Valuations, and when youre hitting major levels to get to another new let them, you always bump up against it and come back here youve got the added factors of, number one, a weaker dollar, which is, as he saw in the report yesterday, pushing inflation higher, that was the clothing aspect of it. What ive done over the last few days is ive added some positions that i had i initiated a couple of new positions. In what bungee. Bungee came down dramatically after their Quarterly Report theres lots of talk about an acquisition, maybe adm, their approach last year if it doesnt happen, its a place i want to be because Agricultural Prices are also down, i think its temporary i also bought back delta it hasnt moved up as much as the others ive added to baba, i added to apple, actually, just for pete nicely done, smart move so i think were okay but its time to pick stocks everything is not going up pete, who is to say this v recovery doesnt turn by a w and why wouldnt it . It usually does. The swoons of most recent memory, and dan nathan on the 5 00 show pointing this out on twitter, august to september of 15, januaryfebruary 16, right, these v recoveries that turn into a w. Why will this time be different . Where the pressure is on is where were testing highs, scott. When you look at whats going on in the market around us, how about the fundamental story . When you come back off of all this volatility, and we talked about this the other day, and you had a great young lady on the other day talking about volatility in general, in all different aspects, but the reality is, the time at which the volatility is going to be somewhere at 30 or above is very limited. I shouldnt say it cannot. It would be unusual for it to stay above that 30 number, 2 move, every single day here we are back towards 20. Do i think were completely out of the woods absolutely not could we dip lower i dont think well go lower than we were and i dont think well get down to where we pushed down in terms of the lows josh, if we retest those levels, it will feel just as unsettling as it did before. Now weve come back 60 and counting so youre up 1,750 dow points since friday, which is insane. The whole thing is insane. If youre a rational investor and your time frame is anything more than 48 hours, it wouldnt be the worst thing on earth if you were to retest last weeks do and do it on lighter volume and maybe had some leadership stocks that are the not red alo with the Overall Index sellers didnt materialize, buyers camein where they came in last time, thats a base to build off. This activity, down 10 , then right back up to the old high. I dont think it helps anyone. If we fail at that old high, psychologically way worse than a low volume retest. So were doing were talking tea leaves at this point, scott. Nobody knows why it got down so local, so quickly. When we get away from the low, we get more confident i dont think thats right. I think the tactical traders with this lift that theyve had, maybe the better play is to lighten up a little bit. And the better play for long term investors is to pay no tension attention to any of it and hope you get a chance to buy more depending on your time frame will dictate how you think about either a retest or a race back to the old highs either one, were right in the middle, either one is equally likely theres no reason to say one is more likely than the other you have tech leading once again. Joe, nasdaq has recovered 75 of its losses so here we go again, back to what worked. Okay. So whats your discipline . Thats whats important. If your discipline is managing a portfolio, you have not made significant changes to your portfolio. You have looked at bondlike proxies and pared back those allocations. Youve looked at emerging markets and maybe you bought into some of those names today, utilities are higher. If im managing a portfolio, theres your opportunity, pare back allocations this remains a derivatives tactical marketplace even with the market moving higher what youre seeing is continual tremendous volumes and turnover in the futures market. I would say from the people i talk to, and myself included, i think there is a lot of surprise that we have made this v rebound. I think most people expected it to fail by now because throw up the tenyear exactly yesterday it went to 291 and the chatter amongst everyone was, oh, boy, were going to fail and we tried to fail at a certain point yesterday, and we snapped right back at the end of the day. But the environment that were in right now has not changed over the last couple of weeks. This is a great Derivatives Market and if youre a trader and youre active, its a its a trader market. Its also an investors market think about the opportunities weve seen over the last week and a half or so last week you said, pete, what are you finding to buy how about like a vmw that was down 30 plus percent there are opportunities from an investment and a trading aspect. If they sell off the financials again and give people an opportunity, we talked about bank of america, they sell that off unjustly those are opportunities, not just to trade but to invest. And i added to be evasive you talked about delta. There are plenty of examples where theyre not just trading these are investments for the longer term. If youve got the room to buy it right whats going to determineif we go lower again or not jay powell. Is jay powell afraid of deflation or is he afraid of inflation . We know hes a hawk but he works for someone who is not going to again can i put one thing out heres whats cool about rate fears, rate fears have a selfcuring mechanism, because the modern fed is obsessed with the s p 500. So if the market goes down 10 , and then does not recover, then goes down another 5 , and the titular reason in the press, and we know that fed officials also Pay Attention to news clippings, you could argue they shouldnt, but they do, if the titular reason for that decline is everybody is freaked out about rising rates, then guess what, the traders in chicago will start pricing the latter right hikes that theyre pricing at 100 more like 70, 60, we saw 44 last week, because everyone understands that the last thing an incoming fed chair wants to do is, a, rock the boat, b, get fired by the white house, and c, be the one thats responsible for taking a slow growth building economy and reversing course so nobody should think that were going to have a 30 selloff on rising rate fears, because the prospect of rising rates will disappear as stock market valuations and its not about rising rates. Its about the velocity of the rising rates, right . We keep coming back to that. Thats the real story. And, you know, give jeff gunlock all kinds of credits he talked about 2. 