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that is going to do it for today's edition of the call. i'm trish regan. i'm melissa francis. >> i'm larry kudlow. see you on the kudlow report at 7 p.m. eastern and "power lunch" is up next. good news. on my way up here, i saw a penny and i picked it up. >> and all day you'll have good luck. >>er destined for good luck. i'm bill griffeth. a little minor profit taking for stocks very good news on the homefront, so far, not enough to offset the mixed news on earnings we have had so far, tech the big losers today. >> good to have you back, bill. i'm sue herera. president obama meeting with chinese leaders hoping to forge a closer relationship but when it comes to the economy, is china a friend or a foe. >> i'm michelle caruso-cabrera, the government's payczar is supposed to take a closer look at compensation packages at

banks that still have taxpayer bailout money so, when it comes to bonuses is a deal still a deal or should you give it back? watch the sparks fly on the power grid. here is what else is on the menu. on the earnings menu, results from verizon, numbers from honeywell, radio shack as well as corning. >> in this care the people, the town hall in kansas city i will have the details. >> all righty. i'm hampton pearson in washington, the u.s./china strategic dialogue gets under way with the president telling china don't count on debt-weary u.s. consumers lead a recovery as the chinese are silent about their concerns about trillion dollar budget deficit. >> let's get to the market action. stocks down, financials the best performers at the moment. oil is stead dirk bond market ready for the busiest week in 25 years. the government needs to borrow a lot of money this week.

bib pass sanny is at the exchange. >> better than expected, stocks moved up and right into it selling the pace of good news, stocks resilient off of their lows. also the highs, home builders off 50% or more, the big names of june new home sales better than expected. bottom line, holding up well here. other things, sold several sectors, tech and a retailers as well. it hit the price target, $23. hmo's tough day,et nah, down nicely here, importantedly, disappointed earnings commentary, increased claims, higher talk, trader talk, cnbc.com, one of the factors leading the markets lower after the new home seams numbers came out. >> bob, thanks so much. tech is is weak today, the reason why the nasdaq is down a half percent. you can point to a downgrade at

amazon this morning. stocks down 2.5%. bws financial downgrading stock, long-term operating option. target, saw pullback nenter net stocks, yahoo! down 3%, google off 1%. quick list ebay bucking the trend up 2% as they make changes to the listings business, down 1.5%, perhaps a hangover from the disappointing earnings report of last week. rj at the nynex. >> we are looking at oil prices, basically flirting with flat line right now, down 7 cents, a penny to the downside a few minutes ago, pennies to upside, focus on the gasoline contract, august crack, it has been up nine sessions in a row, higher this morning. if it does end in positive territory that would be the longest winning streak ever on record for gasoline since the contract was innish be yated. on top of that traders focusing on the fact that perhaps some of the refineries down, that could

create problems with supply but also still lingering in the back of everyone's mind is table sfwlags in the economy that will drive things going forward. took global hq. >> rick santelli is in the house, thrilled to have him this is a huge week for the treasury market and the government. >> the hugest. >> it is. it is. >> hugest ever. >> when you look at all the supply, it is almost scarry. today, we learned 30 billion in one moment, the option tomorrow, 63 billion in three and six month bills, the whole week in its entirety, 235, 235 billion. >> remember this amount ever in your trading life? >> no, i don't. no, i don't. especially the coupons. >> how do you think it is going to go? >> i think it will go a while, the notion, anything in life, easy monetary policy under greenspan or mortgage rates being low, it is good until it suspect good anymore. >> who is going to buy it? >> i think you will continue to see the rest of the world.

