Fivestar rated money managers. That is a total obviously of ten stars worth of advice, and as the rates rise. Its kind of like a cnbc soap opera. If that tenyear bond hits 3 , what is it going to mean for stocks . What is it going to mean for housing . Maybe even for the auto sector as borrowing costs move up. Were going to explore that in a dramatic way today on power lunch. First though to sue at the nyse. Hi, ty. Lets get right to the markets after yesterdays big selloff. Were down today, but only right now about 21 points on the Dow Jones Industrial average. The s p just fractionally lower by about 3 points on the trading session. The nasdaq in the green, up almost 6. 5 and the russell is marginally positive. The tenyear will impact your investments, your house, your car, stocks, your spending, your life really, and right now we have the tenyear at 2. 839 . So were getting ten stars worth of advice. Greg fisher, manager of the five star rated Gerstein Fisher growth us as does matt litvin manager of the William Blair small midcap growth fund. Welcome guys. Nice to have you here. Great to be here. Im going to start with you because you have had a very good run for this market, but its a down week. Take a longer term per speccist for me and tell me what you do right now. Sure. Investors have obviously been well served by being invested in u. S. Equities, but like other times weve seen in the past, investors have started to think about abandoning their foreign equities, their bonds and other parts of the portfolios. I think now is an important time to take a look at where you are strategically and pose down some of your exposure or add or maintain exposure to bonds and other Asset Classes that have not been in vogue for the year. Its a Good Opportunity to rebalance a portfolio. Now when you say other areas, weve talked a lot this week about europe and how they seem to have come out of this slump. They have bottomed and are actually growing a little bit. Would europe be on your list . Absolutely. I think europe of is part of the world. Investors shouldnt abandon it. A very important part of the worldwide economy. I do think that the expected returns out of foreign stocks from here are likely to be at least as good and possibly better as the expected returns from u. S. Stocks from here. All right. Matt, im going to get to you in just a second, but we want to go to john harwood with developing news on possibly the next fed chief. John . Reporter well, i want to emphasize, sue, that this is speculation by im who are close to the process but not intimately involved in the process, and theres only a very small number of people besides the president of the United States who knows what his thinking in and i checked with several people about the assessment of the fed race and they believe Larry Summers remains the favorite. One pretty well informed source that i talked to this morning said i would put the chances of Larry Summers being picked as two and three. That does not mean that thats where the president , is but its people read tea leaves and talk to their friends and try to figure out which way its going. All the white house has been saying is they are going to make a choice in the fall, and i think clearly the fact that the president was defending Larry Summers shows he didnt appreciate some of the criticism, but we have seen in the past that when he defended other officials like susan rice didnt necessarily pick her for the job. Good points. Thank you, john, very much. Matt, longer term, youre bullish on this market. Does the choice of the fed chief influence your decisions . What if it is Larry Summers . Yeah. Were not trying to make a prediction either way on that. That wouldnt be a part of the investment thesis on any of the particular stocks that we own. However, it does when you stop back and look overall at the u. S. Market, it does look pretty attractive to us here. You can see that inflation remains low because emerging Market Growth has slowed. Thats especially true in food and energy which only represents a quarter of the cpi basket but actually 80 of the volatility inflation, so we feel good about that. Also look at the budget deficit. Its not good. Its 700 billion this year, but thats down from over a trillion the last four or five years. Directionally its positive. We think thats good for the market over the long term. Short term, however, the tapering is coming. Right. I would like to see an announcement made and like to see some progress on that and would like to get into it. It remind me of a kid, you beg them to take a bath and you badger them. They dont want to. They finally get in and play for half an hour in there. Cant get them out. The market just needs to enter the tapering period, see what its like and lock around and realize were okay. Were going to do better and will have more Business Confidence if if managers can look around and say were not being supported by the fed at this point. Now i know you like the financials, but you think Consumer Discretionary, matt, is somewhat extended. Specifically what stocks would you buy right now . Yeah. We do think the Consumer Discretionary is looking a little stretched in our models. I would say one particular stock we like there is under armour, the maker of apparel and footwear for athletics. Theres room enough for nike which is a very strong company, but i think theres room for a number two. We think of this as a 2 billion Revenue Company in a 10 billion brand. Good vision for management there. Right. And then you mentioned financials. Thats an area that were quite positive on actually right now. Still looks cheap even though its had a nice run and a particular