Back after the tenyear hit a sixmonth high earlier in the session. We talk to pimco chief officer scott mather in just a few minutes. And treasury yields across the pond as well have had a huge gain. Also that picasso painting sold at auction last night, a record 179 million. Economist norle ra lle lle Nouriel Roubini will be here. He thinks some people use expensive art as a form of Money Laundering, unquote. Hes at it again. Hes dr. Doom of the art market. With an hour to go in the trading session, the dow is down about 18 points. Again, fall back into positive territory. An ounce of downward pressure only a little bit. The s p and nasdaq giving up 0. 2 right now. 4 points and 10 points respectively. That level for the nasdaq 4983. Lets talk about this in our Closing Bell Exchange for this tuesday. Chris ressler is with us rob morgan checks in from sethy financial and Kevin Guinness from Raymond James is with us so is ken moret. Kevin, youre head of fixed income there at Raymond James. I asked the gang if they could give us a chart of the tenyear bund going back a month. Thats been a huge gain there. And now weve got the tenyear here in the United States moving back up as well. Whats going on in your view . Why now . You know bill its been an interesting last couple of weeks as you mentioned, german tens went to 70 basis points in a real short period of time, two weeks time. In dealing with that the long end of the treasury market where a lot of that money came went back to work across the pond. So while those yields back up they were buying along the way. That continues. Today was a breakthrough day for the bond market though. We were dependent upon what happened in europe overnight, kind of the weaker open this morning. If we didnt get a good threeyear note auction he can gould to to 3. 40, 3. 50 quickly. It was exciting. Are people suddenly waking up and realizing the fed will start raising Interest Rates or is this responding to better Growth Prospects . What do you think is the reason here . Yes no, i think that the european markets are probably moving our treasury markets here. We had a tailwind for quite a bit of time. You know theyre setting out over there. I think money is just coming back to more normal markets right now. Let me bring you in on that one. What do you see happening here . I think its mostly market mechanics. I like to call it market logistics. I think, you know it was exactly two weeks ago today, bill, that we closed yield above a 29 session closing tenyear note range from 186 to 199. Ive said this many times. The minute the day, two weeks ago you closed above that 2 close. We havent looked back since. Right. That consolidation gave you a good glimpse that the market was tightly packed with the long bias the reason yields couldnt go any lower is because they had security stuffed in every box. I think the leadin to eurozone qe also packed the world pretty tightly. Everybody offsideses, global market,en call i think it makes sense. The next issue is mario draghi will probably address this with more fine tune purchases. In the end, i wouldnt dismiss the notion that two levels 2. 17 where we closed the tens last year, 2. 24 theyearold double top until midlast week should we start to settle above those levels we could see the foot come off of this margin call scenario. Right now i would look for the wee hours of morning to be potentially traps for illiquid moves, a lot like last night and a capitulation move will give us a clue as to when this ends. My own opinion, i dont think weve seen it. One thing for sure i dont think it has to do with Global Economic growth. Market mechanisms last week you said you felt maybe the range on the tenyear had moved up. Maybe the 2 would be the new support level there. What about on the tenyear bund now that weve had a huge move there. Are you setting a new range there, do you think . No. As a matter of fact, we think alike, bill. I told leslie my producer to have a chart starting april 1st of bund yields. Does that look like a chart thats going to turn off now . I dont think so. That raises the question of how european and u. S. Equities will perform if this continues. What do you see happening . I think whats going to happen is the u. S. Economy is going to continue to show signs of improvement. I think probably towards the latter part of this year we might see the fed say theyre going to raise Interest Rates. If they do i believe that will bring money over here to the United States for both reasons, our economy is Getting Better and, therefore, they want to buy our stocks. In addition Interest Rates are higher over here than they are here. Theyre looking foryearold. Theyll come over. In both instances it will benefit us. The volatility were seeing is a precursor for a breakout on the upside when it comes to the stock market and the downside potentially when it comes to the bond market. Rob morgan what are you going to do with u. S. Equities if we see a rise in the yields if that continues . I would agree with ken, bill. With the caveat though that at some point the fed is going to take the punch bowl away and stocks will come back to earth. Typically that happens well that a fed rate hike campaign. Six months to a year. When the fed does raise rates, thats when im going to take a little bit off the table, go from an overweight in stocks to a market weight and start to see signs that the party is coming to an end. I think the stocks u. S. Stocks in particular still a good place to be right now. Anthony chan our friend was making a point on the show yesterday, rob, there are two different ways that stocks perform when rates are moving higher. One is the bad way when its because of inflation. The other is the good way when theres no inflation, theres better economic prospects. He thinks were in the latter cycle and that will make stocks continue to be attractive for a couple of years. Do you disagree with that . No. I agree with that kelly. I think