today, talking about spain and italy, not in particularly great shape, you don't get that much of a yield enhance tomorrow buy their paper. 30, 40 basis points, better to buy the u.s. and a lot of investors feel that way. >> thank goodness for that 30 or 40 basis points. another reason you are with us in global hq this week, you will be hosting fast money this week, looking forward to that. >> tomorrow and wednesday and it is not going to be fast money it is going to be fast fast money. >> yeah. >> see you later, rick. thank you. another very busy week on the earnings calendar, not just the auctions calendar, verizon and honeywell out with the big names today. cnbc's mary thompson standing by at earnings central with details. >> blue chipper at&t, tell come giant reporting better-than-expected rules from wireless business, overall earnings, 63 cents, a penny from expectations, down by last year, company hurt by a decline in

spending by corporate client he is. overall revenue 17%, 16.87 billion, 27% gain in wireless subscribers, 300,000 net new clients for fios or bundled internet and cable service, offset a decline in spending by corporate and small business clients. honeywell fell 36% as the

rally have legs, he asked, should you put a healthy dose of corporate bonds in your portfolio? task force time in a moment here. that time of year, back-to-school season and it is a critical one, under way right now and we are going to go shopping for retail winners and losers. then in the power grid, when it comes to bone us ins, a deal still a deal? yeah. >> should you give it back? ready for the fast money "halftime report." i'm in the chair with the gang today. lots of options agos with home builders, stick around why. "power lunch" is back in two minutes. welcome to the now network. population: 49 million.

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so the dow may be down today, off 36 points, disappointment in verizon and honeywell. take a look at the three-month line there. dow up 12 almost 13% in the last three months. stocks on an amazing run, dow up 7% for the month of july. does the rally have legs? our task force is with us on "power lunch." joining us is brian place, president of place financial advisers and ned reilly, ceo of reilly asset management. welcome guys, nice to have you here. >> thank you. >> ned, you have been bullish be quite some time, bob pisani pointed out in his morning note, good results on the home sales report but traders sold into it, what do you make of that, is that just a one-day event, do you think or think this is the beginning of a profit-taking

trend? >> sue, predict short-term, i'm not in that business, the bottom line, i think, is the economy has improved dramatically since what we saw last march. i think a market where the skeptics are still very, very powerful in terms of their own thoughts. people do feel the recession is going to continue, i don't. we are coming out of it in the critical areas, a lot of liquidity on the sidelines, talk about the bond market before and treasury. people are hiding in short and long-term treasuries until they "see the light." normally, they see the light after the market moved 50%. overall, i think this market is going back to the old highs and the dow. >> obviously bullish. brian, are you as bullish as ned? >> yeah, i agree with ned. i think there's a lot of money still on the sidelines. i think that's what's offering support on a day like today where there was probablyreasons. there were reasons maybe we could give back some of the

gains but i think the .

>> all the ads for back-to-school. we were just down in north carolina, those kids start school soon. their back-to-school season goes out sooner than what you would consider the traditional time. retailers start pull putting the ads out sooner rather than

later. consumers back to the stores well. helen davis senior director of the national retail federation is joining us and expecting jeff klinefelter of paperoi piper ja. what kind of back to school season are you expecting this year? >> difficult no surprise, people spending about $550 on become to school compared to 600 last year. the average family is heading down 8%. as a result, retailers are cutting back on inventories as well. >> going to spend less but is it because retailers will be cutting prices anyway? >> certainly part of it, a lot of natural deflation happening now, especially in clothing and electronic bus parents say they will do more with less, kids wearing the same thing on the first day of school they wore on the last day of school. expect parents to postpone the cooler weather purchases until later on in the fall when they need jeans and coats.

>> jeff klein felter is with us, retail analyst for piper jaffray. jeff, you know there were probably going to be a few winners in this particular space, as ellen said, a very tough season. who do you think has the right mix of merchandise or bill's held up fliers, discounting approach to money they season? >> a value focus no doubt about that winners to date, kohl's, offprice retailers, ross stores, aeropostal, a great specialty retailer catering to teens and parents, more prudent parents, discount specialty retail in the malls. they are all going to continue winning and taking share throughout the season but think it is going to be a better year overall for specialty retailers. been down trending three years, that is important to keep in mind. economy rolled over a year, year and a half ago, a fashion recession for three years.

