Hi, everybody. Good afternoon. Welcome to power lunch. Im Tyler Mathisen. Stocks were rallying big earlier. But were now well off session highs. The dow had been up 162 points. And had wiped out its losses for the week. Now, not so much. It joined the s p and nasdaq in being lower for the week once again, despite the gains that you see over my shoulder there of 70 points for the dow. Financials, tech, materials, industrials among todays biggest gainers. Melissa . Thanks, ty. Im melissa lee. Consumer sentiment coming in weaker than expected. Goldman sachs winning a legal dispute with libyas sovereign wealth fund, a ruling that goldman did not abuse the relationship and force the fund into deals that the fund claims led to more than a billion dollars in losses. And the Obama Administration eliminating 100 limit on the value of cuban cigars but american travelers can bring back from the island. To the earnings for the big banks here, clearly the big story of the day. Jpmorgan, citi, wells fargo, stocks higher earlier, now mixed. Wells fargo down for most of the session after releasing the first report since the fraudulent account scandal. Joining us is katie nix and eric wasserstrom. Eric, lets start off with you. In terms of what you saw from these banks, what is the read through . We had Capital Markets activity that seemed to be stronger than when many people expected but thanks to the brexit bump in june. Certainly that played a role, melissa. And i think you also saw that that long growth in the period wasnt as weak as many including myself anticipated that it might be. And that led to better spread income which is for most banks the most significant driver of revenue. So what is the read through to the rest of the sector that has not yet reported. What are the Key Takeaways . Basically three Key Takeaways. One, the revenue outlook a little more robust from this combination of better Capital Markets and better spread revenue from Balance Sheet expansion. Number two, credit remains very benign with several banks releasing previously built reserves for Energy Losses now that the commodity price is higher. But these two things offset higher expenses including both comp and noncomp and, of course, for wells particularly you had the issue of the forth coming legal fees. So, eric what is the biggest worry you have going forward. We know what happened. What are you concerned about happening . Well, i think that the go forward question remains largely macro, which is we seem to be inching closer to a fed hike, which, you know, would be modestly positive, but, you know, to what extent is this loan growth sustainable in 2 , 2. 5 gdp environment, thats the Biggest Issue for the institutions. What is your take on wells fargo now, eric, with the management change, the Conference Call under their belts . Whats next . I think the new ceo systtim n did a good job of articulating all the actions theyre taking which is predecessor for whatever reason failed to get his mind around how systemic some of these things appear to be and in fact prove to be. So i think theyre doing a good job of getting very, very significant remediation efforts under way. But i think in terms of the Financial Impact of that, i think he was very transparent that theyre as yet unknown. A no touch in your view . Yeah, i view the risk reward at around 45 as being basically even money upside down side. Eric, thank you. Well, be sure not to miss this, the wells fargo cfo John Shrewsbury will be a guest. A lot of questions, hopefully hell have some answers. Lets bring in now and question katie nix of northern trust. Welcome. Thank you. Financials have been one of your favorite sectors. They performed well. Many of the biggest banks are up double digits in the last 90 days. Do you still like them or have you been trimming into the strength . We havent been trimming yet, brian, but were considering trimming into the strength. We had an amazing several weeks here today included. But there is a nice tailwind. The question you asked about what this bows for next weeks results, a nice tailwind here, volatility in the currency markets, Interest Rate markets, fixed income markets will be positive for a lot of the banks. I feel like given the run that many of these banks have had, there is a little bit of earnings beat and a little bit of fed already baked into the absolutely. The market is anticipating that the fed will hike rates, this is also going to keep volatility high which will be good for the trading revenues of the banks. Two questions, on j pchlpmoj were the earning good . Theyre trading revenue very solid. But analysts, the pendulum swings to the extremes of both directions. But i think you can broaden out that question to include a lot of the s p 500. Analysts have gotten very when i was on squawk box with andrew, he pointed out that jamie dimon says that beating the estimates is a good thing. No problem. But beating last years number is even better. They didnt do that. No. It has been a tough environment. There is no doubt about it. We can look back at 2016 and see incredible head wind. The profits were higher. Exactly. And, again, can broaden that out to the s p 500. It has been a very tough road to hoe but a lot of the head winds will become tailwinds as we enter 2017. What gets you to trim your position in financials. What is the last piece of evidence that you need to pull the trigger and where will those dollars go . It is really probably predicated on the fed. Our base case is that the fed does not go in december. There is a probability they