in a low Interest Rate environment, the stock market can support higher p es. We saw this many times in the post world war ii period. I do agree with that. Im not sure thonns a good friend. Im not sure that i agree that that will continue for several years but certainly at least for the next 12 months and perhaps a little bit longer than that. Its okay anthonys used to having people disagree with him, thats for sure. Kevin guinness what about your view on inflation and ricks contention . What were seeing is more market mechanism than any response to fundamentals right now. Yes, bill totally agree with what ricks position on that. This is really nothing about fundamentals. Its all about market sentiment. I do think that tomorrow is another big day with the auction of the ten years. Weve seen twos to tens spread out 35 basis points in about ten days which does make them attractive. So well see whether we find buyers again tomorrow. The range is so much different than where we wanted it to be maybe 2. 30 to the high and just under 2 to the low. I do think inflation will remain under control for quite some time that that could go well into next year. Okay. Right now i dont see the fed acting at all in 2015. Chris, do us a favor. I was going to say to chris, if you dont mind wed love to hear names, ideas, that people can use for opportunity regardless of this period that were entering. Companies you see as disruptive innovative transformative enough to be Good Investments regardless. Were very positive on equities. I think its obvious that the fixed income market is at risk if rates are rising. Equities are the place to be. We Like Disruptive Technology companies. One name ill put out there, super microcomputers does a lot of the engineering behind the big data the cloud, great product lines, has traded off here in the last earnings season. We think its a great value relative to growth. Fireeye, secure plays. We like semicap equipment as moores law gets pushed out and further into capex, we think its a good second half setting up from guys like taiwan semiand samsung. Wed be remiss to let this segment end without addressing the u. S. Budget surplus that we just posted. I think it was the fifth biggest in history. What surplus . What surplus . Truly federal budget surplus. Theres no surplus. Yes, for the last month. Theres no surplus. Yes, yes. Certainly, certainly, for one month. Sometimes i pay my credit cards off one month out of 12 too. I understand its tax season but theres more money coming into the treasury than most people realize. I think thats true for a lot of municipalities like it is true for the federal government. Look at the picture starting from 2020 to 2022. This is a stall. Yes, we have smaller budget deficits because they were so high, close to 1. 5 trillion. The debt keeps wracking up. That hasnt slowed down. As far as the tax revenues, were collecting a boat load of taxes but yet the economy in terms of its efficiency and productivity continues to go down, not the kind of recipe for success i would have signed up for. All right. Had to mention it. Thanks, everybody. What did you expect . I wanted to hear 50 minutes to go till the close. Appreciate it this afternoon. The dow is trying to turn positive for the second time today. Its down about 9 points as we speak. The s p a little bit closer down 4, the nasdaq down 8. Coming up, when these guys speak, wall street ened its to listen. Pimco chief Investment Officer scott mather will be here, plus Nouriel Roubini. Up next what does verizons 4. 4 billion purchase of aol mean for the Telecom Giant stock. The pros will hash that out. Stay with us on the closing bell. The network that monitors her health. The secure Cloud Services that store her genetic data the servers and software on a mission to find the perfect match. And the mom who gets to hear her daughters heart beat once again. Were helping organizations transform the way they work so they can transform the lives of the people they serve. Welcome back. One of the other trends we were following is a snapback rally in energy prices. Wti and crude, up almost 3 . It was up 4 earlier in the session. Pulled back just a little bit. A healthy gain of 3. 6 . That has taken a toll on the dow transportation average. Also looked to as a bellwether. Shares of rack space are getting slammed, they with warning their Current Quarter revenues will fall short of estimates. At least four brokerage houses have cut their price target on the stock by as much as 5 to as low as 50 here. Watch those shares down by 13 . Vhp trading up 1. 5 . It plans to slash its iron ore production costs further and cut spending to better withstand a downturn in Commodity Prices overall, those shares up by 1. 5 . Then there are shares of aol, of course hitting a 15month high on news its being bought out by Telecom Giant verizon. The 4. 4 billion deal will give verizon access to aol successful Digital Advertising service as well as content including at least for now, the Huffington Post and mapquest. Well see those shares moving today on that news. Back over to you guys. In the weak of today, a surprising aol deal is it time to dial up verizon stock . Thats brawl that out. Marian montane. Good to see you both. Maryann you like verizon for a lot of reasons, dont you, including this deal with aol . Yes, we do. We bought the stock for the 4 plus dividend yield at our income and Growth Portfolio but we think that this acquisition, you know at just 7. 