Yields our top story is the u. S. Stock market officially falling into correction territory in yesterdays session. The dow was down by 1033 points. Thats a huge drop weve seen one earlier this week as a result were on pace for the worst week since 2008. The nasdaq was off by 275 points since the slide began back on january 26th, nearly 2 2. 5 trillion in market value has been wiped out from the s p 500. When you look at Global Markets they lost 5 5. 2 trillion over te last two weeks well, you add that up and you look at the u. S. Equity futures, the good news is that things are stabilizing a bit and even turning around after that big decline. Thats not what we saw earlier in the week. Right now it looks like the dow is indicated up by 270 points. If we were to open here, the s p would open up by 33. The selloff we saw yesterday continued in asia. The nikkei was down by 2. 3 . The hang seng was down by more than 3 . The shanghai was down by 4 . European equities in some of the early trading thats already taking place, at least at this point, seem to be taking their cues with what a mix between the two. Down but not by a whole lot. You were talking about a decline of 0. 4 . The biggest decliner of the major averages that would be the cac in france. Treasury yields have ticked higher thats been a huge concerning point for the stock market what will happen with Interest Rates, will we see things pushing drastically higher the tenyear is yielding 2. 857 . When its right in front of your face, obviously it is frightening. 1,000 points is triple digits, even on my little even on my little screen, it needs to be smaller. But its 4 . If i could have a dollar for every market guest in here saying i wish we had a 10 correction to wring out the enthusiasm, we went up 45 in 14 months, we need to pull dak. Theres got to be reversion of the mean at some point you hear this, and then the other thing we heard, 3 on the tenyear thats coming. This has scared everybody. Were going to 3 probably. If we sell off 1,000 points 1,000 points is not what it used to be someone was asking on twitter, why havent the stop trading barriers kicked in because you need at least 7 for those to kick in 1,000 points used to be that, its not anymore if its scaring you a lot and its 10 , thats what corrections theoretically in an ongoing bull, thats the way it operates. It should remind people to be forward looking with equity beta, and think about the types of losses you could incur in a correction one could look at the art market, the mundi painting that sold for 4 470 million in november the equity market wasuoyantbuoy and then the bitcoin, but then it was said the federal fund rates could only get to the mid 2s so the bond market was staying calm and it still is. Thats the odd thing about the stock market now, its worried about the bond market, the bond market was neverworried and still isnt that worried, still priced for a federal funds rate which never gets near what is peak for the cycle you said your firm started thinking about a correction several months ago we have a pull back of 10 does that mean its a buying opportunity or is this fairer evaluation markets are assessing the new normal, historically its been 3, these days its low 2s. Pimco is projecting 2. 5 this year the question is whether it will stay there if it stays there, Growth Potential is 1. 8 , the jobless rate could keep falling, then we could have more late cycle outcomes, more inflation, higher federal funds rate its too early to price in that scenario its appropriate the bond market said there could be three rate hikes this year, lets price them in. They have. The bond market priced in one next year. Its appropriate for the market to price in much more than one we dont know the 2019 story no one will know for at least six months one should say dont worry too much about the Interest Rate story. Were testing a couple of hypotheses if Interest Rates go up for the right reason, its all fine and dandy, and the markets, based on the way things work on dislocations, funding, debt service and everything else, its not how far it moves, its the changes. Second derivative now, were in a rising Interest Rate environment after how long, some would say a global bubble for credit in germany 75 basis points now that sounds like thats not sustainable forever. But you see that it is enough to get people to change what theyre doing. Has the idea of a new normal suppressed Economic Growth larry is not at your firm anymore, you dont have to keep saying new normal. Bill gross is not either hes been expecting correction for 15 years. Put the words aside, its numbers. Historically weve grown at 3 , we had the 1 increase in the amount of people in labor force, 2 increase in how productive they were. Now because of demographics, the Labor Participation rate has grown at 0. 5 . That cant change. At least until 2030 when the last baby boomer turns 65. Its improbable we return to the old 3 they changed what im supposed to tell you the Government Shutdown, the house did vote in the old days, Government Shutdown, my gosh, the market is down 1,000 it had nothing to do with these guys they will say rand paul caused the brief outage i dont think that caused the selloff yesterday. That was before any of this hatched. But you should know if you were looking yesterday and following twitter, that rand paul briefly there was no connection the likelihood is that theres a budget agreement where spending goes up substantially. Defense spending up to 80 billion a year and we cut taxes Scott Mcnealy, ive seen him around, he was mentioning that the tax cut is great, and if you cut taxes but you dont cut spending, thats a classic the currency will probably go down its all late cycle ininflation we act like its never coming back we may not see it now in everything we do, but its its creeping in. Its a creep up, not leap up you have a lot of these this is good this is good so even people come and go at pimco but you still come up with these phrases creep up different words, catchy things progress, not protests