do. The market is anticipating over 60 probability that they do. If they do go into december, the next rate hike wont be for a very long time. It is going to be a very, again, challenging environment for banks. And if the fed does hike more aggressively than the market thinks, youll see the yield curve flatten out like a pancake and that will be hard for banks. Were going it look at fed policy and that will probably be dry when we trim the position. You dont think that 17 increase we have seen in the Kbw Bank Index that is the anticipation of the fed doing something by year end . It is on the heels of some really bad underperformance, though. Banks are just catching up right now and the fed has taken away the football many times here. And this time they seem resolute in terms of their desire at least to raise rates and so we think that the presents some fundamental improvement for these. Banks from a d minus to a c plus. All relative. Yeah. Thank you. Katie nixon, have a great weekend. You too. The Oil Rig Counts are out. It is friday after all. And guess what, were up for the seventh straight week. Baker hughes reporting that four more oil rigs were indeed put in place last week. This makes seven weeks in a row and i would say 16 of the last 17 or 18 weeks we have added drilling rigs, gas rigs by the way. Dont talk a lot about that. Rosa leven rigs. The price of oil is down a bit, but still above 50. Tyler . All rigged. The tax code crackdown, the Treasury Department out with new rules to curb tax inversions. Jack lew sat down for an exclusive interview with sara eisen and she joins us with the highlights. The treasury is going after companies that try to avoid u. S. Corporate taxes again. This time the administration is actually softening some rules that it laid out back in april after hearing from the Business Community and lawmakers. The rules have to do with how companies lend their money to subsidiaries to avoid paying u. S. Corporate taxes. Lew told us that while hes only treating the symptoms of a disease, the broken tax code, hes confident that actually a deal on Corporate Tax re form can get done pretty soon. I think that European Commissions actions put a bright light on the fact that if congress doesnt act, others are going to start doing things we think are unfair. We agree with europeans that it is wrong for companies to be able to avoid taxes almost completely. What we dont agree with is that the u. S. Tax base should be used by another taxing authority, another government authority. I think that the political situation in the new year is going to be an opportunity to deal with this. One thing we said in Business Tax Reform was you should do two things at once, tax the income overseas, but you cant use that money to cut tax rates because it is a onetime tax, use the money to pay for infrastructure. Again, that 2. 5 trillion that are sitting in overseas Bank Accounts from u. S. Corporations because of the high tax rate, so while there are exemptions in the current earnings stripping rule as it is called, there clearly has been an impact including the breakup of that 160 billion allergan pfizer merger earlier in the year as a result of the treasurys rules against inversions. So did you think as a sort of subtext there he was hopeful that there would be some political breakthrough in the new year . Absolutely. No matter how the election pans out because lews point is that what the European Commission did going after apple for 14. 5 billion in back taxes to the Irish Government, that was a wakeup call for American Companies and for American Government that if we dont start chasing after what is owed to the u. S. In terms of tax income, corporate earnings from u. S. Companies, other governments around the world are going to do that. We saw that happen with europe and the treasury doesnt have a lot of recourse when it comes to that. Thats being litigated because the u. S. Is fighting it, apple is fighting it and the Irish Government is fighting it. But he says youre going to see a lot more of this unless we get some sort of Corporate Tax reform deal, we have bipartisan agreement to have infrastructure spending. So if as lew says you can tie that repatriation lower tax rate to direct spending, that money coming back from overseas on infrastructure, then you could see a deal. Hasnt happened in this administration, this congress, but he is optimistic. All right, sara eisen, thank you very much. Showdown in the red sea. The u. S. Taking military action after one of its ships came under fire from rebels in yemen. Now iran is moving its ships into the region. We weigh in on that and how the u. S. Can win the cyberwar with russia. That and more straight ahead. The u. S. Military launching Cruise Missile strikes on yemen thursday morning, knocking out three coastal radar sites in areas of yemen controlled by iranian aligned houthi forces. Those strikes aimed at taking out radar that enabled the launch of at least three missiles against u. S. Navy ships, the ship the uss mason on thursday and sunday. The missiles fired against the mason failed to hit their target. Joining us to discuss this and other issues involving National Security former nato supreme allied commander admiral james dean yavides. Welcome. Good to have you with us. Great to be with you. Well talk a little bit about iran. I want to get quickly to russia and their mischiefmaking. A lot of mischiefmakers here. Do you think iran feels emboldened now by the fact that the sanctions have been loosened, money is flowing back into their economy, while