company we could mention there, Chicago Board Options Exchange which is an exchange. A lot of proprietary products that they own, a very strong durable business franchise, and thats what we look for here at William Blair company. Greg what, areas of the market would you be committing new cash to . You mentioned europe and the fact that it returns outside the United States, might do better here at home but if you want to stick domestically what sectors do you like . I think broad diversification is obviously key, but we would tend to focus on companies, or sectors, that dont have a ton of leverage exposure. We were talking earlier about tapering, Interest Rates and inflation. These are big issues. Were looking for a lot of assets without exposure to leverage and also a lot of global exposure, whether they are large u. S. Companies doing business overseas. Today we heard about walmart and retail sales as an example. Right. And when you look at some of their change next pected earnings, a large part of that was caused by the fluctuation in the dollar so to be aware of the tensetive that any company has, particularly u. S. Companies to exposure overseas. Gentlemen, thank you very much. Greg, matt, we appreciate it. Thank you very much. Ty, up to you. Housing starts up 5. 9 in july. Most of that is for apartments, not Single Family homes. Diana olick is going town pack the numbers for us in washington. Diana . Well, thats right, tyler, thats why its so important to go past the headline number to put all of this into perspective. Take a look. Single Family Housing starts were actually down 2. 2 per month. Still up 15 from a year ago. Multifamily starts, apartment buildings which were up to a more volatile number, up 25 month to month and 33 from a year ago. Nothing wrong with multifamily construction, of course. There is apartment demand, but thats the driver of the headline number. Now, more concerning was that Single Family permits were down month to month. Only the second time in 16 months. They were down in three out of four regions, so it wasnt just one area of weakness. Why are the builders so confident . Well, because they are looking at demand Going Forward which according to ihs Global Insight is running close to 1. 4 million, new household formation, plus remacement demand and plus second home demand but completions are running at 774,000 annualwise and permits at 943,000 annualized so that means that the builders are not meeting the demand. That means were going to continue to see low housing supply and rising home prices for the new home billers, of course, unless the rising Mortgage Rates cut into that pricing power. Back to you, tyler. Thank you very much. Dominic chiu with a look at some of the retailers. Thats right. We begin with jc penney which has entered into an agreement with bill ackman. It paves the way for him to completely walk away from the holdings in that company. Under the deal ackman works owns an 18 stake in the Department Store chain, can make up to four requests to register the sale of his stock. Thats a precursor to actually selling it. If ackman would sell under the current price, hed lose around 300 million. Another retailer in order strom on the higher end. Its losing ground. The Department Store is cutting its fullyear annual outlook amid a sliding number in their samestore sales metrics and joseph a. Bank also falling. The mens retailer posted a secondquarter profit way below the 68 cents the street was expecting. They cited weak sales despite an aggressive promotional campaign. Pandora shares are surging, up 1. 22, 6 , 21. 0. Goldman sachs upgrading theine line Radio Services share from buy to neutral citing accelerated revenue growth. The stock is up more than 100 129 so far this year. A good stock to own if you bought it the first of the year. If you did, youre sitting pretty. The Muslim Brotherhood is protesting again today throughout egypt. They are calling this a day of rage. Hundred of protesters have been killed this week as the Egyptian Army cracks down on the Muslim Brotherhood up in arms after Mohamed Morsi was deposed last month. Yousef gamal el din is live for us in a very unstable cairo this owning. Good evening, yousef. Reporter good evening, sue. Well, its a very tense situation here. As you mentioned, supporters of ousted president Mohamed Morsi calling for a million man march, and it did materialize after friday prayers. And then clashes broke out. Were not sure who fired first, but they broke out close to our Vantage Point and here in other pockets of the capital city and across the country. The death toll, according to the ministry of interior, at least 24 people have died. Probably can hear some of the ambulances and the military helicopters in the background. Keep in mind the images that we saw are very disturbing, bloody images from different parts of the country. Masked gunmen with ak47s as far as we could see, and it shows you the amount of trepp days. Interesting developing though, sue, the fact that saudi arabia has now come out and said that they stand with egypt in the fight against, quote, terrorism and against those who would like to destabilize the country. A bit of a shift really given that saudi arabia is an important ally of the United States and the Worlds Largest oil exporter. That positioning a bit of a shift away from what weve been hearing from u. S. President barack obama. Also, of course, other countries reviewing their ties with egypt. The European Union as a whole will be having a lot of discussions over the weekend. Meanwhile, the suez canal remains undisrupted despite the flurry of activity across egypt. Thanks so much for that report. Moving back