Transcripts For CNBC Power Lunch 20160526 : vimarsana.com

CNBC Power Lunch May 26, 2016

Lets get pumped up. Were being joined about it Founding Partner of agin and we have a kmg manager of tortoise capital. Youve been negative on oil. Were back to 50. Why . Are you changing the tune in the price forecast . Im not that constructive on it. I see the dollar rallying as the fed goes into Interest Rate hike mode here. Balance of the year. I think some of the outages that have driven the latest leg are transitory. You have already seen the canadian outcut come back. Youre seeing libya barrels starting to load. And the situation in nigeria isnt great. Iran, iraq, saudi arain yashgs all set to ramp up production even further in the coming weeks. So youre negative . You think this is a short term pop. You expect prices to fall again . And were at a critical level here matched up right with the october high. It would be a prominent double top if there is a failure here. Okay. What we do know is that prices have rallied. As oil prices rallied, so, too, have manufacture the stocks. What have you been investing in . Do you agree with johns per inspect theyve oil is not going to fall again and what are you investing in . Yeah. Thats what makes a market. Well take the other side of that trade. You know, oil is really, i think, just starting to Gain Momentum here in spite of the u. S. Dollar strengthening. What were seeing is big production declines, u. S. Is down 800,000 year over year. Rig counts are down 80 in the u. S. , 35 internationally. Were not making enough crude to meet growing demand. Were starting to see that now. We drew four Million Barrels of inventory on wednesday. We think by midyear theyre back within the five year range on the inventories. Were pretty constructive. You want to get to your responds to that . Yeah, i just dont see the demand side of the equation being too strong either. We need asia to come tlouchlt a lot of folks are saying kline sim porting oil which they are. But the processing it into refine proukdz. You see the support that market seen from gasoline prices now fade away in my view. Thats what takes to make a market. Obviously, youre a buyer. You got a couple of stocks that youve been buying as wm. We talk oil. Were like exxon, chevron. Why is liondel basil an interesting stock and investment for you . Its a commodity player. A commodity chem. They take derivatives from natural gas and the derivative products they use is input. Creates huge margins for them. The output is tied to crude oil prices. So the margins are continuing to expand. Theyve been, you know, basically printing Free Cash Flow over last several years. Buying back significant amounts of stock. 10 of the outstanding stock the last several years. Reupped that program. Keep bumping the dividend there. Its a question of where do they deploy all this Free Cash Flow . There is a lot of new chemical facilities coming online over the next several years. Theyre an intergrated producer. Basically, theyre not particularly tied to the ethylnie. Matt, a real pleasure to get you on. Thank you very much. John, im sure well see you soon. Lets switch gears and go from oil to the bond market. Seven year notes up for auction. Lets find out if that is lucky seven. Rick . It wasnt a bad auction. After the twos and fives, it wasnt that graechlt it was pretty good. If i look at the yield for these 28 billion seven year notes, 1. 652. Now if you dont have a real sharp pencil, 1. 65 1 2 was trading. Yeah, it was good in that regard. It wasnt stellar like yesterday. 2. 57 bid to kofrment a little over 2 1 2 times over subscribe. Too close to the ten auction average. 64. 6 on indirect. Better than the ten auction average. There with was a xuchskew. We had some in the 40s that brought down the data. That is the best since august of 2014. So will 88 billion in supply done. I gave that a b. So now lets watch. The street now has 88 billion in supply. Lets see how the market acts. Many times you see a bit of a rally. I see yields dropping. Ill pick it up, rick. Thank you very much. Host of billion dollar buyer is joining us and ceo of landrys and other businesses he runs. We have a lot of real estate to cover today. Well cover all of it in one way or another. Lets start with oil. Back at 50 a barrel after dipping down there into the mid upper 20s a few months ago. Do you sense a change in the mood, the propensity to spend, go out, dine out, do the kinds of things that patronize your businesses . There is always a lag. Just because oil is at 50 right now, that doesnt mean where its going to be in 90 dayors 30 days or tomorrow. And i think what youre going to see happening is if it continues to go up, things are going to get better in houston. But the consumer has not stopped spending money in houston. Lenders arent lending there anymore. Your real estate prices are starting to drop. But the consumer hasnt really been hit that hard yet. Because youve laid off a lot of people. But houston area is a huge area. Did you find as oil prices began to recede that Business Customer was less likely to come out and spend or that the big ticket dinners that you might serve were not as frequent . 