A close eye on oil. Oil right now down 4 , managing to hang on by its fingernails above 31 bucks a barrel. As oil has fallen, so too is gasoline prices. You dont need us to tell you that. You see it every day, aaa says its now a buck 72. Over the last year, everybody said those lone gas prices will give a huge boost to the consumer spend. So far, nearly everyone has been wrong. They havent added it. Jack allen says thats about to Securities Exchange commission. He is here. Jack, welcome. All right a. Twoparter, one part is not enough for a man of your intellect. Number one, why do you believe low gas will finally translate into better consume were spending . Number two, if are you right, how do you profit from it . No, i think youre right, its been this coil. Whats happened is that just like the fed policy has really hasnt worked, households are taking this, the pump savings and using it to pay down debt and, you nope the baby boomers that were the big debt buyers or the debt holders in the early days are now empty nesters looking to actually downsize. So i think that some of these pump savings are going down to debt repayment. Were seeing motherinlaw debt off a trillion. Consumer Credit Card Debt off six or 700 billion. But, you know, the point is that one of the things we look at is the number of miles an american can drive on an hours worth of work. So let me sort of disaggregate that, if i may. We take average hourly earnings. We look at fuel efficiency and ten we look at pump prices to figure out how many miles an american can drive on an, you know, a median hours worth of work. What we found was as of the end of january, at 370 miles, we just hit an all time high. That high was reached the previous high was reached in 1999. Early 1999 at 340 miles and that was when pump prices were 90 cents a gallon. So we dont have to get pump prices back to 90 cents a gallon to reach record. In fact, as i said, earnings are up twoandahalf percent, regardless of what you will hear in the campaign trail and, of course, fuel efficiency, thanks to the teslas, thanks to just about everything else. Right. Is up pretty dramatically. Jack, how do we unpack where we see the impact the most . Initially i think when gas prices were going down, we saw the savings already or the impact on the Convenience Stores located at the gas stations, cigarette steals, for instance, people were trading up in terms of premium cigarettes as opposed to the cheaper cigarettes. Whats the next leg here if you think this is actually taking effect . Sure. So were already starting to see it in restaurant activity. Restaurant sales are up pretty dramatically for a number of reasons. As i said, Discretionary Income is up. But also millennials. This is a really a generation that is not into owning a lot of stuff. But they are into experiences and certainly dining out is one of those experiences that they enjoy. So we are seeing that pretty dramatic results across most of casual dining. So does that mean i should buy those now or. Yeah. Do i buyee owe what do i do with that in fgs . Shower. So i this i that, you know, the kind of stuff that millennials are looking for would be travel, would be dining out. But i think the other thing that we have at least, what were anticipating is at some point Older Americans will say our Balance Sheets are in pretty food shape. We will start to spend. We expect retail sales will ramp up pretty dramatic ally. One of the other things wire watching is Consumer Confidence against a backdrop of lower oil prices. Confidents keeps rising and rising to a point now that historically its equated to retail sales that where confidence is right now, we would expect retail Sales Activity up 5 year over year. Right now were at 2. Last monthry tail sales surprised to the upside, last week i should say. That was the catalyst to that threeday rally that we had. I still believe that retails will likely continue to surprise on the upside. Hey, jack, sorry to interrupt on you, buddy. We got the breaking recount numbers. I do want to get a reaction as well. The numbers show a drop of 26 oil rigs. This is the ninth separate week that we have seen a drop in the number of drilling rigs. We had a drop of 29 last qe2. Now a drop of 26. Thats just oil, guys. Just on shore, so, jack, we are seeing a decline in rigs. The price of oil not moving. People, of course, have been focused on the production numbers. an investor, you talked about how to profit from low gas prices. Let me ask the inverse, are you anticipating oil will move up soon and are you investing for that as well . No, were not anticipating oil to move up that soon. I think that a lot of the talk of opec and nonopec agreement appears to be just talk. You know, ron wants to continue to ramp up production to a point where they were before the sanctions were out there yet. I think there are still a couple Million Barrels away from that. So i do think oil prices will stay low. One of the things we like, i mean, high yield bonds look great. We talked about picking them up yesterday in portfolio. We decided against it, given that 15 of the high yield bond market is alocated to the energy space. Thats a great point to lead. Because our next discussion jack, will be about high yield bonds. Thanks, michelle. All right. Speaking of which, moodys economist warning that the credit markets could be signaling a recession. He points out that the high yield spread is above 800 basis points. Heres what that means. Weve created this over simplified graphic to explain a spread. The bottom line is the tenyear yield. Think of that what the u. S. Government has to pay to borrow money. The top line with a huge curve, weve created for near explanatory purposes. Its in theory what it costs junk rated companies to borrow money. During economic times, lendsers are relaxed. Junk rated companies dont have to pay that much more than the government. Ist never gets as cheap as weve suggested there. Weve done there to make a point. You move to the