91, here we are at 2. 88. Its about the grind now, scott. If we grind and start going higher, markets can digest that. If we start spiking, thats a problem. Spiking in terms of velocity in the move to the upside im talking about the rates im talking about we had a spike in rates yep and we had the big concern now weve had a spike the other way in stocks. Not all stocks. Not all stocks not all stocks but enough of them. As the market has recovered, a number of stocks have recovered almost all of their losses dom chu is at the wall to take a look at some of the names that have had a big come back guys, ive been listening intently to your conversation. It echoes my sources of where they think the tea leaves are. We wanted to take a look at stocks that have made recent highs, 52week highs, multiyears, or record ones, and that have pulled back and recovered all that ground. The s p 500 right now, 93 companies are within 5 of their record or 52week or multiyear highs, recent highs anyway 81 stocks have hit their highs, 52week or better, just this year alone 13 have happened just this week alone. Take a look at some of these names, Vf Corporation is one on the apparel side of things, within a half a percent of record high levels northrop hit a record high today, just today. Tapestry, the Company Formerly known as coach, within a percent of its highs cme group, exchange operator, 1 away from its high nike, dow component, within 2 of its record high levels as well i would point out that cme group, northrop grumman, vf corps, all in trading today, hitting record high levels themselves, guys this is really important. Every one of those is an idiosyncratic situation where all four of us could tell you the nominal reason why those stocks have held up better and are closer to their highs than their respective sector industry group. Cme is a great example here is a company that literally thrives on volatility. Whether were talking about fixed income because of the contracts trading on treasuries or commodity that is a stock that should be close to highs, especially given Financial Market activity picking up i can go down the list, im not going to its important not to look at those and to extrapolate a bigger story for the overall market because when you look at energy companies, nowhere near the highs. When you look at utilities ill stop you there was a list of 50 someodd stocks understood. If not more the markets got a condition to discounting the news pretty quickly. Look at north korea. They fired one missile the market peaks they fire another one, another one, doesnt matter. Same with rates. We go to 2. 91, comes down, now were back up. The market says, didnt matter while i agree with everything everybody said, if you do go over 3 , and you do it in the next few weeks, week, month, were going day to day in terms of inflation reports and that will condition the market more than anything else powell, of course. But while i bought stocks, i dont have the exposure that i had in the market a month ago. Nowhere near it. Because im concerned. The stocks i buy now, im Comfortable Holding for a long, long time. Some are clearly wondering whether we have come too far, too fast on the way back up, the socalled v bottom mike santoli is joining us from the Stock Exchange with that side of the story. Scott, in line with what you guys are talking about, what josh is taking, would it be the best scenario if we race back up to the old highs looking at the velocity of this come back and the fact that we havent let up in the last few days makes you wonder if were going by that traditional playbook i know you guys all understand how its comical in a way, after you get a big jolt to the market, a correction, everyones a technician, just like when the hurricanes come in, everyone is a meteorologist. The fundamentals dont move as fast as the prices theres a reason these rules of thumb existed. Was it a reflex move responding to oversold conditions right now i do think the s p is at a level where maybe it will prove whether its moving too far. Its at a very obvious level, maybe where it should stall out and settle back down its near last weeks highs, all that stuff i do think i can understand why were not patient, waiting around necessarily to see if we get lower prices its because what was everybody saying in january who studied history . What was i saying . This market is crazy, its ripping too fast to the upside but after you have a meltup like this, the first jolt down is not the big one. Everything thinks this is not the big one, so youre going to buy it right now, the next couple of days, well see if in fact its showing signs. I went back and looked at october 97. The pattern looks really similar. You didnt have a true retest there. We cant be very dogmatic about exactly how this rally, this rebound is supposed to look in terms of its pace and rhythm no, but maybe the truth comes out, as you say, were way overbought in january. We probably got oversold in february, and now lets get the truth. Where do we deserve to be, what level of growth do we think were going to achieve i totally agree, scott. Thats why its a good thing were no longer talking about all the crazy historic streaks, weve been forever without a 1 drop or 10 drop now its, whats the right price . Maybe we got that forced selling from the unwind of the products that got us lower, who knows exactly what it is but i think think this pushpull will continue in terms of whats the right valuation in this kind of environment with rates and in inflation doing what theyre doing. Great points by mike santoli. The conversations i have with investors of all types, its no longer what are the levels its, does this have