Transcripts For CNBC Closing Bell 20180213 : vimarsana.com

CNBC Closing Bell February 13, 2018

That vix up at 25. Weve got our crew standing by Courtney Reagan watching the stock staging a comeback Steve Liesman on how it could hit the gdp. We begin with bob pisani amid new warning signs. It kind of feels like its quiet today, and yet if you look at it on an historical basis, this is a pretty active day. The one to one advancing in decline so were not getting any weird breadth signals here the volume is lower than its been in the last several weeks by historical standards its high but compared to the last two weeks, actually, its pretty quiet. The volatility, the vix is elevated but moving in a very narrow range thats a sign of Little Things settling down. Kelly is absolutely right about the dow. 280 points from high to low. That would have been titanic two weeks ago and yet today were watching, oh, okay, thats not that bad overall i think the important thing is if you look at the dow, about half are up, half are down just what i said, one to one advancing to declining stocks. Caterpillar on the upside, and some banks on the upside utx, which has been a poor performer recently some other stocks to the downside finally on the vix, were rolling over into another contract tomorrow. This will be the february contract that were rolling over tomorrow the vix is elevated. The cash is higher than the futures contract this is called backwardadtion. Well roll over tomorrow its still elevated. The front month contract is still a little elevated. But not nearly as much as we saw just a few days ago. This is another sign the market is pricing in still some nearterm volatility but they dont feel its way out there. Certainly not in the next month or so that will be elevated like this back to you. I get backwardation and contango confused. I just like saying it. So do i. Thank you a number of stocks are gaining ground that they lost last week. Its been a really wild week, of course. Plus, more than a week for the market with the big spikes and big plunges. On friday, though, is when the s p 500 hit its intraday low you can see it here on the chart. Stocks have bounced back nicely since. The s p 500 itself is up about 5 from that friday intraday low when it hit 2532 while mixed today, all 11 sectors have bounced back at least to some degree from friday three of those 11 s p sectors have gained more than the broader index since that friday low point. Thats the point were watching. Technology is really leading the bounceback as it led the way last year. You can see technology up by more than 6 since those friday lows Consumer Discretionary right behind it, up 5. 6 and then, of course, youve got materials and industrials also up higher by more than 5 since those february 9th intraday lows now, ten stocks in the s p 500 have gained double digits since their friday lows. Take a look at this csra, thats the top performer since that point. Up more than 36 from that intraday low on friday under armour class a shares up almost 27 remember, that did report earnings today we got other top performers, which include micron technology, cboe and amazon. Thats one we often talk about, up more than 11. 5 since the lows hit on february 9th whether these are true buyers or some Short Covering, it just shows you the long path weve traveled since just friday kelly, back over to you. Courtney, thank you we may be off those lows but still trading off the recent highs. The question is, whats the impact on the economy . Steve liesman is reporting on how this drop could impact main street. Economists beginning to consider what lower stock prices mean to the economy and some are shaving off points for less wealth effect from stocks. Others saying it doesnt matter that much. The wealth effect is the tendency to buy more and save less when stock and real estate values rise. Estimates are people spend between 3 and 5 cents of every dollar from the windfall from their portfolios the question is, do they stop spending when the portfolio declines markets surged by 4. 5 trillion the past six months but are they freaked out by the loss of 2 trillion in a couple of weeks . Goldman sachs things the wealth effect may have added a point growth over the past year. Now with stocks not as rosy, goldman thinks that half point could go away. There will be other advantages as far as bigger paychecks because of tax cuts but americans could look at the 2 trillion and forget about the 2. 5 trillion in gains. Thank you very much lets talk more about this and bring in a couple experts from wall street chris heisey with bank of america. There they are how have you been . Ive been good. What do you make of this sudden surge of volatility and what are you doing about it . We exposed a structural issue in the market and i think we stretched the fabric on the upside and downside in a short period of time i think it created a big scramble to adjust value risk for strategies and portfolios. I have to say some of this typical this is very typical, this price action. Its trying to gradually claw back some gains it had given up for equilibrium. Yeah. There was a component that had to be technical. I would look forward and start to apply what does this higher volatility mean . Is the market sending us another message . Is it, do you think i think theres a message in that were beginning to see higher volatility in Interest Rates. Thats really the center of gravity when it comes to pricing assets that was occurring for a couple of months. Started in Early September so that traveled through the market i think what we have to watch for now is a couple other things related to stocks. First quarter earnings comparison year over year are going to be difficult. We had a Strong Quarter in the First Quarter 17. Here come the 18 numbers. The market will smell that before it happens. I think weve already seen noise in the numbers and thats likely to continue. I had to reread your notes. I thought you were talking about automobiles. You said this is kind of like torque what do you mean well, i mean, this, perhaps, is a new term but a torque correction is one that includes velocity, you know, the speed of the decline, force is the magnitude of the decline, and ultimately what happens during it, and