The currency weapon has been. Yeah. It was a big surprise last week when the president dropped that tweet about september 1st tariffs. And some people that i talked to, tyler, and kel, it changed the game for them. That what they thought they had was a figured out market for the most part. They felt that way because of the fed and the rate cut and they felt like they had their hands around where the market could go in the months ahead were still throwing out of whack by that. Going into that, this was a market that was up almost 20 , so far this year, trading near record highs coming off of good earnings, fed rate cut, felt it was all working for the markets. As you heard Barry Banister say, sure, we get more of an odds of a fed rate cut, trump did something good on the trade front and markets will be fine on that note, well hand it over to you guys. Youre always one tweet away. Thank you. Well see you later. Welcome to the closing bell. Im scott wapner stocks plummeting, names like apple, visa, bank of america, and so many more are all getting crushed today. Were going to tell you why, tell you everything you need to know before this market closes we are near session lows now, the dow is down almost 900 points im sara eisen lets look at what is driving the action at this hour. Trade war front and center, looking more like a currency war, china is also reportedly telling state firms to stop buying u. S. Agricultural products, adding to tensions treasury yields are sinking, one of the hallmarks of this entire market selloff. We have the voices you need to hear to help make sense of all of it. Jim cramer will join us. Kyle bass, big time china bear, will be phoning in, schwabs liz ann saunders, steven roach and dan nathan joining us for the final hour of trade, principle at risk reversal advisers. What are you doing on a day like today . I think you hit the nail on the head coming into last week, s p 500 up 20 on the year expectations were very low heading into earnings. A certain sense of certainty about what the fed was going to do at that meeting i think it is interesting when you consider the fact that the dollar rallied right after the fed had its first 25 basis point rate cut in ten years, rallied you didnt think that was going to happen. What is going on, what was going on into midlast week was a flight to quality, like you said in u. S. Treasuries, s p 500, megacap stocks, the dollar for the time being the fact that the dollar has remained big tells you that youre going to continue to see money going into these large cap u. S. Based risk assets. You feel like the playbook changed in the span of, you know, i dont know, a handful of days one week, were having conversations that are entirely different than the ones we thought we would be having. It is interesting i think there was some tells going on the fact that the russell 2000, small cap stocks unable to actually break out of a multimonth range, the fact we have a few charts here, this is the etf that tracks megacap u. S. Banks, it had never confirmed any of those new highs in the s p 500 since january 2018 the kre. This is the Small Cap Bank index, also in a massive downtrend, and this is the most important to me, look at the ssx 70, euro stocks bank index this is down 42 from its 2018 high if we had the economy that the Trump Administration was trying to tell us we would have, the banks are the life blood of that economy. Bank stocks were the tell because investors were not buying them at all throughout any of these new highs in the s p 500. Well, chinas yuan hitting an 11 year low breaking a key level. Who else but sara has more on that, a topic you think about and talk about a lot today, couldnt be more relevant. 7 was the level we thought about and talked about a lot and that is what is so scary about it it is the symbolic level that marks a serious weakening of the chinese currency china manages its currency tightly. The thought was, they wouldnt let it get past 7 because that would trigger all sorts of alarm bells about the state of the economy. Also anger the u. S. And others who say china manipulates their currency to keep it weak and get an export edge why did they do it according to the officials in china, it was the Market Forces that took them there pboc, the central bank governor, it is not a tool to fight the trade war. Heres what the pros are saying. The fact they didnt stop it from happening sparks a few serious concerns number one, the currency is being used as a weapon in this trade war to fight the impact of tariffs, it does help the chinese. It also prolonged the trade war and promote more painful growth killing tariffs from the u. S. Administration it also could be a level that reflects some serious concerns and pressures on the chinese economy, potentially worse than even the market feared that weakness could also beget more weakness, which could trigger wealthy chinese to yank money out of china as investments decrease in value. Capital flight, another concern. It could also drive up the cost for borrowing. Turkey last year on a much larger and more dangerous scale. Look, all of these fears are in play now that china made this very significant move. The consensus though, dont want to be too scary is that china is in control of the currency wont let the yuan weaken to those seriously Dangerous Levels and they are responding to the new tariff threats that we got from trump last week and the fact it hurt s their economy and their industry. Thats what tariff does, it will weaken the currency of those that youre affecting them on i just make a point about this if you go back the last time we hit a real growth scare in china, summer of 2015, there has been a lot of comparisons about that let me tell you whats what. The ten year treasury yield the same spot it was in midaugust of 2015. The dollar about the same spot the shanghai composite the same spot you know what is not the s p 500 up 50 from the levels you think about what are inflated assets and what are the sorts of things that could get off the hook, if we start seeing this stuff start to snowball a little bit, you will see ultimately profit selling in