we think there will be natural replenishment that kicks n. >> a flier here for staples, for example, all about saving this would be one of the retailers we have to visit before the kid goes become to school, the big box retailers, department stores, you say they will be -- parents might put off buying the clothing. are those retailers that might find the toughest slogging here? >> that is part of it the other big picture i think we are not talking about here is college spending. the number of students living at home this year is up 20% over two years ago, the retailers that were expected to be affected by that are selling home furnishings and home decor, living with mom and dad you don't need silverware, microwave or extra long sheets. >> jeff, one of the things helen told us, a move for the drugstores to offer same things as staples and the like what kind of impact do you

>> i have got target here, as a matter of fact. i mean, every page it is savings. they don't just tell you what the price is but tell you how much you are going to save here as well. that seems to be the trend this year. thank you both. we will keep our fingers crossed for all the retailers this season. see you later. >> thank you. >> big showdown is brewing, citi energy trader said he is owed $100 million in a bonus, just one case where both the obama payczar and congress have to jump in on the wall street pay issue, is the deal a deal or not? sparks will fly in the power grid with ms. michelle in a bit.

also at 12:45 eastern time, ready for the fast money "halftime report" and through the magic of cable, michelle hosting that as well. >> higher despite better than expected economic news despite earnings from verizon and honeywell on stocks, how do you pros isser in the topsy-turvy market? heavy options in the home builder names where are the best bets and where should you be placing your bets and am jen before they report their earnings after the bell. i was in the grocery store when i had a heart attack. my daughter was with me. i took a bayer aspirin out of my purse and chewed it. my doctor said the bayer aspirin saved my life. please talk to your doctor about aspirin and your heart. i'm going to be grandma for a long time.

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>> he gets 100. >> you are assuming. you are assuming -- >> they can distribute as they like. >> what if he is getting 30% of the upside? by the wake the upside in 2007, this guy accounted for 10% of city's net income. me as a taxpayer i like the guy making 10%. that is a good thing. >> get rid of the guy who is making -- >> a great idea. >> let me answer the questions. then off. the rest of citigroup and citi bank is not profitable shouldn't be getting our tax dollars and spin off this profitable entity, the reality is, as of today, wait this entity is structured, he is part of a larger group. >> why would you want to spin off the part that's making money to -- >> i would rather have the part

that's not making money no longer get my money. >> i'm with you. julie, i agree with you, what -- >> i guy got it right. >> this was before he bailed out the crack, gotten wrong works have got paid and fired. mixing apples an oranges. he is taking a risk on energy, whether it is going to go up or down in very well thought out

risk compared to let's chop up millions of mortgages. we package them, shift them around like a table -- a little marble game and throw to them out. totally different -- >> you're saying energy arbitrage is not a risky proposition? >> everything is risky. you manage the risk. >> not sure -- [ all speak agent once ] . >> everything is a risk when trying to make money. >> right. maybage risk when there is no none. no money to make. it has to be managed, i agree that risk was out of control this wasn't. >> you know, look, i will say the following. i have absolutely no problem with this man collecting his bonus if you and i were not forced to pay for t unfortunately, the reality is and i feel badly for him, just signed his contract prior to this bailout but citigroup right now is almost a wholly owned

subsidiary of the taxpayers, over one-third is owned by you and me. >> one-third is not almost wholly owned. >> you know what -- >> this guy had a contract. >> let me say this, these guys should not have come to the taxpayers but filed for bankruptcy as you suggested. >> we can all agree. >> it is our fall fault we didn't make them rewrite the contracts -- >> the minute you agree that is when we end it. thank you. >> a little side bar to that whole thing. citi's former chairman was just appointed chairman of the lloyds banking group, he has landed on his feet. how about that? >> there is a power grid debate in there for you somewhere. >> what were they thinking? the guy in charge of that company to -- >> he has landed on his feet. >> unbelievable. >> we will take a break here and get this, another positive reading in the housing market. this is a big one. new home sales surge. the biggest gain in eight years last month. is this it?

have we seen a bottom? diana olick will talk about that in a moment. home builders reacting to that, lennar is up 57 cents, toll brothers a nice game, pulte and kb homes also on the green today. back in a minute.

