Coming up, two guys who are facing off each other in the ring when it comes to puerto rico. Jim millsteen, renowned restructuring attorney, advising puerto rico. Well talk to him about puerto rico. He was at treasury during the financial crisis. Knows a lot about that is go on with the European Banking system. Well discuss that with him as well. And ambac could lose a lot of money if jim millsteen gets his way. Well talk about that coming up. What is happening in puerto rico, guys, emblematic of what is happening in the world. Too much debt that people, governments, companies, cant pay back. Tyler, back to you. Thank you very much. Enjoy the warm weather down there. About 22 up here in englewood cliffs. Janet yellen getting grilled on capitol hill. The verb we always use when somebody goes up on capitol hill it seems, saying negative rates are not off the table. Lots of red numbers right now. Lets look at the dow, which is off by 322 points, not the lows of the day, but nevertheless, better than 2 decline. 15,595. The s p 500 down 1. 5 . The nasdaq off two thirds of 1 . Lets look at crude and show you where it sits now. West texas at 26. 85, down 2 . Brent crude at 30. 31. Down 1. 65 . And gold, the safety play, once again, 52. 30, higher than 12. 46 an ounce up more than a third of a percent. Our next guest says we may be close to a bottom on stocks. So how should investors position their portfolio . Jim paulson, chief investment strategist at Wells Capital management. Hes probably out in minneapolis where it may be colder than it is here. Jim, welcome. Good to see you. It is, tyler. What is telling you that we may be close to a bottom and how much further might we have to go before we get there . Well, i like a couple of things and one of them is the big rate revaluation we have done over the past 15 months. We were selling probably 19 times trailing earnings at market peak. Werent selling now at about 16 times trailing earnings. I think thats a much more sustainable moldable, even if we have some full employment pressures, wages, current inflation, or higher Interest Rates. On top of that, we have done a good job of gut checking Investor Sentiment here. We have had three almost 10 corrections since late 2014. And this is finally the only one that is really, you see, a rush to safety under conditions of fear. Youre seeing a rush to gold, a rush to treasuries, for example, which we didnt really get at the other lows. So i think i think you got really negative sentiment, much better valuation, and what we need is a catalyst and everyone is looking at a policy officials for that, whether the fed or the ecb or china. I dont think it is going to be a policy catalyst. I think it is going to be economic. I think were going to get better Economic Data out of the United States. It is going to take the recession fear out of the discussion. I think so. I think so. If we do that, we probably get a good rally. How do if were nearing that turn, that inflexion point, what do you do . What do i do . Well, i think this isnt just about a market bottom. And i dont know, we might have to go a little lower to find that. Who knows. I think it is also about a complete leadership change. If we do find a bottom and start going back up. I think the old leadership is not going to be the new leadership. I think it is going to be more oriented toward the producer side of the economy, the Industrial Capital good side, rather than the consumer side if the market does find a bottom and rally. I would be looking on days like today to add to things like industrials or materials, energy, even the financials picking away. And on days of strength maybe to lighten up on consumer discretionary, consumer staples, utilities, health care, the areas some of those that have been leading. Jim, stand by, we want to get to a news alert on the bond market. 30 year bonds up for auction. Lets check in with rick. Sometimes i say if you want to know what a perfect auction looks like, look at these results. If you want to know what an imperfect looks like, todays your day. I give this auction a d minus, d as in dog. Were talking about 15 billion 30 year bonds, the longest guy on the government coupon curve. The metrics, 2. 50, the yield at auction and, by the way, the lowest yield at auction since january of last year. Heres the problem. The one issue market was trading around 247 at the time, so really just nasty. From there we look at bid to cover. 2. 09. Chasing every dollars worth of securities available, well off from the 2. 35 auction average. It is the worst since the summer of 2011. Although in may of 14, we came to the exact number of 2. 09 but didnt surpass it. 58 on indirects, close to 10 auction average. 10. 3 on directs, close to 10 auction average. So the demand is relevant by bid to cover and the actual dutch auction pricing, really left a lot to be desired. 62 billion done and the 30year was a dog. Back to you. Thank you so much, rick santelli. Back to jim paulson, Wells Capital management. Jim, youre talking about seeing a bottom forming, a change in leadership. But in a market in which we had the tenyear yield hit an intraday low, not seen since august of 2012, in a market where we have gold trading at its highest level in about a year in high yield, by the way, the etf attracts high yield, at new 52 week lows, arent these other Asset Classes telling you something very different from, hey, a bottom is forming equities . They could be, melissa, no doubt of that. That certainly is the fear here. But i think theyre saying more, there is just colossal fear we didnt get at the last two market bottoms. And so you come down to is there going to be a recession or not. And my take on that is were not going to have recession in the United States. We could, i just think it is unlikely. I would say the data has gotten better. Clook look at that claims number we got this morning. The First Quarter has risen close to 2. 