stuff like the s p 500 that has been a crowded trade for the reasons that we are talking about before i want to make one other point, you talk about this 10 tariff on the remaining 300 billion, right. We know what is going to happen. Jim cramer said this morning, he thinks theyre going to go to 25 . What happens next . What happens if the chinese puts through massive fiscal stimulus. They have a lot of levers that our congress, theyre gone, theyre on the beach, in august. President xi has a lot of levers to pull now. Were looking at Dow Jones Industrial average that right now is down 926 points and fading somewhat fast with less than an hour everybody is down all 30 dow stocks. Visa and apple at the bottom. Worst day of the year across the board for each of the three major averages lets dive more into this, Kayla Tausche on trade, bob by saniu t the new york stock exchange. Kayla, we begin with you. An ally of the president outside the white house text me that he thinks trump made a real miscalculation by daring china to make concessions during a politically sensitive period and this person worries even if trump dialed back his threat, it might be too late to put the ge genie back in the bottle signaled it could let it move further and china plans to stop purchasing u. S. Agricultural goods according to state media even though those same reports this morning called it groundless that beijing backed out of previous pledges that it had made with the white house. President trump firing off a series of tweets on chinas currency manipulation, trade practices. Chinese Party Leadership are all at an annual gathering in a resort town to try to chart a path forward on all the various policy challenges facing china the officials are supposed to come to washington in early september. There is still an open question as to whether that round happens or whether china throws in the towel and says this is just too much, we cant go there. Kayla, thank you. Bob pisani on the floor with the market impact. 51 minutes to the close, bob, getting uglier by the minute. A slow but steady downward move since at the open no real attempt to rally this tells you the buying interest even at these lower levels is just not there too much uncertainty the sectors here, everything, except gold and utilities, essentially, is down 2 to 4 thats a very wide dispersion there. Not Just Technology stocks or industrial stocks. You look at financial Stocks Energy stocks. Industrials, you look at even healthcare, also down essentially 2 right now it is very broad based investors arent so much interested as picking losers, that one group ive been putting up all day is food stock. Campbell soup down 2 . Kellogg down 2 . Stocks not normally associated with trade kroger 100 of the revenues inside the United States and yet it also is trading down, just a little less than 2 . The vix at 23, a lot of people point out the similarities with may, the vix went up to 23 in may, same concerns, china trade war, retaliations, this may not be the same thing, though. This is more complicated now that we have currency issues involved very heavy volume in the plain vanilla etfs, spiders, russell 2000 this makes a lot of sense. Traders reach for protection, they go buy puts the marketmakers who sell them, they have to go out and short the market as well and they use etfs. A lot of this is internal activity from traders reaching for protection and you see the secondary knock on effects in the heavy volume in the plain vanilla etfs like s p 500. Bob, thank you. Back to you. Thats bob pisani on the floor nasdaq down for its sixth straight day uptown to Bertha Coombs. Bob is talking about plain vanilla, more like rocky road here the nasdaq on pace for the fifth worst ever point decline it is rare to see a day when youre seeing more than 300 points to the downside off more than 4 the nasdaq composite breaking below the 50 Day Moving Average and biggest drag is apple, very strong volume for apple, more than 150 already. The iphonemaker is not exempt from this next round of tariffs. That weaker yuan is going to make its phones that much more expensive. China, stock is down more than 17 below the 52 week high thats putting it near bear market territory the chip sector is not far behind the Semiconductor Index is seeing its worst day since january 30 thats when apple warned that sales in china would hit its profits. On semiconductor today, off more than 10 . Thats the biggest loser after reporting disappointing revenues and disappointing guidance it is being its biggest decline in five years. Really no place to hide in tech today. Thank you. No shortage of carnage out there, one place that is getting hard hit industrials, seema mody back at headquarters with more on those names. The impact on industrials is two fold specifically when it pertains to the weaker juan, on it makes it harder for u. S. Exporters to compete with chinese goods and third party markets. Markets like Southeast Asia and broader europe this earnings season, a number of Major Industrial names like caterpillar, 3m, general electric, they all touched on the Competitive Pressures theyre experiencing inside china on the pricing front and from local players the concern is that a weaker yuan and escalated u. S. china trade fight will accelerate the push for the chinesebranded engines and tractors and other devices over american ones thats why youre seeing a number of these names move to the downside sara thank you for more on this selloff and what the chinese currency weakness actually means for investors around the world, lets get to kyle bass on the phone, the founder and chief Investment Officer at Hayman Capital Management we spoke to you recently, we know youre bearish on china, betting against the hong kong dollar what is the significance of what happened overnight i think it is important to realize that the chinese have only been at this Capital Market thing for the last 15 years. And while theyre smart, they i equate it to they have one of those like the circus spinning 20 plates, have to have all plates spinning all at once. If one falls, they all fall. In this case, what is happening