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it was the economic piece of data of the day. investors getting more clues about the health of the u.s. housing market. key word there, health. diana olick is in washington with details. diana? >> reporter: bill, no question. this was a huge number today, beating the street's expectations by a lot. new home sales volume seem to be bumping along the bottom at least, but with a few cautions, of course. take a look at the numbers, if you will. sales rose 11% month to month to 384,000 units. keep in mind, though, that's very low volume. down from about a peak of 1.4 million at the height of the boon. median price down 12% from a year ago and that, of course, is driving sales. add to that a tax credit. but some stabilization of prices. the most important number is the inventory. down to an 8.8 month supply. and it's not just the increased

sales pace driving that number but real actual inventory number down in units. builders, of course, reacting quite nicely to the news with big bumps for the big guys. still plaguing the builders are increasing foreclosures. >> in a lot of places, the appraisers have not been adjusting for the fact that it's a foreclosed home in the sale or short sale. and we have even had cases where appraisals have come in 10% or to 20% below the cost of the construction of a new home. >> and that, of course, pushes prices down. numbers still the thorn in the side of the numbers but still good news on the home sales front today. for more go to the blog realtycheck.cnbc.com. bill? >> often you will see a surge in sales, if people start to anticipate rates will move higher. they want to good net before that starts to happen. is that what we're seeing here as well, do you think? >> absolutely. and couple that again with that first-time home buyer tax credit. the new home market, that is new

construction, really plays to that first-time home buyer because some of these are on the very low end of the price range. they are smaller home. when you look at the home buyer tax credit of $8,000, that is driving a lot of this activity in the center. that home buyer tax credit is going to expire on the 30th. people are trying to get in and get those contracts locked down before it expires in november. >> what about kay schiller tomorrow, the priority index. what are we going to see there? >> prices always lag sales. it happened on the way up and it's going to happen on the way down. you see the sales bumping up again but prices are still going down, unfortunately, due to the foreclosures in the market. >> that may be why sales are going up because prices are going down. >> one's feeding off the other, definitely. until you start to see real growth in sales finally then you will be able to see those prices bump up. then again the foreclosures are the outside factor weighing down the prices. >> thank you, diana. see you later.

still ahead as we continue, more important china talks with the u.s. and china going on in washington right now. when it comes to the economy, though, is china a friend or a foe? we will hear from the experts. plus, cash for clunkers. that program is off to a roaring start. what about all of the other incentives that are thrown in? is the auto business getting hooked on give-aways once again. up next -- solid economic news but the bulls look a little tired after two strong weeks. how do you make money in this market right is nnow? undefeated professional boxer floyd "money" mayweather has the fastest hands boxing has ever seen. so i've come to this ring to see who's faster... on the internet. i'll be using the 3g at&t laptopconnect card. he won't. so i can browse the web faster, email business plans faster. all on the go. i'm bill kurtis and i'm faster than floyd mayweather.

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esesesesesesesesesesesesesesese. and welcome to the "fast money" halftime report, getting to the heart of the action as it's happening. the market is flatlining today, disappointing earning results outweigh expected housing data? where is the smart money going to work today? let's get the word on the street, our "fast money" crew, liquidator, joe and katie stockton and an options trader in action. joe, what do we make of what's happening today? just the pods that refreshes or people really deeply disappointed about the earning numbers today? >> first of all, michelle, welcome aboard. >> thank you! it's exciting to be here. >> it's going to be a lot of fun. listen, when you have new home sales to come out and show the

improvement that it does into a market that's been rallying and yet the market does not respond, what does that tell you? it tells you, folks, it's time to step back. it's time to do some selling. we are losing a little momentum in the rally. it doesn't mean the rally is over. we are losing momentum. >> john, do you agree? what do you see when it comes to the options action and volatility from here on out? >> i think short term, michelle, joe is right. we will see a little profit taking here. we could see just as easily turnarounds this week. today's earnings, verizon was not really a big story for me. i think it's light-selling pressure and that's why we're sideways in the market. >> katie stockton, what do you think is the next move? >> i think lower this week based on widespread short-term overbought conditions, if you look at the components of the s&p 500, about 75-plus percent are overbought. >> here's the thing, almost all of the technicians i talk to say they're overbought. >> it does feel like that.

