Transcripts For CNBC Closing Bell 20140515 : vimarsana.com

CNBC Closing Bell May 15, 2014

Signal a slowing economy. Something well be kicking around a lot. It is the talk of the town. The Dow Jones Industrial average meanwhile is off 168 points at the session low. We were off more than 200. A little bit of a comeback here clawing its way back anyway. Still negative. Meanwhile the nasdaq off. 6 . Or 25 points today. The s p 500 shedding almost 1 , 17. Right in line with the dow there. The russell 2000 has been the leader to the downside for much of this move lower. But today even though it was down 1. 4 or thereabouts at one time, that has come back this afternoon. Interestingly. The blue chips have not followed suit. Something well keep an eye on as we go into the final hour of trading here for this thursday. Lets kick things around in our Closing Bell Exchange today. Sharon stark is with us with d. A. Davidson. John kosar from asbury research. David molnar from high tower. Greg ipf from the economist. You think the bond market is way too bearish on the economy. Right . I talk to a lot of people and nobody can really understand why the bond is doing what it is doing. Best explanation is what jim bianco said yesterday too many people think the bond market is going down so its got to go up. That is to say yields have to go down. Look whats happening in europe. Economy doing much worst than anyone expected. The german bund is down even more inyearold terms than the american bond. I think that tells you worldwide we are still in a period of disinflation, weak growth and you should not be too short duration. Great point, greg. The trading session today illustrates this as well. Pressure started to come off the selling in the stock space at around 11 30 when europes markets closed. Thats when some of the worst losses of the session were all recorded this morning. Take a quick listen. Heres what jim bianco said about where he sees the 10year going yesterday on the program. I think that this capitulation trade were going to see now is a lot larger than people think. Bonds, yields can fall a lot more before this is over with. Jim, where do you think the 10year is headed . Yeah. Whats the number, jim . Low 2s. Low 2s. Rick santelli, do you see low 2s on the 10year at some point . I think there is a 60 chance that we could see low 2s. I think there is a 340 chance e could see 1. 60. Ill tell you what, i like jim bianco a lot, i have him on all the time. But i think even though you can say everybodys offsides and it is Short Covering, why are they offsides . What made the positions what they are . That really is if you dont answer that you dont learn enough to trade beyond this, in my opinion. I think look no further than europe. Theyve managed to put rates for countries whose economies are still highly questionable well below levels of true value. That is coming back to i think draghis book about how i use my bazooka in one is about to have a new ep log written and it isnt going to be pretty. Greg ip talked about a bad day in europe. But it wasnt that. The european data, the german gdp was actually better than they were looking for. So why did bund yields really go down . For the same reason that our yields are going down. Relative value. We saw the southern european yields pop up 16, 18 basis points against a sixbasis point drop in bunds. That means those spreads widen close to 25 basis points. That is risk. Jims right. Its Short Covering but it is a risk trade. Rick, i got to jump in for a second. The bund yield is going down because german bond yields dont respond to german growth, they respond to European Growth and i completely understand but it is the relative value, the spread, that matters. Because now flip it over. We have 120 basis points higher than that 1. 30 yield in europe. What do you think thats going to do to us . Heres the Common Thread between what youre both saying which is, if generally speaking despite what happened in germany European Growth was a little bit weak and the ecb is more likely to and the, it is perhaps no surprise you are seeing some pressure on the i disagree. David, weigh in here as well. Where do you see rates headed next and why . David. I didnt catch that. We see rates going lower. I think to attribute the decline in rates as to wrong side of positioning completely understates what the market is telling us. The bond market is signaling that the economy is not as strong as wall street and economists told us it was going to be. It is not just whetheather rela. We look at a 10year yield under 2. 50 and if you ignore that i think you ignore that at your own peril. I think investors need to be positioned appropriately. We need to be balanced and think about what that means for risk assets. Why do you think the stock markets got it wrong and the bond market right . Why cant it be the other way around necessarily . Just playing devils advocate here. Historically the bond market is bigger, the bond market has a lot more capital there. And thats really generally speaking the smart money is in fixed income. Real finance and finance structures based on these rates. Theres a realness to these rates. You cant really apply to an equity index in the same fashion. Sharon, let me bring you in. You think that actually were going to see acceleration in the economy going forward. Dont you . I think we will see an acceleration in the economy just because businesses and consumers have cash to spend. Lets face it, if look at the individual in their household. If you have money in your savings account right now, its