thats rotation. We havent seen significant portfolio rotation in quite a long period of time. The last time we went through an episode similar to this was the midcycle correction. Its been a few years before that and what were pointing to is just two years ago we had significant fears of deflation when oil collapsed twice thats the last time we had a 10 correction all of a sudden two years later now were all of a sudden worried about significant inflation to come . So, the point here is that this is a torque correction its technical in nature but it does have legs one thing everyone should worry about is price stability one that measures is inflation to suggest were going to all of a sudden start to switch on a dime to an inflationary consequence, i think, is a little premature i would say this, kelly, to your point. Were going to get data points perhaps wednesday that look a little dicey as it relates to, yes, the speed of inflation is coming but well also get data points because of secular moves, technology, other things, demographics that will push price and stability down over the course of months we are in a regime shift, though we are there and portfolios will have to reposition themselves. A lot of headlines suggest this was about Interest Rates and the rate of increase of the tenyear, especially you have some fed officials still talking tough, even with this volatility. Theyre saying, we still have to stay the course and raise rates. Is that good or bad for the market i think its going to create additional friction. It is a concern. What im interested in is, yes, the increase in rates has risen, but we never had this much debt in the system. Weve never had a fed thats been so involved in markets now pulling out, withdrawing there goes a 25 billion on the sell side coming and 75 billion more to fund the deficit this creates a very interesting situation, given the fact a lot of banks and traders in the markets in Interest Rate futures have stepped away because of the volcker rule im concerned about Interest Rates and im concerned that expectations are just, hey, what just happened is behind us lets go back to the normal. It seems to be consensus that makes me a little nervous. Thats too easy. Speaking of too easy, tech has been such a winning trade. Tech and financial, some of your winning positions. Are they still or do you change that now no, no change there i think really we almost had the opposite of 2000 if you remember in 2000, tech got wildly overvalued and the rest of the market was below and tech had to catch up and it had a big drop in this case, since the First Quarter of 2016, tech has had a big catchup rally if you looked at the prices of some big tech names relative to their growth rates, they were undervalued relative to the market they caught up now to the rest of the market. And i think its really a twoway street now tech and financials should be performing and i think a lot of sectors of the market will underperform. Before we go, what kind of mixture . Are you changing it all . Going more to the inflation plays and intrasensitives or what are you doing here . This is a phasein approach here were going to continue to move toward cyclicals, more towards values it is a market of stocks from this point forward its going to start to gather some speed here. Youll see correlations actually even drop a little bit lower its going to be about profits, profits, profits and well have these small torque corrections as violent as they are, well have a few before we can clear that the bottom is done. Good to see you both. Chris heisey and liam dalton weve got 49 minutes left in the trading session. More volatility. At the magnitude is not as wide as it has been lately. So, a 280point swing for the dow today from bottom to top were up 20 points right now wul see what happens with 50 minutes to go. A lot more ahead on the closing bell. Next up, the woman who warned against shorting volatility if the markets had listened to her, the last week for the markets would have been very different. Today she has a new warning. See what it is next. This is the closing bell on cnbc, with Bill Griffeth and kelly an le omheew york stock exchange. [fbi agent] youre a brave man, mr. Stevens. Your testimony will save lives. Mr. Stevens . This is your new name. This is your new house. And a perfectly inconspicuous suv. You must become invisible. [hero] ill take my chances. Welcome back maybe youve heard of new reports that claims a whistleblower has come forward to shed light on a scheme that manipulated the volatility index, known as the vix, that cost investors hundreds of millions of dollars a month. Bob pisani joins us with that story. This alleged whistleblower has written a letter to the s. E. C. Saying vix is subject to potential manipulation i spoke with this whistleblower a short time ago he would not identify himself to me only that he had been working at buy side firms for 20 years in senior roles the crux of his argument is that vix derivatives, futures and options, may be subject to potential manipulation the vix is calculated using options in the s p 500 one month out, 30 days out lets assume the s p is at 2600 and options are priced between 2800 and 3,000 normally far out of the money bids and puts, say those at 1,000 or 12,000, way out of the money, theyre no calculated because theres no price to them theres no bids. This whistleblower contends the only time we see bids in these far out options is just before the settlement on the options contract hes asking to investigate to find out why that is actually happening. His contention is that some traders go long vix futures and put in bids and offers way out of the money and profit when the vix goes up just before settlement now, this whistleblower emphasized he had not observed anyone manipulating the market directly only to have observed irregular patterns in the markets that impact investors he says he himself has never manipulated the vix. His letter to the s. E. C. Has serious error twice referencing the cme when it should be cboe his attorney said it was a clerical error and does not help our credibility. Back to you. No, it doesnt. As we continue to dig into this story. One investor who did call the vix as the next big short a few months back. Leslie