Nuclear Program seems to have been at least stayed for a period of time, that they feel like they can flex their muscles and are doing it through the houthis . I think you categorized it exactly right, tyler. It is good news, bad news. Good news is hopefully theyre not actively in pursuit of a nuclear weapon. Were going to have to monitor that closely. The bad news is a lot of resources and theyre using them not just in yemen. Theyre using resources to undermine iraq, syria, and lebanon. So this is part of a larger Iranian Campaign that i think is going to be the backdrop to the middle east for the next decade. Why would these rebels or whatever you want to call them fire missiles on a u. S. Warship . They know we have got to fire back. What are they trying to do . What they would love to do is actually hit one of those destroyers and if they managed to do that and that is not an inconsequential potential outcome, if they managed to do that, they would have killed dozens if not 100 or so american sailors, conceivably may have sunk the ship. This is a pretty good sized Cruise Missile. So it is a huge upside for them if they hit. And they figure our response is going to be knocked down a couple of radar sites. Thats a good tradeoff from them, from a business perspective. I think were going to see more of this. You think thats what we would do. Lets say they do hit the ship because there is no signs that theyre going to stop firing anytime soon. What would be the appropriate american response . Are they trying to goad us into war . I think that remains to be seen. But i will point out that were seeing iranian warships flowing into this area. So you see a kind of setup for a confrontation here. I dont think it is at all inconceivable that iran wants to try and pull us into this in some way. And here is the good news. I used to command the same class of ship, uss barry, sister ship to the uss mason, our ships are very, very capable of defending themselves, so i think well be able to avoid this trap, but i think this is really an iranian objective were seeing unfold in front of us. A provocation for sure. Lets move to russia and the provocations that the u. S. Government thinks russia is bringing to the democratic process here. Talk to me about that, and how clear in your view the evidence must be for the u. S. Government to say that they have said. In short, do we need to share more of the direct evidence tying the russian government to the hacks of the dnc and electoral voting records in various states . Yeah, i think this one rises even beyond the level of a hack. When you try to insert yourself in the democratic process and the very heart of it obviously is the president ial election, i would categorize this as a cyberattack at this point. And in terms of how clear the evidence is, i think it is overwhelming. The u. S. Government absolutely would not be so far out in front in the commentary. My own sources in the government would tell me that this is a very clear level of provocation from russia. So i think how we ought to respond is in a proportional fashion, shouldnt go and drop the russian electrical grid over this. But we should, for example, certainly reveal the evidence clearly. Let the International Community see it and judge it, and secondly we should respond with something similar, that might be opening the financial records, very senior russians, showing where their overseas deposits are located, for example. We need to show the russians some steel or theyll proceed into what they see as mush at this point. There have been repeated cyberattacks on various aspects of the economy, not just the government, but to steal intellectual property of our corporations, et cetera. Why do you think this is finally the attack that is going to prompt the u. S. To respond with a proportional response . I think as i mentioned a moment ago it is the impact in the electoral process. I think that is a very, very significant act. Even compared with, say, the sony attack undertaken by north korea. Or the cybercriminal activities. Those are worrisome. This is our election, our national election. I think it really demands a level of response, distinct from what we have seen before. You have been an adviser to secretary clinton on National Security. I wonder how you feel about fbi director comeys characterization of her handling of confidential or classified material as reckless. And that that some of that involving her private server was mishandled, and that people have gone to jail for less. I think the secretary has responded to that pretty clearly now with both of the debates and repeatedly. The fbi director has laid out his view of the situation. The secretarys acknowledged it is a mistake. But my role has been to advise on international affairs, security, and cyber. Im not deeply involved in the political side of it. But how do you feel about it, apart from that . Do you view it as a viewly serious breach of protocol in. I think that as the secretary has said it was a mistake. I think director comey has categorized it as a very serious mistake. I think it ought to be regarded as such but examined in the totality of what has occurred. From what i can see, i dont see a serious material level of classified material that was breached as a result of it. I think it ought to be judged by the voters and will be. Admiral, thank you for your time today and your help analyzing the very thorny topics. Author of the accidental admiral. Hes at tufts university. There is his book. 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