another quarter, two quarters, another year to go its a time factor those conversations without exception, im engaged in too. I think weve got two more quarters before we get to levels then the market is going to discount that ahead of time. Its not that all stocks will go down but only the ones that have the idiosyncratic stories that are going to rise. Youve got to get rid of the junk, get rid of the rising tide stocks and go with what youre comfortable owning the thing is, though, in it large part, as you said, its been a rising tide market. Who is to think that thats really going to change if tech resumes its leadership spot, if big industrials do, because youre talking about infrastructure or a weaker dollar, i got a story for that too. I can say small caps are going to do well because of the tax package thats now a law absolutely. But if you take a look at whats driven Global Markets, Global Markets over the last few months havent been driven by our tax plan whats driven them is the synchronized Global Economy thats been abetted and actually commenced with synchronized global easing. Now were reversing that trend, doing it slow in some areas. And thats what the bet is when that starts to get to the level, people say, you know what, ive had enough, made my money, im gone. I think its a great time to have a plan. Because always, though. The mistake that youve made, and ive made this mistake numerous times, when you see volatility spike and range of expansions in the markets, you tend to focus on the s p and you almost become an indexer yourself thats the wrong thing to do wrong things to do. To petes point, i picked up six names over the last two weeks. Three or four are great. Northrop is one of them. Ab v, apple. Those are the names youre tactically looking at. Over the next couple of weeks, knowing buybacks will be there, im comfortable with that. As we approach jay powell, ill be less comfortable, probably sell some calls or pare it back. Thats the right thing to do right now. Not to be critical of what youre talking about, but the right thing is to take advantage of that volatility you bought those stocks, you got a 30 on the vix plus, thats when you want to start getting the juice out of the options on the upside you should have sold them before because when you get that opportunity and youve got that stock, we talk about this all the time, when are the options really inexpensive when its trading at ten, when youre buying options to the upside or protection but when the volatility is higher, you want to sell your positions. The sector is up more than 6 in a week. Chris whelan is the chairman of whelan global advisers, chris, welcome back, good to see you again. Good to see you guys. Rates are going up, this has to be good for the banks its helping. You can see the interest margin expanding. But youre also seeing credit costs vary slowly, go up the bottom was 2015 for credit so were in a mature part of the credit cycle and i think it will be a minor to medium factor Going Forward its certainly not going to help earnings credit. They were taking reserves out for many years, as you know. So overall, i think Rick Santelli said it, well still in a very strange environment big banks are one of the important sectors this year. Bank of america, for example, how do you not take that off the table, given that were in this transition you know, i cant say that theres any ranging values, other than wells, selfinflicted wounds, theyll get it right eventually pnc, great value, 1. 6 times book you dont sound all that giddy about the space you live in at all. No. The last point about selling against these positions in the Options Market i think is absolutely right over time, if we do get a 3 or 3 1 4 or 3 1 2 handle on the tenyear, i think the banks will have to reprice obligation to actual earnings. 10, 11 equity returns lets be fair. Chris, assuming a decent amount of total return is going to come from dividends, why would you spend the Dividend Income you have coming in on option premium i dont understand the strategy. Then youre just isolating the capital gain part . No, but in those periods of volatility that i think we will get as the Central Banks step back, and we really see the cost of volatility. We dont see it now. Im sorry, the Central Banks began to step back at the end of 2014, right . Ehh the fed is not going to sell anything, josh there will be no outright sales by the fed the prepayment assumptions are too conservative theyre going to be a presence for a while. And the others, well see. We hope, right pete . I mean, whalen is telling you to take profits in some of the big ones can i ask a quick question . Chris, im still curious, you say the banks are fully valued my question would be, how about a goldman sachs, for instance . Mmm a name like that where obviously trading volume, the trading the money from trading has been obviously something thats been a real headache yes with this volatility coming back into the market, with whats going on in the commodities space, doesnt that bode very, very well to those that have done well, despite the fact that the fic has been as low as its been, but the potential for that to be part of their earnings once again . No, i think youre dead right. The Central Banks, by holding all of this paper, have killed market activity. Nobodys hedging these positions. So yeah, i think youre right, goldman will eventually see trading come back. The other houses as well to hopefully Something Like a normal level but i think the past five years, the bankers have been killing the volatility in the street even mortgages, mortgages will be down another 10 this year on volume theres no hedging the street makes money on that business i think youre absolutely right on goldman chris, are you not excited about the possibilities for less regulation in financials and a lot of the cash thats been trapped on these balance sheets, the ability to get out of there, maybe ccar itself, allowing them to have favorable allocations strategies these banks are overcapitalized. I dont think we need to raise the capital. Whats happening is that the regulators on the one hand are being less obnoxious in terms of compliance, modeling, all the re