but overbought conditions, when they matter, is when short-term momentum starts to fall off. we just vice president had the c -- haven't had the catalyst for that yet. >> let's talk about new home sales. sales coming in much better than expected. that sent home builders higher. mike, you were seeing options earlier? >> a lot of the options activity we are seeing in the space started last friday. the xhb, the home builders etf, traded eight times its average volume and it was pretty bullish. and ahead of today's number, that looks like a pretty good bet. and in fact the options activity in all of the home names was really, really heavy. it was last week. it continues to be. what's interesting to note about it, it's probably a little more guarded in the individual names than it is in the etfs. so i caution before everybody gets too enthusiastic about what the implications are with the numbers that came out today and with the activity that we are seeing, this means we're on

automatic pilot. >> i was going to ask, is it a trade in here or is it too late? >> there have been a few, michelle. standard pacific, for instance. that stock is up 40% in the last five days and that's one of those stocks that mike's talking about when he says, you look at the etf, you get broad exposure. individual stocks are going to outperform or underperform. that was a $2.50 stock five days ago. it had a significant -- >> if i own staundard pacific, what do i do? buy a little protection on the downside? >> you can do that. it's a very cheap stock, michelle. sell, get to the sidelines and wait. i think you might get some opportunities in the other home builders with earnings later this week. >> what we are seeing a lot of is i think everything -- with the rally that we had, a lot of people are looking to purchase something to protect themselves or if they are going to continue to take a bullish tact, looking to buy an upside call. volatility continues to come down and in this sector overall, it makes it a little less expensive. >> let's talk about aetna, next trade.

that's getting hit today. falling over 5%. it was down over 12% in the premarket trading. the company reporting a 28% drop in second quarter profits and cutting its earnings outlook for the second time in two months. jon, what is the play right now? >> i think the play is let it fall back down to the 12% that it was down in the premarket before you buy it. i think the activity here in this one, health insurance, not strong. you look at the polar opposite, hartford group going into earnings later this week. this stock has had a significant pop to the upside. so hague not a pig. aetna's the pig. stay away from aetna until it furthers back. >> michelle, what does it tell you? >> aetna is tethered to its moving average. fairly neutral. today's action is pretty meaningless on the chart. >> joe? >> also keep in mind, was aetna fundamentally the marginal decline which most of these entities realized in 2008, aetna put that off until 2009. you also clearly have a fundamental challenge if you're

going to own aetna. i agree with jon. this is not a stock you want to touch until it moves back down to $20. >> speaking of health care names. time to take your position. amgen is on deck to report profits of $1.16. should you buy ahead of the results? joe, are you playing this name? >> you will see, michelle, from doing the show with karen that i liquidated amgen, got stopped down to $41. i told karen, you have to buy the stock. you have to own amgen. biggest, phenomenal company. don't think you're buying it ahead of earnings. the late-stage trial of osteoporosis drug is phenomenal. >> that's what worried me about the stock. it had a huge move so far in july. isn't it already in there? >> what it has done, as a trader, you want to see if it sustains the move. it sustained the move above $60. it is phenomenal. it has not pulled back like a lot of the names have done in the months prior. the ability to sustain above $60

tells you. fundamental and tech strength. you got to own it. >> he's bull there. time to move to the chart of the day. oil is holding steady, $68 a barrel. katie, you think it may be overbought at these levels. what is the chart telling you? >> crude oil, like the broader level, is overbought. longer term, we have a round base in place, very positive. fielding a low-term target of $80 in range. i think that's still attainable for crude oil. short term, of course, it is overbought. right up near the 200-day moving averages. i think it can pull back into the low $60 per range again for better buying opportunities. >> she's looking at the charts. joe rs fundamentally, what do you think? >> fundamentally, oil is still clearly challenged, michelle. there are a lot of barrels out there. keep in mind tomorrow cfdc begins the hearings on speculation that will enter the market. and i do believe that will keep the rally under control. >> because you're worried about government intervention in there and controlling -- >> clearly. >> the margin levels and the volumes, et cetera? >> the whole thing.

