Milk tastes better or something. The ways tech is disrupting the multibillion dollar ag industry and pretend im brian when i say this, im udderly insane power lunch starts right now. I pretended you were brian so well i rolled my eyes. Lets take a look at the markets this hour. The dow clearly under pressure but the nasdaq higher once again, up for a fourth straight day and for the 12th time in 15 days helping the nasdaq. A big move for shares of amazon. Com. That stock is hitting fresh interday record highs. Check out some of the movers right now that were tracking for you. Sonic 5 . Restoration hardware soaring about 13 on its earnings beat and optimistic forecast and dave and busters down 3 earnings beat but same store sales missed that mark. Brian . I think theyre a bunch of bull and you milked them for all theyre worth. Im brian sullivan. Here is what else is happening this hour. Boston fed president Eric Rosengren calling for four rate hikes. Sales rebound iing to their highest level in nearly a year. The second highest level in over a decade. And toshibas u. S. Nuclear business westinghouse electric, you know the name, filing for chapter 11 bankruptcy protection. Nuclear projects bogged down by delays and cost overruns. The company is straddled with about 10 billion in liabilities. Ultimately, tyler, you reap what you sow. Gosh. He never disappoints. To the big story on wall street today and that is black rock laying off Portfolio Managers and taking a bigger step towards Computer Generated money management. Leslie picker has the details. Reporter hey, guys, gone are the days of oldfashioned stock pickers and enter the machines. That may be the takeaway from black rocks plan to overhaul a big part of its active management strategy. Black rock is taking traditional investing methods but fusing them with technology and data science and, in doing so, the firm will be cutting its fees in half. Its perhaps the most aggressive repudiation of the traditional stock picking by a major asset manager to date and a direct response from criticisms from clients across the industry about higher fees and underperformance among fundamental stock pickers. Now u. S. Based active managed equity funds experienced record withdrawals last year according to reuters with much of the capital flowing into passive investments such as etfs and index funds. Black rock is of course known for their etfs with more than 1 trillion in assets but active equity investing contributes 16 of the firms revenue. The strategy impacts about 30 billion worth of black rocks assets. And as part of the revamp black rock is introducing what they call advantage products which give Retail Investors access to their Quantitative Investment team. This all means that 7 out of 53 active Fund Managers will be leaving their posts as a result according to a person with knowledge of the matter with dozens more employees expected to depart. Guys . Leslie, thank you very much. Now a view from wall street with art hogan, chief market strat the gist at wunderlich securities. Dom chu is also with us. Gentlemen, welcome. Doug, let me start with you. Can you beat a machine . Yeah. I think the best performance is generally when man and machine Work Together versus man alone or machine alone. Can you do it can you beat a machine and do it cheaper than a machine . You can beat a machine after expenses, certainly. Man and machine together will outperform over the long haul, and really this is a measure of the fact active management has underperformed and thats really whats driving the black rock. Art, the idea is to cut costs and also boost performance. Do you see it that way, and do you think theyre right in doing this . Tyler, obviously our industry is always evolving and one of the things if you want to attract investor dollars you need to offer Value Proposition and at the a lower price. Black rock is finding that hybrid in between active and passive with the use of computers and machines. I think at the end of the day the argument really comes down to can active beat passive . That hasnt been the case for the last couple of years. Weve been in ultra low Interest Rate environments so most Business Models work with the low cost of capital. Interest rates go up, the Business Models dont work in a rising industry, an environment with higher cost of capital. Active takes over here. Here is what i dont understand, why dont i just buy an etf then . Exactly. Why dont you just buy an etf because in a market where correlations will be beating that again. I have all these choices and i can go into an e it t f or i could go into an actively managed fund thats actively managed by a computer. I dont quite understand what im getting if i do this. Thats exactly what your choice is and thats offering an array of choice. The bulk of what black rock does is impassive. 60 of what they do is active and of that active theyre making it a hybrid. Its not all human beings and a lot of machines. Its complicated. Active just means not indexes. Thats what we should be clear about in this conversation. Active doesnt necessarily mean a guy picking a stock. It means youre not allocating according to a benchmark. I disagree with that. Thats the technical no, i think i disagree with that, melissa. I disagree. Thats fair. Its fair. The textbook definition of what people realize as passive or index investing is exact ly tha. Youre only buying something that track as definable transparent index that doesnt actively engage in trading back and forth of stocks. Active management is about whether or not a person can add outperformance by picking certain things over others. A person or a computer. Whatever it is. But here is the thing about when we talk about this computer quantitative approach to investing, its very much more i mean, predicting the markets is a fools errand but those who do use history as a basis. Quantitative managers are big