to financial news, if we hit 3 on the tenyear treasury, what is it going to mean for everything . Steve liesman has been looking into, it everything. You know, tyler, as rates rise and the world turns we offer our own cnbc soap opera. What does it mean . All the answers coming up next, tyler. What happened when the earth started to move . An earthquake caught on tape next. Look at that. Looking at classic hits, and mes getting rocked, baby. Announcer where can an investor be a name and not a number . Scottrade. Ron im never alone with scottrade. I can always call or stop by my local office. Theyre nearby and ready to help. So when i have questions, i can talk to someone who knows exactly how i trade. Because i dont trade like everybody. I trade like me. Thats why im with scottrade. Announcer scottrade proud to be ranked best overall client experience. Welcome back to power lunch. Shares of real estate website trulia are trading higher today after positive comments from analysts at goldman sachs. They reiterated a buy rating on the stock and attached a 48 price target, sue, to those shares. Back over to you. Thank you so much. Several strong earthquakes rocking central new zealand today. The staff at this Radio Station had to get underneath their desks. They rode out that earthquake. It was caused it caused widespread power outages, as you might imagine, but thankfully no reports of injuries. Ty, up to you. All right, sue, thank you. Yields on the benchmark tenyear treasury note have hit their highest level now in more than two years. You see 2. 84, almost 2. 85. As rates rise, what will 3 mean for the American Economy . Steve liesman, of course, our senior economics reporter. What does it mean . We did some modeling, not the kind in bathing suits but economic modeling. Well be grateful for that. Absolutely, absolutely. Financial modeling, folks, and well show you what it looks like. Two real rates for the u. S. Economy. One is the mortgage rate, the 30year fixed. Thats the blue line, and the other is the green line, the green line which is aaa Corporate Bonds which is what corporations have to pay to borrow money for five years. If you zoom in here, you can see the recent rate hikes that have come in and affected the real world, but then if you move over to the left you can say wait a second, weve been here before at csny and been here much more before if you go back a little further up 7 . Lets take a look at what would happen to these two yields and other parts of the economy if we were to hit 3 on the tenyear. What we did is we said heres the current rate and then we used variety of spreads here. Can you see right here, the tenyear at 3 and the fiveyear would move lets say to 1. 75 . The aaa corporate would be around 2. 27. The bbbb at the lower end of the Investment Grade would be at 3. 4 and the 0year up to 4. 78 . Now, that looks like it would be rough for the economy, but now i want to show you what the averages have been. We went back to 1996 and said what are the averages . You can see quite a bit higher. The average tenyear, 4. 44 and the ive five year 3. 8 and the 30year mortgage had been 6. 1 , so 4. 9 if we get up to 3. Now the thing is nobody is saying that 3 is the top end. Its just one potential weigh point that we would get to as the rates go up. Something that would be a challenge for the economy but not as bad as its been in the past. Here are three questions that we dont know that are yet to be determined. Are rates higher because of the fed and the possibility of tapering coming out of the market . Is it a matter of the market forecasting better growth or is it an inflation concern . Can the fed control the rising yield. Does bernankes lame duck status create uncertainty and volatility . Hes done a pretty good job in keeping the lid on dissent. One dissent here and one dissent there and now that Everybody Knows hes leaving how good is he going to be at keeping a lid on that descent . And all of these different messages come out from the federal reserve. Sue, back to you. Terrific, steve. Thanks so much. My pleasure. Steve set it up for us so what would the world look like at 3 . What does it mean for stocks, bob pisani . If i had to take a guess at this, judging by the way the market is reacting the s p could go to 1600. Put the chart up here, 1655 to 1600, probably a decline of an additional 2 . What that said, sue, i dont get whats going o. Look at Industrial Production disappointing, Housing Starts, i dont know how you guild this lily, thats going in the wrong direction, in my opinion. I dont know what diana thinks about the whole thing but there you see it. Look at the market going down as the yield on the tenyear has gone up. Put up the tenyear yield, gone straight up, sue. Im in bullards camp. Bullard is arguing for a taper light here, go slow on this. I think thats whats going to happen with the fed. Diana, what about houseing . What does 3 on the tenyear mean . Well, first ill agree with bob and say Housing Starts are not going as fast enough to meet demand but if you see Interest Rate rise considerably more, youll see the people on the edge of Home Ownership being completely edged out. I dont think it will affect higher end home buyer and loosening on the rates and also the credit availability. That could offset some of the higher Interest Rate, but will you see that lower end, perhaps the first time home buyer edged out of market. The biggest impact youre going to see on higher Interest Rates will be refinances as weve seen thousands of people refinance into rates, you know, 3, 2. 8, really low rates, and they have very short memories. They do to the want to see anything higher than, that and peop