when you talk about the money in the f. A. N. G. S, its unbelievable and lets not always just say the f. A. N. G. S, but throw in microsoft, which was just about 1 off of its 52week highs. Throw in oracle, throw in salesforce there are so many names in technology that have been performing at an incredible level. And then you go to the semiconductors, as well. There has been a lot going on in the Technology Side and the semi side that have been moving to the upside and when you look at growth and the weaker dollar, thats one more tailwind, scott has there been some pausing, absolutely just like in the financials, there has been pausing less pausing coming out of technology and i think part of that is the fact that they do have these tail winds and the growth aspect in many cases, were pointing right directly to the cloud. We talked about amazon yesterday, talk about origin all the time, microsoft, salesforce. A lot of these names, amazon, were talking about cloudrelated stocks with incredible growth. The fact that amazon flow eslow only a 40 growth in the aws is a little bit alarming, but its 40 . And you see azure over at microsoft growing at 97 when you look at the tail winds and the grow in technology, you can understand why tom definitely likes these f. A. N. G. Related names or at least technology in general and so do i. And look, im not sort of disputing that those are names to be liked. Im simply asking the question as to whether the f. A. N. G. S will work if the market doesnt, so to speak and i would say my answer to you would be, yes and the other side of that answer would be, if the dollar stays weaker, it will be even better and well see that much more strength. They can perform with a stronger dollar or a weaker dollar. A weaker dollar is just one more tailwind, as well. Yeah. One area of the market that hasnt worked has been the financials the sector pacing for its worst week since the spring. But today mcquarie is sticking with one of the big wanbanks, reiterating Goldman Sachs an overrating their price target as well this has been a hotly debated name and there are many who are throwing a lot of shade on goldman these days you are not one of them. You reiterate your outperform, what i i think i like it for that very reason. Sentiments really par on goldman right now, the but valuation statement reflects it. The stocks down yeartodate, so i think the markets missing is that fix is no lon