in china is they have to have dollars to sell to buy their own currency to hold it up if they were to ever free float their currency, i think it would drop 30 or 40 and the reason being is they claim to be 15 of global gdp in dollar terms they prop their currencyup everyone calling them a currency manipulator, theyre trying to hold this whole thing together if they were to let it go, and allow the all the wealthy chinese to get their money out, and buy more houses in vancouver and london and the u. S. And send more kids to school in the u. S. , you would see their currency collapse in the end, they have to have dollars to support it. Theyre running out of dollars what they did is they stopped supporting it. They didnt intentionally weaken it they just stopped supporting it at a certain level. Well, part of the reason, kyle, you have to believe, is retaliation against what they got last week, where whether they were surprised, somewhat embarrassed, if you want to put it as strongly as that, by the way that that tweet came out and they were surprised and they were going to do something in return do you think there is something to it . Yeah, i think what is more important is what really happened behind the scenes so back to back a month ago, negotiating with the chinese, we had 150 page document that they had said they were going to sign and the night before they took 50 pages out of the agreement and anything that was measurable and enforceable got taken out and they said, well sign this agreement. And so they negotiated with us in bad faith and thats why the talks broke down last time now with lighthizer and mnuchin going to china to meet with them, what happened here is china said we need you to drop all tariffs on all of our goods, we need you to stop disallowing huawei and the u. S. And release the huawei cfo before we even engage in talks. We say thats not going to happen the chinese negotiators stood up and walked out of the room so somehow were the ones that are negotiating in bad faith or were the ones where the president is tweeting something and it is all his fault but the chinese are negotiating in bad faith all along. What happens next in your view if the chinese run out of dollars, you have to remember they need dollars to buy everything that they import. They are desperately short energy theyre desperately short basic materials, desperately short food and they have to pay dollars with that. They cant pay monopoly money with it. They have to use real currency and so if theyre running out of real currency and running a current account deficit and fiscal deficit, what happens next is they start to lose control of their currency. I think thats what youre seeing today you can say it is retaliation why do you think theyre losing dollars they have trillions of dollars in ammunition what makes you think theyre having a shortage of dollars why not take their word for it, which is theyre guiding the currency where the market is pressuring the currency because the chinese economy is slowing because the administration keeps putting tariffs on it. Did you say why dont i take chinas word for it. Pretty funny it is important to think about back to sorry, south korea, 1998, they supposedly had the largest pile of fx reserves during the security the financial crisis in 97, 98 they called summers at the time and said, mr. Summers, we need more dollars he said, what do you mean, you have the largest reported stack of dollars in asia they said, well, we kind of already allowed our banks to borrow them from us and they sold them, but we still hold them as an asset on our Balance Sheet. Look at the chinese Bank Balance Sheets in last 12 months they inverted from being massively u. S. D heavy to massively u. S. D short at some point in time that stops. If theyre allowing their currency to fall, maybe they will further, do you feel like the trade war now has epp ternta new phase . Yeah, i think the trade war entered a new phase when the u. S. Started pushing back. We never pushed back on their policies before. They have been able to buy everybody. In this case they havent been able to buy everyone in this Administration Im not a trump voter and im barely a trump fan whats going on here this is a clash of cultures. Youre seeing it between someone who negotiates in good faith and someone that just refuses to negotiate in good faith. Sure, but there is you can be a negotiator but the reporting is that the president sent that tweet out, it caught some of his own people by surprise, and some of his advisers had urged him not to do it and he did it anyway. So what i heard happen is mnuchin and lighthizer got back from their trip in china and went to seat president in the oval office and they explained what the chinese did and demanded and the fact that they stood up and walked out of the room and trump said, okay, well, if they dont want to negotiate, were going to have to go to the next level should he wait until the market closes should he negotiate with someone else in the u. S. Administration . I dont know all i know is the chinese are not negotiating in good faith. They never lived up to one thing they said they would do as they incented in the wto in 2001 and were trying to get them to sign an agreement that is measurable and enforceable. And they wont do it doesnt look like theyre any closer to doing it now, now that theyre facing more tariffs, more pressure on their economy and starting to fight back with their currency, with ages. Well, what is important what is important to realize is the u. S. Holds all the cards the chinese need dollars to operate. And so we hold all of the cards in this negotiation. So what if some shoes we buy, nike shoes we buy at walmart cost a little more we lost 4. 5 million jobs in the first five years of wto ascension. They hollowed out all of our industry and we can buy things from vietnam, we can buy i dont know they hold all kyle, how many 800 to 1,000 point declines do you think this president is willing to tolerate going into an Election Year . Do you think we should trade the u. S. National security in the long run for a stock market decline . I dont care and tr