5 of late. We got great job openings. We had an awful good jobs report recently. Think were going to get combed down ultimately because the data will not support recession. And if it doesnt, i think you got a big chunk of the Banking Industry priced in the stock market for recession, if you will. If it doesnt occur, i think we get a healthy bounce. I guess i kind of have been waiting for there to be the moment when there is so much fear about a pending global depression or recession, bear market, and i think after two failed attempts in late 2014 and last august, this one finally is generating fear that i think could bring the bottom. Jim paulson, jim, a pleasure. Thank you. Thanks, brian. Big money descending on the debt laden island of puerto rico today. Michelle is there in san juan. Michelle . Hey, brian. Thanks so much. Im sitting here with jim millsteen, renowned restructuring attorney, now restructuring banker, has his eponymous firm after being at treasury before this and at clery before that. You were here in puerto rico. You are representing the puerto rican government. You want the bond holders to take big losses, big haircuts. I dont want them to take big losses. I think the situation is such that there needs to be a restructuring and noted again into a sustainable level where they wont have to take losses again. There has to be a fundamental restructuring of the debt. Heres their complaint. They say, listen, you could push us to zero, you could tell us were going to get nothing and yet puerto rico still has so many other liabilities that cant be paid for. They got a welfare state that with an economy that cannot support it. And then new bonds you give us are going to be worthless because the puerto rican government will not deal with the huge welfare state that they have underneath them and restructuring. I havent heard those exact wo words, but i think we have said that there are three legs to this story. There needs to be a fiscal ajusajus aadjustment, imf talk, it has to generate a surplus which it is not generating today. It has a deficit. It has to generate a surplus. That surplus can be used for debt service. There has to be a debt restructuring to bring the Debt Service Obligations in line with the realistic service that the surplus this government can generate and this economy can generate. And the third leg of the stool is there has to be a series of Structural Reforms and progrowth policies that allow Business Investment to increase and household formation to increase because those are the sources ultimately of Economic Growth. So the, you know, the if you look at the most highly indebted states in the United States, take hawaii, and this is all based on moodys hawaii dedicates about 14 of its revenues to debt service. Government of puerto rico today is dedicated over 30 of its revenues to debt service, so it is very hard to be to invest in Human Capital and physical capital as a government to promote growth when youre dedicating that much to debt service. Bond holders dont disagree with that. They say leg one and leg three theyre not convinced are ever going to happen, that right now this is a one legged stool anding and it is being put on them. That is a i understand that criticism coming from the bond holder community. And we have a test case right in front of us today. Where the first restructuring we have done on island is the electrical utility. The bond holders agree to some significant concessions to free up cash flow to allow utility to modernize itself, because this utility is still operating on diesel and unnatural gas. We should underline that. Their refineries run on oil, which is incredibly antiquated and expensive and like cuba basically. But, you know, in this Oil Environment they have gotten a break. Thats true. It was painful for this provides an opportunity to transform the utility without a massive increase in rates because you have the bond holders have agreed to a plan that allows the utility to take cash flow that otherwise couldnt use for debt service and reinvest in the facilities to modernize them, so to create more efficient utility, that will be better able to service the restructure debt down the road. And that is a model for, i think, what has to happen across the rest of the complex. The government of puerto rico is has to be a necessary party. Legislation is pending in Legislative Assembly today, it was passed in the senate last night to facilitate the proper restructuring. For the utility. It is now in the equivalent of the house of representatives, and were hoping it will pass there. And that will prove out that the government itself is willing to be an effective counterparty to the creditors in trying to modern basically in trying to restructure the debt in a way this allows Economic Growth to occur. If we can move on to europe, your treasury from 2009 to 2011, the fun times, looking back, when you black at what is happening with your European Bank bonds in particular, who how worried are you and how worried should we be about the u. S. Financial system and u. S. Banks being affected by contagion and what is happening there . So the europeans promoted one tool to deal with Financial Stability and large Banking Institutions called contingent capital. Cocos. The bonds that have gotten very punished. They can be converted from a bond into stock at tough times. Exactly. And some can be written off altogether. And so if there is fear in the market about stability of the Banking System or of any individual institutions, institutions that bought the co cocos, first in line to take the losses, start getting nervous. Thats what those cocos were designed to do. If there is a capital insufficiency at any Large Financial Institution that sold these, those bonds are first in line to take the losses to create new capital