i heard. For more on this selloff and whats happening with markets, lets bring in mike santoli. Good morning good morning. You guys have been setting the context very well. It makes sense when we talk about this really intense concentrated bout of selling that weve seen this week t makes sense to go back to where it all got started and what has been accomplished by this sell juf and correoff an the starting point in late january was an overstretched level for the stock market you had record high sentiment, record high overbrougought leve why was that the case . There was such an enticing cocktail of great news the tax cut was kicking, youre revising corporate earnings higher, you had extremely loose financial conditions around the world with the weak dollar, rates staying low and a predictable fed. Once you had that initial scare about yields going higher, we had the little uptick in volatility, it disturbing the whole premise of a lot of investors in terms of getting us to those highs in january. We had our first trading session in more than 100 days where you had at least a 0. 6 decline. What happens when you finally get things broken, streaks broken human traders and Trading Systems say, okay, i guess the game has changed a bit there will be an unwind. We had to adjust positioning, sentiment and arguably valuation for this new world looking at a twoyear chart of the s p 500, remember, were coming up on the twoyear anniversary of the jamie dimon low, after that nasty global correction two years, you see thats a nice trend line but look at that bulge that started late last year from about thanksgiving through the end of january you accelerated to the upside. That was the public participation, an overshoot. Now you come down, you have more or less come down to where that twoyear trend is. You were 18 up from august to january. What weve done is unwound that a bit. Now the question is is the bull market bent or broken . I would say its bent until further notice until it proves otherwise. You need to have it stick together with the story of are corporate earnings come through . Thats where i think were at. As you know, when we get in these episodes, it becomes a tactical technical story, are we retesting lows, have we seen enough fear, this stuff is all in play now. We have not even addressed the more technical drivers of this selloff, the unwind of that volatility trading strategy, which is a factor but who knows how much of one. All right mike, thank you very much. Well talk to mike throughout the morning. We know how mike is mike gone hes here are you here, mike . Im here. The diabolical you remember jesse livermore, the diabolical way the market does things theres been corrections in the past that sometimes do end at 10 or 11 , but when youre down 10 or 11 , youre at a point in time the fear is 15 , 20 , we have no idea so to step in and say, wow for the people that say, od, i would give anything for a 10 correction, once you see it, you dont know if you want to catch a falling knife. In hindsight we could look back and say, wow, it was down 10 , that was the classic correction. Sometimes the market can do it again and again and looking back in high sight fortunes are made when markets are down, not up but you dont know whether its catching a falling knife or a leap of faith we dont know, but im pretty sure these next two guys we got dont know either no. Joining us is joe bell from shaffer Investment Research and scott freese from sabertooth advisers as you can imagine, tony is still here he was just talking and you saw him on camera. Tony is still here lets start with you, scott. Do you know for a fact whether this is a correction that should be bought or if you go up 45 , 10 may not do it, right right do i know for a fact it should be bought . No but i think the prudent thing now is as the market was accelerating, you started to see some cracks in it, you start to sell off some winners, build up a pile of cash, now its the nvidias, amazons, companies with strong earnings and buying a bit on the dips, buying a bit on the di dips, buying a bit on the dips, but focusing on those Strong Companies with Earnings Growth rather than breading it around the market youre not sure whether buying the s p is a different decision do you feel the same way, joe . Well, it all depends on your time frame you take about the shortterm price movements, the volatility weve seen in this market. Picking up compared to the volatility were experiencing daughter flag steady uptrend, you want to lean on history and look at the longterm. When you look back since 1980, we had 19 pullbacks of 10 off alltime highs 13 of those years we finished the year positive. The six we did not were during years where we were in an economic recess, which were not currently in when you lean on history it typically says six months out, 12 months out it generally resolves itself to the upside. Scott, can you speak to gamma risk, the idea that wrongway bets go really wrong, they get much worse than itsenvestors can handle what would you say to that when we look at this market now, everybody is talking about the bets they put on, the pain its caused, its started with the xiv, which is not a cdo type issue that we have that caused the financial crisis this is a shortterm event in the market that of feeffects a group of hedge funds, but its not a longterm thing. Longterm like you were talking earlier with wages, inflation growth, deficit spending, those are longterm things that growth will or will not balance out a lot of the pain weve seen is just the shortterm thing. So when you talk about longterm bets, you know, its going to go wrong, i dont think we can say that yet i think this is a healthy correction, something to start to buy the dips, not necessarily go all in. But i think were looking at a shortterm thing, not a longterm broken market. Scott what if its all related to the Federal Reserve continuously raising Interest Rates and going to a much higher level than people expect how would the stock market handle that . The fed continues to raise and raise and raise we will have a problem. Youre the one that schooled me on this, youre the expert if the fed gets crazy, it beats everyones expectations, then the market will come down. Are we going to have the growth and inflation that sustains where the fed goes there are always going to be companies that will outperform the markets. If youre a longterm investor do you have a breaking point scott on the Interest Rate level . Do you have a breaking point where the market cant handle it an Interest Rate level for the tenyear or the federal funds rate in is there a breaking point . Youre the boend gnd guy, ifu say 3 is a breaking point, but the federal funds rate is going to be at 2. 