>> jon and jerry, i bet you love that? >> i do. but i don't love the government's getting into it. i know they will have to take a look. i agree with joe 100%. when that happens, look for the cmec stock to get hit and crude oil to get hit. i think speculation is pushed aside with the chatter. >> okay. the euro hits a seven-week high against the dollar. investment appetite for riskier assets rising. does that mean the dollar will be left in the dust? let's bring in dennis gartman of "the gartman letter." how do you explain this today? >> the dollar has been under pressure for a period of time. and it matters which currency. the dollar is strong against the yen but it's weak against everything else. that trend has been there for almost a year. there's no reason to think that's going to change. if you have to be a buyer of any currency, buy the euro, buy the canadian, buy the aussie. by the countries that create and

mine and send out raw material. >> even with all of this talk about the economy getting less bad, the home sales data out today, which really cheered people. it means some people think that we are seeing a turn in the economy. "newsweek" has declared the recession is over. you may think the recession has just begun, knowing the way you may think, but if that's true, doesn't that help the dollar? >> it does help the dollar a bit but not much. the dollar has risen during periods of economic strength. the dollar has fallen during periods of economic strength. it's really quite interesting. interest rates have a greater concern or a greater driving motive force behind the currency movement than does economic activity. that's what history tells us. so even though i think -- and i've gone on record saying i think the recession has ended, i don't think it has a great driving -- or is a great driving circumstance for the dollar. >> dennis gartman, joining us on the "fast money" line. guys, stick around, on tonight's "fast money," we're going to go outside the stocks and tell you what the bond market is saying about the week ahead in

equities. coming up next, "power lunch" has your survival for the economy.

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welcome back to the "fast money" halftime report. time for your power lunch trade to go. joe, what are you watching the second half of the trading day? >> michelle, tomorrow valerio, they have been getting obliterated. priced armageddon. pete and i have talked on the

show. we have taken the other side on the trade. the trade is to look to names like front ooesh oier oil. fto. don't look at valero. i do think you want to look at the refiners for that unwinding the bearish sentiment that has depressed the entire sector. >> we watched oil reapproaching 70 here. time to call the close. around the horn, buy or sell the close. buy or sell? >> i'm going to be a buyer at the end of the close today, michelle. >> katie at mkm? >> i'm a seller at the close. i think a lot of stocks are bumped up against right very important resistance level. >> buy, sell, all right. what are you doing at the close? >> we will get a complete mix. i tend to be more agonostagnost. i'm not a day-trader. but the volatility, the price of options is coming in. i think now is a good opportunity to start taking a look at where people become complacent, where options are looking cheaper than where

stocks are actually trading. i'm not making a direction alphabet on the market but looking for cheaper options. >> lower-priced premiums so to speak. >> that's right. >> joe? >> great answer. here's what you do. going into the close, the high-beta names, those are the names you want to reduce your position. i think the market goes higher overall but reduce your position, high-data names. >> we have a buy, a sell, two mixed discussions. all right, thank you, guys. that does it for the halftime report on "fast money." we will talk to andrew lowe and what he calls his hedge fund for all strategy. coming up next -- president obama meeting with china's economic team today. when it comes to the economy, is china a friend or a foe to the united states? "power lunch" has that debate. sue, did i talk about the numbers? >> i think you did fine. and you're going to join us again in just a couple of minutes when we will talk about "newsweek's" cover story. it says the recession is over. but what are the caveats regarding that recovery? the article's author joins us

live. also ahead, two car dealers faced off on whether the cash for clunkers program is a good deal or should be junked. and ben bernanke's town hall meeting. there have been 179 former bond defaults this year through july 17th more for the total of all of 2008. investors are pouring records amount of money into muni bonds, with $904 million last week. and charles schaub cfo's said his company will not settle with regulators over sales with auctions of securities as others have because he said it will set a dangerous precedent. that cnbc news now. i'm courtney reagan. welcome to the second hour of "power lunch."