hardly earning anything and its hardly been earning anything for a long time. So consumers are going to start spending. Theyre going to start investing. I think businesses will as well. But with that said, bond market clearly is not paying attention to the fundamentals. I think the weakness in the stock market is driven a lot by selling by Pension Funds who have been overweight equities. Theyre not getting closer to being fully funded and theyre not going to make the same mistakes they did in 2008 by holding on. I think you take those gains and they move it into the bond market. I think thats really led to a lot of support to the long end. With all due respect there, weve been hearing that story sorry. Weve been hearing that story for years now that things are going to get better and consumers and businesses are going to spend but we havent been seeing it. This is the fifth year in a row that were going to check it off and say were not seeing it yet. John, what about you . Where do you stand here . Do you also see rates going lower . If so, why . Actually we do. Weve been looking for 2. 51 since the beginning of the year. We just hit 2. 51 today. But i think the bigger level to watch is down at 2. 40. Thats the low from october of 2011, or march 2011, the high from march 2012. There is a lot of activity around 2. 40. Thats where i think were probably going by the Third Quarter. Does that mean the Mortgage Rate will go sub4 again . I think it could. I can make a quick point . I think at 2. 40, thats a real big deal here. 2. 40 is a huge level. It is one of the most important levels on the chart. If we take out 2. 40, our next big level downstairs is around 2. 10 been 2. 05. Watch 2. 40 really closely. Rick santelli is watching lets keep in mind, thats not consistent with the path for Interest Rates that the fed has told us they expect to follow. If we continue with the bond rally that weve had somebodys going to be proven wrong, either the bond market is wrong and it is going to sell off when the fed moves to titan or the fed will be wrong about the economy. One way or another somethings going to get broken. To illustrate the extent to which perhaps everybody in a sense here can be right, look at whats happening in the Corporate Bond space. Corporate bond yields are falling. They are not rising especially for some of the riskiest borrowers in the whole universe out there. In other words, that doesnt happen when growth is deteriorating. It happens when people are reaching for yield or what have you but theres nothing in this market thats consistent with people jumping out of the riskiest parts of the market, guys. Theyre all piling back in and that tells you that for what have reason we have lower rates right now relative to the mack cofundamentals this credit boom is getting another leg and thats a fascinating thing to but kelly, if company xyz can borrow cleep, it is like the same people that say copper, i dont see a bad thing going on in the Global Economy because copper is up. Look what copper did before the credit crisis. Stocks started going down, copper kept going up. Company xyz can borrow cheap. It doesnt mean that any of their customers will interact with them in six months. Borrowing cheap and a clean Balance Sheet is not necessarily an indicator of trouble ahead. Rick, whats fascinating to connect those two episodes, we did have a commodity bubble and we are having a credit bubble for the same reason which is going back to the Pension Funds sharon was talking about to some extent because Everybody Needs Pension Funds, some of the entitlement funds out there, 7 , 8 . The more that creates a bubble now that does point badly down the road. Sharon, what are you buying here . It is hard to tell given whats happened recently. Id say fundamentally we do like the electronic sector. We like the real estate sector. Agriculture. My focus has been on fixed income and the Corporate Market is a concern. Rick makes a very good point that money is cheap to borrow right now but what do you do with it . What kind of return do you get for it . Im actually a bit worried about corporate spreads because they are widening and i think if this rally continues in treasuries, youll likely see them widen. Theres not a lot of liquidity out there right now. It is actually a little frightening. Liquidity issue, sharon, is one as well people have been warning us about time an again. As long as everyone is buying it is on the back burner. But when people go to sell, thats when it will come to the fore. It will be very interesting to see if there will be a liquid market when buyers go to sell just due to the regulation thats really caused dealers to shrink their Balance Sheets. Greg, quickly, is it possible what were experience is in the aggregate is more kind of the market getting adjusted to less and less fed intervention . Is this just the patient starting to come off the morphine right now . I think what weve seen in the last year is a complete volatility crash where quantitative easing crushed aniest for the market to move violent one one way or the other. Kelly talked about how the vix is so low. It is not a natural environment. It is too calm. Theres too little volatility. I thing that we need to be preparing the coming year for data to be a little bit more surprising, the fed perhaps to surprise us once or twice. If vol goes up, risk assets go down. We have to go. Thank you so much. This is such really appreciate that perspective. Such a fascinating time right now, dont you think . If you hand the scenario to the fed ultimately whats