100 . Youre not getting that. Peoples expense accounts have come down. Youre having cancellations of all your little small Energy Conference thats would come to town. The private dining high ticket in the steakhouses is down. Of course. People are going out of business. There is more bankruptcies happening with the Service Companies in houston than people even realize. I mean, every day right now youre having a Small Company in texas file bankruptcy. But preople are still going o bubba gump. Or some other place. Yeah. But what theyre not doing is having christmas parties, that kind of stuff. Big ticket items are dovenlt even the big companies, just to set an example have pulled back. How does it affect exxon . How does it affect your big schlumbergers, halliburtons . But they realize that they layoffs, no bonuses, pay cuts . Definitely. And business entertaining down. 100 . And is that you have national, International Businesses s that true across the country or not . The country, just like we saw in retail the last few weeks, the consumer is choppy right now. And i dont its not oil necessarily. But restaurants, retail, it is definitely choppy. What do you think it is . If its not Energy Prices and whats going on in houston and the local economy with the bankruptcy thats youre seeing and no one else is paying attention, to why is the consumer so hesitant . What are you hearing . You know whats funny . There is a Hotel Company out there that was looking at raise something money and they pulled back and said for the First Time Ever our adr is dropping everywhere. Average daily rate. And we dont know why. And it is across all of our different concepts, whether its a High End Hotel or a low end. So there is definitely something happening out there right now. Ill take the other side. We postulated this with apparel. In that people arent buying jeans because theyre buying houses. And theyre buying cars. You look at the home Sales Numbers and the car Sales Numbers are very strong. It is possible that the week i say that with air quotes, weak consumer is actually not going out to dine as much for the same reasons because theyre doing big things and they say honey, we cant afford to go on a weekend trip or out to eat. That always happens. When people move into suburban america and housing is booming, you know, the first thing they stop doing is spending money at clothes and restaurants. But sometimes theres a lag. Remember there was a huge lag problem in the Financial Markets in january and february and march if you remember. Lets hope it comes back as quick as the Financial Markets did because you dont want to go into a sum wert momentum we have now. We do not have momentum nlt restaurant and Retail Industry right now. Interesting. Interesting. Tim, well talk more about this and other topics throughout next few hours. Sounds great. With oil on the rise, how do you play it . Lets bring in the managing director of seacorp. Do you think the worst of for your sector is behind it . First of all, i have to say nice surprise that share some air time here with tillman. Im down in houston. Tilman goes above and beyond as far as charity work he does in houston as far as md anderson and police force. He is a great guy in houston. Great to have him on the show here. Is oil and gas we reached the point here where things are getting better. Were at the point now were 5 away from hitting the long term price target here. What were afraid of you is get to that 55 price, guys start minting money down here in houston. You have the supply problem potentially all over again. Between 2010 and 2014, 80 of the growth worldwide in oil supply came from the u. S. So youre going to start seeing growth, you know, the volumes are going to turn up here as you cross 50. For a long time people have been saying that production needs to come off line permanently. Lets say oil stays right around here at 50. Does the consolidation, the bankruptcies, do they end as you say theres a self fulfilling prophecy where oil is high and they pump more. Theres no production coming off line permanently. And so its just a vicious cycle. Yeah. At 50, its a have and have notes world at 50. There is a group of guys that crush it. Theyre talking about 100 irrs in the basin and new places like the stack. And then there are guys that are overlevered that need to go away at 50. So youll have a little bit of both. So who are the guys with the high irrs . You go to the basin, isb, die monld back, parsley energy, pioneer Natural Resources, simerex. Stack play, newfiled, continental, gas star, cimerex. And more upside from here . Yep. We believe. So. You know, mike, pioneer and Scott Sheffield, weve had him on the show, it is partially run by his son. But people consider Scott Sheffield the smartest guy as a operational guy for oil. Hes going to be retiring z that concern you and affect your investment recommend sngs. No, they have a great staff. There the coo is taking over f youre on the conference call. He hits everything operationally. The guy is a stud. So theyre g. In good hands. No concerns there. Mike, were going to wrap it up. Thank you, mike kelly. Fuel a biggish knew france today. Protesters are blocking oil depots ands Nuclear Power plants over labor law reforms. This comes two weeks before france hosts a Major International soccer tournament. You see the fires and water cannon there at play. Long lines for gasoline throughout france because of fuel shortages. Frances Prime Minister says the labor reform will not go away but the government is open to negotiation. News alert now on microsoft and facebook. Dom chu has it. Very interesting story here. Two tech titans getting together in a partnership in this case here what theyre looking to do is put down a cable connecting Northern Virginia and spain. To a 6600 kilometer data and Internet Connection cable in essence that will connect the u. S. With spain and then move on to other Global Network hubs all over the place. They go on to say here that its because of growing customer demand for high speed reliable connections for cloud and Online Services for both microsoft and facebook and their customers. The construction of the cable will commence in august of this year with completion expected in 2017. They also again say that microsoft and facebook are collaborating on the system to accelerate