we all have to talk much faster now. >> she did really well with that. >> i'm bill griffeth. better-than-expected new home sales, much better than expected, has failed so far to lift these markets today. verizon's quarterly results probably weighing a bit on the dow. but bank of america, alcoa, ge are among the blue chip winners so far today, sue. >> i'm suha raria. the obama administration talking about strategic talks with china today. but whether it comes to the economy, is china a friend of ours or a foe? two experts weigh in on that. >> and senator chuck schumer telling the s.e.c. if it won't curb high-frequency trading, he's going to do it with new legislation. what does the nyse's head of global markets have to say about there? he will join us live. and they are beginning two days of high-level talks on the economy hosted by secretary geithner and secretary of state hillary clinton.

hampton is live for us. >> reporter: hi, sue. president obama joins his secretary and secretary of state for the opening of this strategic and economic dialogue with china. both the president and treasury secretary are pretty much on the same page in their message to the chinese -- when it comes to the economy, it's time to rebalance the u.s./china relationship. >> as americans save more and chinese are able to spend more, we can put growth on a more sustainable foundation. because just as china has benefited from substantial investment and profitable exports, china can also be an enormous market for american goods. >> china's success in shifting the structure of the economy towards domestic demand growth, including creating overall growth for consumers, will be a huge opportunity to bring about a more rapid but more responsible and sustainable global recovery. >> secretary of state clarett and geithner will lead

discussions and the top diplomat in national security expert. china is america's top creditor, holding more than $768 billion in u.s. treasury securities. top chinese officials did not mention their concerns about trillion dollar u.s. budget deficits and the possible impacts on the dollar. vice premier wang choose to emphasize the positive, talking about global cooperation between the superpowers in stemming the crisis. >> translator: thanks to the posing measures adopted by the u.s. government, the market fi markets are also stabilizing. >> the u.s. wants china's cooperation in leading global financial reform, as well as chi climate change. the two countries recognize their differences. president obama talking about human rights. a top chinese official saying china will never be the u.s., and the u.s. will never be china. sue? >> thank you very much, hampton. before we go on to talk about this, bill, you were

mentioning the tip auction. >> the 20-year tip auction, the results are in, 2.378% is the coupon. i'm trying to get a read on what the nontips, what the treasuries are doing to this now. the bid to cover ratio is 2.27. santelli is not around to give us perspective but that sounds decent for a tip sergeant. you will not get the fireworks and a treasury auction. but this is the beginning, as we mentioned earlier, of a record $235 billion that will be auctioned off by the federal government this week. >> that we hope a lot of people who are buying will be the chinese. >> exactly. >> because they've been diversifying out of the treasury market a little bit, which we're going to talk about right now and other things. because when it comes to our economic interests, should the u.s. consider china a friend or a foe? some thoughts now from our panel of experts. former white house economic adviser daniel rosen, now a principal and former secretary of commerce, robert shapiro. nice to have you here,

gentlemen. appreciate it. >> great to be here. >> dan, i will start with you, if i could. does it have to be friend or foe, or can it be a little bit of both? >> well, it's certainly going to be a lot of both. the thing about that question is it's up to us to decide what the answer is. if we do the management of our economy that we need to, we will make china a friend. and like wise, if china does the adjustment we have been talking about for years, they will make themselves a great customer for u.s. goods, and they will put themselves in a position where they're naturally a partner to us. >> are you talking about the currency adjustment? >> currency is a side issue, especially at this dialogue. it's something there. currencies are meant to adjust. i'm talking about china's domestic interest rates. that has a big impact on how much chinese households have to -- to consume at the end of the day. the bad news is that china's not going to adjust anything for altruisitc reasons to help us out. the good news is, everything they have to do for their own domestic imperatives and reasons is the stuff we need them to do in order to be a partner to us.