5 times ebitda is an attractive way to add to what they had already started in acquiring some small digital type of plays. Digital marketing plays. Kevin, maybe you can help explain to me what verizon is doing getting into the advertising business. Well verizons core mobile Broadband Access business is showing seens of a maturity and pressure caused by tmobile and more recently sprint. We think that business goes exgrowth, verizon is trying to diversify into advertising, internet of things and other Revenue Streams to try to make up for the slowing growth in its core business. Youre skeptical this is going to work right . You know look i think lets put in perspective, this is a small acquisition for verizon. Its a little over 1 of the companys ebitda. Frankly a one dollar price decline in core wireless business has roughly double the ebitda impact on an annual basis in the entire aol transaction. Its going to be years before we understand whether the ad tech theyre purchasing here for video works and theyre going to be competitive against the established players, the titans in that industry, google, facebook. These are really the leaders in the mobile ad video ad business. And verizon has never really been in this business before. And its really going to be butting heads with the googles and facebooks of the world going forward. And were not sure that verizon is going to win that battle. Maryann, same question to you. Does buying aol, does it make sense . Are the synergies there, do you think . Yes, first of all, just with data delivery, verizon has fios or fiberoptic system to swiftly move the pay tv type of programming into issue gadgets, wherever they may be, however large they might be. And then really i think the core crux of the deal though is on this ad procurement business. And i think verizon has been in the business. Theyve been studying this business. Theyve made these other acquisitions, they know they want to go after this. If by chance they have the opportunity to sell off huffington at a later date for rumored as much as a billion dollars, its like so be it that could be growth. These are still small relative to verizon. This is an enormous company and to kevins point, how much are these going to move the needle unless you expect more to follow . I do expect more to follow. I think that it may be the key Delivery System for the future utilizing verizons asset base. And unlike that deal with at t and comcast, this is a very low infrastructure type of line of business. So there wont be a lot of cash required and well still see you know, cash dividends growing to the shareholders. Kevin, what would have to happen at verizon for you to raise your guidance on this company . Well i think youd have to see a more constructive Competitive Outlook in the wireless space. I think we have tmobile rolling out 700 which is our top pick in the space, rolling out 700 mega hertz lowband spectrum. Theyre going to be targeting lowprice enterprise customers like quarry and others. Theyll also be going out suburban family plans, four and fiveline, fiveline. We think theyll be going after these subscribers. The wireless landscape for the incumbents particularly verizon gets worse and they have about 85 of their ebitda in the u. S. Wireless market. We think they made a mistake doubling down on the vodafone transaction early in 2014. Right. This just compounded their problems at the top of the wireless market cycle here. As, you know we have very high limited growth left in the market and pricing in the marketplace today is very, very aggressive and verizon is driving some of those pricing promotions. By the way, i mean just looking, maryann makes the point, she buys it for the yield as well kevin. Its yielding 4. 4 . Thats pretty attractive right now, dont you think . Wow. We prefer at t with a 5. 7 yield. We think that theyre very close to getting final approval for the directv transaction. We think institutional active ownership of at t is at very low levels and very high levels at verizon. And youre getting about 140, 150 basis points more yield at at t. We expect upward consensus revisions for at t and downward revisions for verizon with the sale of the frontier assets which is expected to close in q2 of next year. We have an underowned stock in at t where we think numbers are going up. And a more of a consensus idea in verizon where we think numbers are going down. Thats why we very strongly prefer at t over the next 12 months. Very good. Understood. Thank you both Maryann Montagne and kevin smidgen with mcquarry. We have a market thats still trying to turn positive. The dow is down a couple of points. S p, same deal nasdaq down 0. 2 . Big comeback when you consider the low of the day was down 100 points. And scott mather pimco ceo. Find out where scott thinks it goes from here. Welcome back. Honing in on markets here just about half an hour to go in the session. Heres a look at what has been driving the action today, in large part its been the yield and the tenyear note. When it hit 2. 36 thats around 9 30 mark that was a sixmonth high on tenyear yield and the dow was down sharply as a result. Then you saw the yield move lower on the tenyear. U. S. Markets have been more volatile lately. Theyre not alone in that. Weakness is winding its way through government bonds across the globe and thats putting pressure on equities too. What lies ahead. We welcome back scott mather the chief Investment Officer for u. S. Core strategies at pimco. Welcome back. Good to see you again. Thanks. Good afternoon, bill and kelly. What is your version of why yields have been rising as much as they have . Especially on the tenyear bund in germany which has since the beginning of april has risen appreciably . What do you think is going on here . Thats right. Surprising as this global selloff has been its equally surprising to see the narratives out there in the marketplace used to explain it. Many are inconsistent with the price action weve seen. For instance, one idea is that well maybe its inflation. People are betting after all this easy Monetary Policy beginning to see the markets price in successful reflation if you will. When you look at equities which should do well, theyre having trouble as well. Thats not very consistent with the price action either. You know another idea is well maybe its because the fed is closer to moving. While we believe that is true probably this summer and there is grains o