history buffs. The way they pick their stocks is to go back and do something called a historical simulation otherwise known as a back test. They take these factors. They put them in a big soup. They figure out whether or not 20 years ago over the last 20 years if they repeated that same recipe it would have outperformed the market. Thats the reason why when it comes to quantitative investing. Dont a lot of them do that now . Thats a little bit of driving with the rearview mirror. Its 100 . And the cubs won the world series. You can back test letters, letters of the alphabet, pick stocks that way. One of the letters is bound to work. But i think from our standpoint and our take on this is active management actually can pay off when you get a much more volatility in the marketplace. Right now were at very historically low rolling volume tilts. And i think one of the things you say its volatility you say its volatility that gives the active manager the stock picker an edge. Art says its a rising Interest Rate environment that makes that changes Business Models and causes the weaker models to fall away. Ive heard over the years lots of definitions lots of defenses for why you ought to have some money in active management. I think if you go back and you look at periods of volatility, if you do go back and look at history, even if you look at periods of volatility, of rising Interest Rates, i think the repeatability of outperformance by active managers isnt there. Its very hard persistence is not there. Go ahead. You can go ahead and speak. No, i think the point were missing here, tyler, is not that active over a period of time, hasnt been passive. Its the function of are things correlated now and is there a reason for that. If you can tie a causality to a lower Interest Rate environment where the weaker Business Models can still be profitable, i think that volatility that doug is talking about is correlations breaking down. Everything cant move together or else there is no stock pick. Theyre going to take people out of their business model, costs out of their business model, attract more money, i would think, because their costs will be lower and maybe because their costs are lower their ability to outperform will be higher, right . Thats one thing actually theyre taking a big hit to revenues initially. Yes. This switch from active to quantitative. Not that big. 30 million. Not black rock, right . The performance for the investor is better because cost is lower. The stock itself may suffer because theyre going to have fewer revenues overall for the company. Get in here, dom. The point of this is active computer management different than active fundamental person management in this point. Its man versus machine. Black rock is taking the view theyre going to take their portfolios they are able to trade around and in and out of and instead of having a team, an army of analysts and Portfolio Managers picking this out theyll have data scientists go back and look at the statistics, look at the numbers and see generally what has outperformed from a factorbased standpoint over time and thats the way theyre going to pick stocks going forward. Its this he haevolution of technology as opposed to just this idea that active versus passive is the basis. I think its like a driverless car. Youre going to have the technology here to pick stocks. You already have it. There will be a human being looking over it. There will be somebody there. Well sit here while max talks. It will be man with machine. I agree with you, doug. Well see. What i agree with doesnt matter. Thanks, guys. Thanks, art and doug. We talked about lower employment. What about fewer official stock pickers, we saw mike mayo and his team get fired at csla, they got rid of the research department. You need fewer research a analysts, right . If you have less and less stock pickers, you need less and less people. I would say this is a pendulum like many things in the market thats swinging one way. You have a lot of people going straight up in index investing. If that stays that way, there will be opportunities when herds develop because its a herd mentality. You are going the same way everybody else is going. And it hides bad companies. Crud companies will hide. We reached out to black rock. They didnt want to talk. Middle of the pendulum, active managers underperform. That drove a flow of funds into etfs, total passive investment and this is the middle road where the fees are lower, you have something in between. I would say this. A lot of Financial Advisers will say since the financial crisis weve been in the bull market and everybody does well in the bull market. When things go down. Another point, i promise well leave after this six minutes over. I promise well leave after this. A lot of Investment Managers, maybe most of them who are serving retail customers are driving money into etfs. Themselves. Not into individual stocks. So why pay them . Thats what theyre doing. Theyre putting that money into etfs and other passive we debate the definition of passive is but other passive products. Thanks. Im quiet now. A news alert right now. Sevenyear notes up for auction. To sue herera with the latest. 28 billion specifically in sevenyear notes. The yield at 2. 15 . The bid to cover ratio stronger. As a matter of fact the best demands since november was 2. 56 versus the recent average of 2. 51. Indirect bids 71. 1 percent. And direct bids 8. 