picker with more on that. Big short meaning it was a popular short. I spoke with quadrattic capital manager in november four months before the markets started their wild swing she focused on the risk on what she called a crowded trade and shorting volatility. Were in a low yield, low return environment some investors have been forced to figure out other ways to generate yield in their portfolio. A common theme, the best sharp trade out there is selling vol the problem is everyone is doing it now i like to say the big short out there is people who are short vol. That doesnt mean vol is going to spike hugely at any point, but it has the possibility to because so many investors are short volatility. That trade was turned on its head a week ago after the vix more than doubled in one day she spoke with us earlier today on cnbc and talked about the liquidation of an exchangetraded note that trades as an inverse to the vix with ticker xiv. It was the thing everybody was in that was the best short, meaning the xiv, to be short that because ive always said its going to zero. It did happen. It took four months to play out. So, where might the next trouble spot be . Davis says Corporate Credit. I think the private credit markets is something to keep an eye on the last shock we had in credit was in january 2016 when oil fell so aggressively i feel like weve had the shock in vix where vix spiked and varies etns we were watching i think watching credit spreads as we have the fed reducing Balance Sheet and what thats going to mean. Davis says there was little in the way of contagion in securities that crashed last week that may be different if something happened with Corporate Credit guys leslie, thank you for more on this, lets bring in our own mike santoli hes with us here at post nine we have the head of derivative management let me ask you this. Whats your version of what happened here. Was it manipulation or was it a trade that just got too crowded, as nancy davis suggests . In my opinion, this is a trade that got too crowded ill speak to manipulation claims later what i think happened last month is a very small example of what happened on black monday of 1987 black monday of 1987 you had portfolio insurance. These vix products, they were short vix futures. As vix futures rose, they were forced to buy more and they moved the market against themselves to me its a simple story of, one, too much leverage you had a product that could be wiped out in a single day which is easy from low levels of volatility too much leverage and too low volatility. So heres my question, all that being said about this the volatility products, is the only reason stocks declined because theyre programmed by algorithms or whomever to do this to say, when the vix goes up to 30, its a sell . Was there any other linkage that you can tell theres a very indirect linkage, called vol targeting. At those programs arent forced to sell everything in a single day. Some programs say they want to target a certain volatility to their portfolio. If they feel the market has become more volatile or measure volatility to be higher, they may, in turn, liquidate some portfolio to match that new target volatility. Importantly, most dont look at the vix. They look at the actual moves in the stock market and use that to determine what volatility will be Going Forward just to built on these points you have these products that we should remind people, were meant to mimic the inverse of the single day move in the vix this was essentially engineered in a way that in this environment was going to implode and skid off the road. The other thing is the general market backdrop, which was very compressed volatility, assumptions of compressed volatility continuing and a relatively small market decline creates an outsized up move in volatility its sort of the pebble in the road high speed and you do a spinout. That seems to be what happened. Were these instruments doing what they were supposed to do or did something break down they were, largely speaking, doing what they were supposed to do theres a lot of talk about what happened after the close of regular trading on monday when the vix continued to spike and you had everyone knowing or assuming that these instruments were going to continue to force buyers and teetering on the edge of having to liquidate. We pretty much knew cramer said it, it was going to 50 Tuesday Morning. Where did it go Tuesday Morning . 50 you knew it was going to happen it created this talk that there was a raid and some hedge funds tried to help this along if they could. Its totally different from these allegations that the statistical calculation of the vix is somehow manipulative, which i think remains to be seen. Why did the stock market have to go down, especially go down 1600 points like that . Youre asking why the stock market went down on monday look, you came out of very low volatility regime. 2017 was incredible low volatility low when its low, people raise their leverage indirectly people perceive that risk is low and take more risk as nancy davis earlier point out. I think it was ultimately a function of too much leverage, volatility that was very low and ultimately this is an unwind ill ask you the same question were these instruments doing what they were designed to do or was some did something go badly wrong here they did what they were designed to do but the important distinction is they got too large relative to the market they had to trade. In other words, these markets had to rebalance their holdings at the end day. If vix futures were up, they had to buy vix they got so large, shorting volatility was so popular, so profitable that these products became too large relative to the underlying market. I think that is really the story here, is that they moved the market against themselves. Would you short the vix now i think volatility is higher now. I think it is a better risk reward now. To bet against it correct to short voluntarily stilt batia risklimited fashion no naked puts thank you. Good to see you. Mike, well see you later on closing bell as well 36 minutes left. The dow is up 44 but you missed some volatility. Pretty good volatility the dow opened down 180 points and then suddenly up 104 were somewhere in the mi

© 2025 Vimarsana