right, during bad economic times, junk rated companies have to pay more than the u. S. Government. Thats the spread you often hear analysts refer to. You can chart the spread. Thats what moodiess done. Take a look at this. There it is. Look to the right the spread right now is wide. Not as wide as 2008 and 2009, when we see that huge peak. Its still more than 800 basis points, in other words, the u. S. Government is borrowing at 1 , junk rated companies are paying 9 to borrow money. So what . Well, take a look at the most recent recessions, moodys points out. When the spread is under 800 basis points, it has coincided with the recession for an impending recession. Food for thought as we debate whether or not the u. S. Is headed to recession. Joining us on set, cnbc contributor, none of that is a surprise to you . You have been talking about the tightening in the credit markets for a while . Certainly, absolutely. Not only that, michelle, no single indicator can be relied upon to forecast a recession. You look at high yield spreads, Interest Rates falling. Commodity pricescrashing. All those markets are sending the same message at the same time. Its a much more potent signal than one by itself. Show me a concern there might be a distortion on the read of the spread because of whats going on in energy and other sectors. In other words the borrowing costs for an Energy Company would be much lieer than say a Consumer Discretionary company. You can say that in every discretion. Always technology, 2008, it was real estate, which had obviously a much more bigger impact on the economy. Can you go to various different economic cycles and see the spread was in the late 70s, early 80s. It depends what your greatest exposure, what does that mean regionally and nationally. Let me ask the same question to mellissa, using the other kooid side of the chart. I like that chart. Its nice and simple t. High yield spread going up because of energy, can we also argue that maybe its different this time on because of the treasury yield may be down because of all the central bank nonsense thats going on. Its not actually reflective of the market. Its always difficult to argue this counterfactual, brian. But were it not for central bank intervention, you have to ask the question, where would it be . One could argue they might be lower than they already are. So, no, i mean, Interest Rates falling even with central bank help, its still an indicator of recession. If the bond market wanted to drive Interest Rates higher because growth was outpacing the feds ability to tighten, we would see that happening and were not. Did the fed hint they were looking at this kind of thing in the last minute when they said the credit market is tightening . The fed hinted theyre looking at everything again. Would this prevent them from raising rates . Im on the record as saying i think its a one and done and we may go to negative rates in the u. S. Following the rest of the world. So i think theyre quite constrained in their ability to move any time this year, certainly higher. They either freeze or go lower again. To mellissa and brians point, he says he likes high yields right now, as long as you exclude energy. Because a lot of high yield has gotten punished when he doesnt think it should have. Well, it depends how we are leaded to a recession. Thats when you do you think we are . Yeah, i do. I think the risk of a cyclical recession and a cyclical bear market is quite high and the risk of a cyclical recession this year is also higher than most people. I agree, there are lots of big flashing red lights that signal an economic slow down. But ill also say that no recession in the last 50 years has been preceded by oil falling . Two weeks ago, accompanied by deflation either. So you have to go back to other periods. The only recessions we have had in oil is spiked. Then we have a recession. Never had it when oil is crashed. You say again maybe its different this time . I think oil this time is a symptom and a cause when we saw oil shocks in 73, 74, 79, other periods in history. Few go back to the 30s here, if you look at japan, oil is impooerl material in terms of what fed their inflation. The feds are noticing its the single Biggest Issue out there. The cpi numbers dont sort of resolve the inflation. I think cpi is unduly influenced by rent, more than 60 of a company lives in a home. When the owners rent goes up, that drives the cpi higher. The deflator is still running at one and a quarter percent and has for 26 quarters in a row. I think the cpi is the wrong on that note, do you think its time for the st go, okay, im going to do a little method acting here. This is the Government Official inflation measure. Do you feel its time to do that . Because all the stuff we talk about doesnt seem to reflect modern life. Put cell phone bills on measure of inflation. More in terms of college tuition. I know health care is on there. Add that up, ramp that up. It seems were getting into the Inflation Numbers are this. Nobody cares because they know the numbers are built in the 1870s. Fuel prices are higher. Rail cross cost are lower. If treasury inflation forwards the break even socalled break evens are pointing toward lower inflation, that tells you in the aggregate bobbled Market Investors are expecting lower deflation. Thats probably a more reliable way to look at inflation than the actual data we get from the government anyway. Thank you, ron. You get more at cnbc. Com. All right, lets go to seema mody for a market flash. Terex is halting all work on a deal with konecranes. Thats a bid from china zoom line. They say the terex board will decide which ones they want to pursue. The merger had been announced back in august. We have to see which company they go with. Seema, thank you. Heres whats on your menu for the rest of the hour. Up next, one of techs hottest incubators, plus, security expert john macaphee says the fbi doesnt need apples to unload the San Bernardino terrorist iphone. Macaphee