it mean . Suddenly instead of having slightly higher Interest Rates in this point in the expansion if we can call it that, all the points made about the great moderation and the phase we are in now and how big and badly this might end up . It is really fascinating. Really is. We have a good hour planned for you. Well see how we do. Markets already starting to come back a little bit. The dow was down 216 points at the low of the session. Down 167 right now. The nasdaqs down 27. The s p down 17. Straight ahead, more on todays selloff. Hedge fund titan Bruce Richards speaks with us exclusively next. Well get his rearction to todays red arrows. Also coming up, walmart. Their profits battered by the tough Winter Weather the First Quarter but are American Consumers still feeling iced out of the economic recovery . Does trouble at walmart spell trouble for the whole economy . Well look at that. Dont touch the remote. With all the opinions about stocks out there, how do you know which ones to follow . The equity summary score consolidates the ratings of up to 10 independent Research Providers into a single score thats weighted based on how accurate theyve been in the past. Im Howard Spielberg of fidelity investments. The equity summary score is one more innovative reason serious investors are choosing fidelity. 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Common side effects include skin redness or irritation where applied, increased red blood cell count, headache, diarrhea, vomiting, and increase in psa. Ask your doctor about axiron. To prepare our kids to compete main todays economy . Way woman a wellrounded education that focuses on science, math, and Career Training for students who dont choose college. Man and thats exactly what superintendent of Public Education Tom Torlakson has been working on. Woman because every Student Needs the real world skills for the jobs of tomorrow. Man torlaksons Career Readiness initiative is helping schools expand job and Technical Training across the state because it makes a difference. Woman so tell Tom Torlakson to keep fighting for the career and Technical Training our students need. Another down day on wall street. Very, very interesting day. You try and get a sense of what the message from the market is. Is the economy slowing down. Is it picking up . I mean it is very difficult to tell these days what the market is trying to tell us. Right now the dow is down 170 points off the the lows of the session. Was down 216 points. Nasdaq, s p also down in this session. Russell 2000 had been the leader to the downside but it has come back, interestingly. Theyve had a bounce this afternoon that the blue chips havent seen the same magnitude of. The 10year yield we made much of seepingly sign ll ll lly see signalling a slowdown, still below 2. 5 today. Well keep europe close tomorrow morning and see what happens. Running a natural experiment that way. Some are calling todays selloff a teper takedown. Dominic chu checks out tepper as track roar. Why the fuss over David Teppers comments . He has the history of making some of these markmoving type calls. Rewind back to september of 2010. Tepper said the feds Stimulus Program is a signal to get aggressively long in the markets. Take a listen. The feds going to come in with qe. Then whats going to do well . Everything in the near term. Everything. What do i do . I got to buy. I cant take the chance of not being a little bit longer now. That doesnt mean im going [ bleep ] to the walls. I can say that . He is colorful and he knows how to coin a phrase. The market responded with the tepper rally. Then in may 2013 hes back talking about the fed winding down qe, that Stimulus Program, and the markets listening again very closely. There better be a true taper or else youre back into the last half i think you might be in the last half of 99. So like guys that are short, they better have a shovel to get themselves out of the grave. I can just tell you real quickly . Look at a chart at whats gone on this morning. The tepper rally is already beginning in the market hasnt even opened. Theres twice. Two other times in the the history now. Last night at salt in Las Vegas Tepper told investors dont be too frickin long the market right now. Tepper is a guy who makes very bold calls and he can either reap the benefits or reap the whirlwind way for his mistakes and he is the first one to admit it. Im the animal at the head of the pack. Okay . I generally am. Like i said, i either get eaten or i get the good grasp. He either gets eaten or gets the good grasp. Well see where he lands himself after these latest comments. When tepper speaks, people listen. Thanks. For more reaction on this selloff and to david detepper comments, Bruce Richards, cofounder of mayor shon asset management, the firm has approximately 11 billion in capital under management. Bruce, welcome. Great to see you. Hi, bill. Hi, kelly. What is your take generally speaking here . How worried, concerned are you about the landscape for Financial Assets . I think Financial Assets are fine for now. Equities wont make 28 s p like they did last year. You have to heed to some of his advice and some of his comments. I think you can probably pencil out a 6 , 7 return over the next 12, 24 months. Thats probably what the opportunity for equities. Is there a little money coming off the table to properly assess that there wont and big bull market for equities, will be more traditional up and down markets. Youll have a little more volatility. In terms of

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