cushions, so as to protect the bank against failure and ensure the stability of the system. The markets are very volatile and i dont think any of the major institutions to my knowledge, i dont have any major information on any of them, dont think any of the major institutions are on the verge of collapse. But, you know, as the spreads widen out, the cocos become theyre more in the zone. Bring it back to the United States. If there is a larger crisis there, can we be infected here . Are banks protected enough here . What we learned in 2009 is none of these large institutions is an island. They all have deep inner connections with one another. So you can look back over the last now six, seven years, since the financial crisis and say what has happened . Sure, we have increased capital regulation for all of these major institutions, much tougher capital regimes, greater capital. But the interconnectedness of these 20 large global banks remains very very much remain interconnected and all of the major markets and in particular in the derivative markets. 90 of the derivatives in the world trade in the first instance between two major Banking Institutions. They lay off that risk to hedge funds and other Institutional Investors on the other side, but that derivative market is primarily a big boy market, big bank market and so if any one major derivative counterparty starts to shutter, all of them start to shutter. This is what we learned, this is what i did during the financial crisis, i was responsible for the recapitalization and restructuring of the aig. Aig was brought near collapse and the decision was made to rescue it, not so much because of the insurance operations, but because of the aigfb, because of Financial Products division. 2. 5 trillion derivative book. Today, 2. 5 trillion derivative book would make it a pica, a small fry. Has gotten so much bigger. Thank you for joining us. My pleasure. Power lunch on cnbc. Back to you. Michelle, thank you. Oil tanking again. Back to the mid26 buck a barrel range. The reason, record supplies and weak outlook for demand. The former president of shell on what the real saudi motives may be with oil, and you may be surprised. Speaking of oil, here are some of the big cap oil names, trading like most in the selloff, theyre down. Were back right after this. There you go. Crude oil, market selloff, by the way. Were back down to the mid to high 26 buck a barrel range. You might have heard over the last 18 months there is a lot going on in the oil patch. Iran offering crude to asia, to discount over saudi arabia. Inventories at kushing, oklahoma, hitting a record high. Goldman sachs projecting u. S. Crude at 20 to 40 until the second half of the year. Finally technicians saying that crude oil could soon fall to 25 or below. Not necessarily a bold call given were a buck and a half from 25 now. Lets bring in former president of shell oil usa, John Hoffmeister to power lunch. Nothing to talk about in the oil patch. Another quiet day. Another quiet day. It is quiet because there is no buyers. Nobody is saying buy, buy. Everyone is saying sell, sell, sell. We talked about saudi arabia. And about whether or not they want to doom the u. S. Shale industry. Is there something you think a little more political going on here . Do you think that saudi arabia, part of this, has to do with our normalization of relationships with iran . I do absolutely. I think heres whats going on in my view. There has been a complete breakdown in the washington, d. C. Relationship with the kingdom of saudi arabia over the lack of this countrys willingness to look after the stability of the middle east. And we have done that only since world war ii, but suddenly in the last few years, because of the iranian deal, and because of other issues including russia, the middle east is a very different place than it used to be and the kingdom had a belly full of washington not coming to its traditional role of defense. As a result of that, the kingdom has but one tool in its tool kit, and that is oil and oil price. And the only way to respond to iran, the only way to respond to the hegemony with russia is through overproduction of oil, relative to what the market needs. And so a decision was made in my view, in november of 2014, to keep production going, but the consequence would be a lowered oil price, that would do more damage in the short and medium term to iran and to russia than it would to the kingdom. So you think so, john, we go to the halls, you know, of power in saudi arabia, and maybe the discussion is not, hey, lets bring down the shale revolution, but rather lets hurt iran and because the u. S. And iran have normalized if the u. S. Goes with iran in terms of price, and economic pain, so be it. Do you think thats a conversation being held . Yes, u. S. Is Collateral Damage. The saudis have known about shale for a long time and theyre not going to do anything to directly harm the u. S. Industry, but it is Collateral Damage in the face of overproduction of oil that affects the oil price. And the u. S. Knows how to respond to this. We cut costs. The u. S. Government doesnt control Oil Production in the United States. Companies do. Companies look out for their own interests, they know how to cut costs. We will get through this as an industry. We always have. But in the meantime, while consumers can enjoy the lower oil price, and it manifest itself in gasoline prices, the whole world is suffering from the effect of pushing out Capital Spending of the fear actually of Rising Oil Prices as and when the iranians or let me set the iranians aside, as and when the russians and saudis come to some agreement over the future of Oil Production. Thats where i wanted to jump in, john, if i might. What, if anything, changes the dynamic that youre describing . I think two things. One, pragmatism on the part of putin. Relative to