the development of the next generation of internecessary infrastructure and support the explosion of data consumption of the respective cloud and Online Services. The next evolution in internet infrastructure is being put down and in this case a partnership between microsoft and facebook for a new transatlantic cable. Of course, tyler, Many Companies in ocean depths. Its interesting that its microsoft and facebook collaborating. Not a telecom provider, obviously. Obviously users there must be a lot of traffic between annandale. There are a lot of company that invested in laying down global like global crossing, enron oh, wait. I was waiting for you to say that. I mean, obviously these companies are a lot more well capitalized. We talk about tech valuations. Some of the companies valued on eyeballs and all the metrics now. Were talking about new undersea cables. Break out the 1999 fashion. Putting down 3 . When you buy a home, it is now possible that one of the nations largest Mortgage Lenders. It is a good idea or are we entering the danger zone once again . Power lunch is back in two minutes. Man 1 i came as fast as i could. Whats up . Man 2 this isnt public yet. Man 1 what isnt . Man 2 weve been attacked. Man 1 the network . Man 2 shhhh. Man 1 when did this happen . Man 2 over the last six months. Man 1 how did we miss it . Man 2 we caught it, just not in time. Man 1 who . How . Man 2 not sure, probably offshore, foreign, pros. Man 1 what did they get . Man 2 what didnt they get. Man 1 i need to call mike. Man 2 dont use your phone. Its not just security, its defense. Bae systems. Theres a place for vacationers than just a little time off. The ones who choose to go big or stay home. Come with me now. Where every amazing, despicable, wizarding adventure reveals moments that are truly epic. This place is made for those who do more than just vacation. Whoa go with me now its made for those who vacation like they mean it. Universal orlando resort. Another sign of big time streng njt spring Housing Market. Pending home sales up 5. 1 hi hitting the highest level in a decade. They boost sales overall. On that note . The largest Mortgage Lender announcing a program it says will encourage first time home buyers to make that big purchase. The terms of the loans have worry that weve seen the story before. Diana olick joins us with that story. Melissa, this one is really hitting a nerve. Hundreds of comments on our piece on cnbc. Com. Wells fargo is calling it your First Mortgage. 3 down payment and wells says less complicated than other 3 products which have been unpopular until now. Its a conventional fixed rate loan. So 417,000 or less, backed by fannie mae. Gifts are fine. Mom and dad can make the down payment for you or use a community down payment assistance program. You dont have to complete a buyer Education Course but if you do, you can earn a. 8 Interest Rate deduction. Now minimum fico is 620. You do need mortgage insurance. Roll that into the race which is likely going to be a little higher on the average 30 year fix. Theyre estimating about 4. A . Still though, not a the love skin in the game on this loan. Wells claims its low risk to the bank. With this product, its very clear they have to have the ability to repay the mortgage. We have to make sure that they have a history of repaying debt. Or at the very least responsible management of the finances. Thats the issue. A 620 fico score means you dont have a good history of repaying debt or managing finances. I spoke to the executive in charge of this at fannie mae. He admitted it would be rare for a borrower to get approved for that loan. Lets bring in the chief economistist with red fin and michael calhoun, president for the center for responsible lending. We should note that your First Mortgage program was developed in partnership with wells fargo and self help which is in itself a affiliate of the center for responsible lending. Michael, i assume you think this is an example of responsible lending. Even on the surface, it does hashgen back to times when some of the loans to people with low Credit Scores at low down payments were anything but responsible. Why is this different . So this is a safe Proven Program and these mortgages are the exact opposite of the kind that caused the housing crisis. Why . These are fully documented loans that the borrower has to show theyre qualified and that they can afford the payment. Theyre also skin in the game from entities such as ours. Were putting our money at risk on the loans as are private mortgage insurers who have to think this say reasonable loan. And in the housing crisis, we will no doc loans with exploding payments. We did 4 billion of these loans leading up to the crosses. We had losses of less than 4 . If the rest of the Mortgage Market had done that well, there would have been no housing crisis and no great recession. And lastly, this is a Critical Program not just for these home buyers, but for the whole Housing Market and the u. S. Economy. Right now were missing about a million loans a year that in 2000 and before were there for first time home buyers. But tightened underwriting requirements which understandably got tightened after the crisis and there was overcorrection. The borrowers are being excluded. Its creating a disruption of the whole Housing Market and a drag on the whole Economic Growth. Do you think this will bring new buyers into the market. Buyers that would otherwise not be able to secure that loan and buy their first home . Not at first. I mean, there is a huge missing market in the Housing Market. Those people who cant put 20 down who have less than stellar credit but enough income to make a monthly payment. These borrowers are not

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