4 . Brian, back to you. Sue, thank you. Still ahead from robo Financial Advisers to robots working the farm and cows wearing fitbits. Yes. Disrupting agriculture. Get your steps in. But first forget disappearing pictures. Disappearing shareholder rights. Why some are saying snap chat is just terrible for investors. Stick around. The mercedesbenz of tomorrow will transform not just the automobile, but mobility itself. An autonomousthinking vehicle protecting those inside and out. And its the mercedesbenz of today that will help us get there. The 2017 eclass, with innovations no car has offered before. And that will change driving forever after. Lease the e300 for 549 a month at your local mercedbenz dealer. Mercedesbenz. The best or nothing. Anything worth pursuing hard work and a plan. At baird, we approach your Wealth Management strategy the same way to create a Financial Plan built to last from generation to generation. Well listen. Well talk. Well plan. Baird. Ltry align probiotic. N your digestive system . For a nonstop, sweet treat goodness, hold on to your tiara kind of day. Get 24 7 digestive support, with align. The 1 doctor recommended probiotic brand. Now in kids chewables. On a perfect car, then smash it into a tree. Your Insurance Company raises your rates. Maybe you shouldve done more research on them. For drivers with accident forgiveness, Liberty Mutual wont raise your rates due to your first accident. And if you do have an accident, our claims centers are available to assist you 24 7. Call for a free quote today. Liberty stands with you™. Liberty mutual insurance. Welcome back to power lunch. Im Steve Liesman with more breaking news. Fed president John Williams say ing it should not rule out more than three rate hikes this year, three additional rate hikes this year. Some slowing of growth, he says, could be needed. The fed should work, he says, towards a, quote, goldilocks economy that means on focusing on sustaining the recovery. He says the recovery has already been sustained. The main thing on gross is from the supply side. And those supply side problems are largely out of the feds control. Williams is the third speaker today. Lets look at what else has been said. Four rate hikes this year are the number that he actually wants. And out of chicago, fiscal policies could mean more rate hikes. But stan fischer yesterday in an interview with cnbc, the vice chair, said two more rate hikes seem about right and the market took a very dovish sense from that. A lot of fed speak today. Steve, thank you. Steve liesman. Snap has been derided by Corporate Governance for not giving a say to shareholders in terms of shareholder rights. What if shareholders were forced to buy the company because snap is included in benchmarks like the s p 500 . With us is ken birch with the council of institutional investors. This is not an issue at this point. Snap is not up for inclusion for at least another 10, 11, even 12 months at this point. Why are you sounding the alarm . It wont be up for the s p 500 for a while. It will be up for consideration for other indices sooner. Its something were thinking about and considering. With the s p 500, and it will take a while, but even with that it would be good to set the ground rules given snap with the no vote ipo was a breakthrough and a troubling breakthrough from our standpoint. According to s p bylaws, if you call it that, rules for inclusion, there is nothing to say anything about a company with no shareholder rights, correct . Youre looking to change this for other companies in the future . Calling into question this type of voting structure but there are some nonvoting classes right now. All the companies that have them have a voting shares that are out there in the public. We think tess important to clarify now. A company that has no rights for any shareholders. Dual class companies. Now we wonder, okay, this is the first time that index is having to consider this question, correct . Thats correct. The First Time Since the 1920s. The indexes werent in business at that point. The issue is that you can say, well, if you dont like the fact the company doesnt give shareholder rights, dont buy the company. But if you buy an index like the s p 500 then youre stuck buying that. Thats what your issue . Exactly right. We dont think an equity, like Voting Rights, is an equity. It needs to be a duck not just labelled a duck. Why is this different from a dual Class Company that might give you 0. 1 or of a share . Theres no accountability other than perhaps through litigation you could argue for the holders managing the company for the next however many years while theyre alive. Why did wall street take it public . Im sorry to jump in but we have to. Why did wall street take it public . Oh, this is a terrible Corporate Governance structure. Dont worry. Because they pay fees. Thats the real reason. It will work in the short term. Speculative purposes and this is a promising ipo, a high risk but promising ipo. And so the longer term factors so, to you, ownership without Voting Rights is not owner shsh at all . Right. Thats right. Ken, thank you. We appreciate it. Okay, thank you. Ken birch, council for institutional investors. Cnbcs Parent CompanyNbc Universal is an investor in snap. Do we have any Voting Rights . Cnbc . No. Oh, in snap . I dont think so. Still ahead, moving toward it technology. Is this yours . Not my style. A look at how tech is disrupting agriculture next. Those are pretty cows, arent they . t they . Centurylink to keep their global campus connected. And why a Pro Football Team chose us to deliver fiberenabled broadband to more than 65,000 fans. And why a leading car brand counts on us to keep their Dealer Network streamlined and nimble. Businesses count on communication, and communication counts on centurylink. Please repeat the objective. Thrivent mutual funds. Managed by humans, not robots. Before investing, carefully read and consider fund objectives, risks, charges and expenses in the prospectus at thriventfunds. Com. Welcome back, everybody. Drones and a fitbit for cows, yes. Technology is disrupting americas farmlands in a major way. Aditi roy is live in california with more. Aditi . Reporter thats right, tyler. Crazy stuff going on here at the worlding ary agritech. It promises to disrupt dirt by allowing soil to hold on to more nutrients. They are raisin