5 for the next ten years, why would the rate go up to 3. 5 that would be a breaking point i get that if the tenyear accelerates past where the fed funds rate should be on a tenyear scale, thats going to be a breaking point we might see selloffs like we saw in 2000 where you were losing 1,000 points a week, which from a percentage basis was much more than losing 1,000 points a day when we were losing 1,000 points a day in 2000 8, 2008i was for a reason, the collapse in the housing market, fraudulent activity. If you talk about rising Interest Rates because the economy is improving, how big of a problem is that . That was the point im making its not the same as back then the market is not broken the economy is not broken. Theres nothing wrong. We might have some unwinding from the xiv, algos going wild and a drying up of liquidity in the market on a shortterm basis, but i dont think this is a longterm problem. Its a healthy correction and should be bought unless you think fed fund rates are going to stay at 2. 5 , but all of a sudden the tenyear goes to 3. 5 , 4 , then something would be broken. All right, gentlemen, thanks. Tony will be here when are you leaving . 8 00 when is breakfast let me know. Im speaking in east coast time, because im back on east coast time youll be leaving at 5 00. Now 5 00 a. M. Worldwide exchange, 5 0 we were just in davos confusing the alarm goes off. Confusing time to make the doughnuts. When we come back, drama in d. C. The government shutting down for the second time in a month but just about a half hour ago Congress Approved a bill to keep federal employees working. A live report from walk washington after this. Where can investors seek predictable income in an uncertain world . Pgim sees alpha in real assets. Like agriculture to feed the world. And energy to fuel its growth. Real estate such as ecommerce warehouses. And private debt to finance transportation and infrastructure. Building blocks of strategies to pursue consistent returns over time from over one hundred fifty billion dollars in real assets. Partner with pgim. The Global Investment management businesses of prudential. At holiday inn express, we cant guarantee that youll be able to contain yourself at our breakfast bar. Morning, egg white omelet. Sup lady bacon fruit, there it is but we can guarantee that youll get the best price when you book with us. Holiday inn express. Be the readiest. Its technology was engineered beeping . While its design was meant to be seen. Experience the new 2018 lexus nx, and the nx hybrid. Experience amazing, at your lexus dealer. With 150 hours of usa events in stunning 4k. 50 olympic channels dedicated to all the mustsee moments, and the ability to find anything with the sound of your voice. [ upbeat music playing ] show me bobsled. Catch all the action. Every moment, every medal, every screen. X1 is the ultimate olympic winter games experience. The house passed the budget with about two dozen votes to fund the government after a shutdown took effect at midnight. The Senate Passed the bill at 2 00 a. M. , but unable to move more quickly due to a stall tactic by rand paul. In a 90minute floor speech paul called his colleagirresponsibile thing that is hurting the market you wonder why the stock market is jittery, one reason is that we do not have the capacity to fund a government like in weve been funding it with phony Interest Rates that are concocted and given to us by the Federal Reserve, but they are not real once the bill becomes law, it funds the government for six more weeks but also sets in motion a broad twoyear spending deal that the Congressional Budget Office says will cost 0 320 billion add 1 100 billion more to that including interest the bill now heads to President Trump who is expected to sign it i reached out to the white house on when that will happen and whether it will take effect before the federal workday begins no word on that yet. Back to you. Yep two years is surprising. V everybody pulled in their horns, i guess. Theres no real except rand paul theres nobody who wants to play any brinkmanship, nobody is doing the brinkmanship this time around probably not a great time with the market down 10 . I think the market has shown fractures and that has caused some on capitol hill som concerns about what their action also mean for the markets. And also the length of the debt is also tied into this, which increases spending by 30 13 130 billion. In the house 67 republican nays, and that is because of the spending levels and because of the debt i can do 90 minutes standing on my head didnt nancy pelosi do eight hours in rand paul is go for 90 minutes . That wont cut it. I havent confirmed whether he was wearing high heels. I thought about saying that i said im not even going to you know, you can. Thank you. You know what i mean but eight hours in heels, recently everything fred astair did, Ginger Rogers did backwards and in heels long ago you guys were superior, i knew that. Anything you can do i can do better the return to volatility after more than a year of rangebound trade, the vix is jumping higher tim freeman will join us as we head to break, heres yesterdays s p 500 winners and losers male vo when that hurricane hit, the entire Community Came together as a whole. It was such an overwhelming response to help others. No one thought that they were going to do this befo