says he can do it himself. He will join us live ahead. We found starbucks and the three things that caught our eye this week, its all ahead on pourer power lunch cftc stay with us. Have earned the very best service in return. Wer power lunch cftc stay with us. Power lunch cftc stay with u. Power lunch cftc stay with. Whats going on in Silicon Valley these days . Venture Capital Funding fell by 30 between the Third Quarter and fourth quarters last year. Only Nine Companies joined a unified company in the Third Quarter. Are we seeing the end of a unified quarter . They are invested in over 1,000 startups. Dalton, great to have you with us. Great to be here. What is going on in the funding, is there a twitter effect out there . People are gun shy oput more money to work here . Yeah, i mean, you definitely see the psychological impact of it. Especially on the later stage companies. We fund people in the early stages. So, strangely, were happy about it. A lot of the best Companies Get founded during slow downs. Weve seen the cycle happen. It happened in 2000 and 2008. And so on the earliest stages, its fine. Delaware, if you are a company with high burn, if you have a lot of employees, not make enough money, a lot of people are worried out here right now. So, yeah. Hi, dalton, its michelle. Thanks for joining us. It seems everybody from the west coast, Silicon Valley, particularly san francisco, when it comes to the apple situation is siding with tim cook. Are you one of those . And can you explain why . Yeah. I think i am. I think when you deal with very complicated Technology Problems and the way that they, the way that the law affect. S them, companies that are forced to comply with these sorts of things end up opening huge back doors which can net be bad for consumers. My concern is a slippery slope can open up if they comply with this. It will be another thing that comes up in a few more weeks or months. While i definitely understand in this specific case why people want apple to help unlock the phone, i do tend to agree with apples perspective. Im all for privacy, at what point does the common good outweigh these concerns about privacy . If we know there could be another terrorist plot that could be derailed if he unlocked a phone, you know, where does your privacy argument fall here . Look. I totally am sensitive to your perspective. I just knowing the more, im a technologi technologist. The more i understand what the government is asking apple to do the more i appreciate this is an extraordinary task. If they were to comply with this sort of request, they would end up again opening up back doors that could potentially cause a lot of net badness for the world. Thats what im concern e concerned about. I dont know if you saw yesterday, dalton, venture capitalists. They were all on. It got a little heated. I sort of suggested Silicon Valley is a little hippo critical in that so many of the kreinture Companies Business model is basically selling us, we are the product. They dont have a business model. Except for mining data and information. Whats the difference between these sort of privacy funded models, i dont know how to say it and the applefbi dispute . Sure. Im actually, ive rin blog posts that have exactly your perspective. You happen to have a guest that agrees with you in that im pretty cynicable about supported models. I dont love funding things, especially if i not privacy friendly. So i agree with you, there is a deep hypocrisy, if you are making money from pulling peoples data but refusing to turn it over. I think in this case, what it comes down to is the technical burden put on apple to comply with that measure is a very high one. They actually have to create a brand new version of ios specifically to unlock this key. Again, in my opinion, that does lead to a slippery slope. Thats not just suppcomplying. I think the devil is in the details what they are asking in this case. Human beings are priceless, were all special in our own way. Dalton, how many am i worth . How much, when you go in to fund a company, is an individuals information, where i shop, how fast i drive, what i buy, how much am i worth to Silicon Valley . I think you are worth very little as an individual. What is valuable to Companies Like google and facebook is your intent to buy when you want to purchase. In general, just having a dump of all your data, i dont think that is inherent. It looks like he was going to cry. Many my heart. You have done, like my parents. You are worth very little. Finding out that what a person is going to purchase is built on their patterns of behaviors. Thats where big data comes along, you can process where brian has song gone and have a decent prediction where he will spend his next dollar, right . That way hes worth something . I think you are right. Off the top of my head the average revenue of facebook per year is somewhere in the 5 to 10. Your quick stream is five or 10 bucks a year. Id have to look at that. Its on that order of magnitude. Just like Telephone Companies do . They report it. They sure do. Yeah. Is the ad supported model dead, dalton . I mean, theyre struggling with a small percentage. Its a very small percentage of the things we fund, just in our total portfolio. We funded 126 companies in the last few months, i would estimate 500 reported. Is that a lot, a little, average . Thats a lot we run it high scale. Which fund over 500 companies, at early stages. In our case, yeah, its a pretty large batch a. Lot of what we are doing now is biotech, health care, businesstobusiness, enterprise software, pure play. Supportive is a small part of what we think about. Even though i know it gets a lot of attention in the consumer press. Getting back to biotech. That seems to be a big area for you. What has the fair note effect been on you . They are looking at biotech startups with a more skeptical eye now this whole fair note thing is blown up . Yeah, i think so. What is really interesting to me about that case is that i