>> robert, jan said we have to take care of our financial house in order to have -- to make the decision whether or not china will be a friend or a foe. how do we do that when we're doing $235 billion worth of government borrowing in a week? >> well, what we have to do is take care of our longer-term fiscal situation. that's what bothers china. china is certainly not bothered by large deficits in the midst of the worst global and u.s. domestic downturn in 80 years. i think she's grateful for that. in fact, china was the country which stimulated the other country, besides the united states, that stimulated very early and they had a very large scale. whereas europe lagged far behind both in scale and in timing. so i think what they're looking for is some indication that -- that the administration and congress will address the long-term budget deficits in the way of clinton administration did in the 1990s.

>> dan, you dismissed the currency question. for a time, that was front and center in our relationship with china. what happened to that? >> currency has been a big issue over the past five years because it's relatively easy to talk about. it's something you guys talk about and see every day. it's pretty easy to get the number. you can come up with a fairly good estimate of how much it's undervalued, say, against the dollar. the story there is maybe 20% today. the reason why it's not getting singular attention right now is over the past 18 months, it has moved in the right direction. and moreover, because even if and when china's currency does more fully adjust, that's not really going to change the fundamental, structural problem that we have with one another in the long run. >> all right, gentlemen, thank you very much. it will be interesting to see what, if anything, comes out of these talks. let's go to rick santelli. you had a chance to read the tea leaves on the latest tip auctions. what does it read like? >> it reads like a b-plus. last time we auctioned off the tips was in january.

it was 2.50. this one had a yield of 2.387. here's something interesting, with only 1120-year tips auction, this has the highest bid ever at 2.27. hence, it was good. in the upper end but not spectacular. however, if the yield was not as high as last time, maybe there's less expected inflation concern but the demand side still shows there's a lot of investor interest in tips and the credit worthiness to go with it. back to you. >> isn't that interesting. thank you, rick, very much. the good news, the recession is over. can you feel it? it's all according to the latest cover story by "newsweek" magazine that leads to the question, what is this recovery going to look like? let's ask our buddy dan gross, senior editor of "newsweek," who wrote the story. and you pointed out that the kind of recovery we're going to have will be different because this recession has been different from past recessions, right? >> different and a little similar. we forget, you know, the last recession ended november '01.

we stn to lose payroll jobs through the middle of 2003. when the jobs came back, they were largely fueled by housing, which was itself fueled by a lot of stimulus. we -- the gdp may start to expand. bernanke said that. some of the forecasters i trust the moek, macroeconomic advisers, research institute, alan blinder in friday's "the wall street journal." just mathematically, the depth of the decline in the first half of the year, we will get incremental growth on top of that. the question is, what does that translate into in terms of the jobless rate and people's pocketbooks? i think, you know, judging by recent history, ie, the post '01 expansion, and given all of the head winds we have, problems with credit, the fact that the tool -- >> it's just like ben bernanke said last night, we're going to have growth but it's not going to be enough to offset the decline of unemployment. >> absolutely. >> what about, dan, the fact that a lot of people think that even when we do get into a sustainable recovery, that people's habits have changed

dramatically because of the depth of this recession and the fact that it was led by housing, and that fundamentally, things are going to be different. the economy, its recovery, and as we go on, things will be different because people have changed their habits. >> well, i'm now old enough that i have written the americans are going to start savings again after three recessions. the first one was i think 1992. >> but they have started saving more. >> they have started saving more. this will, i think, have more lasting impacts. we have had periods after 1929, people basically refused to invest in stocks for a generation. >> exactly. >> i think this will be somewhere in between that. people have to buy homes. are they going to be speculating on homes? probably not so much. >> dan, explain the cover to me. why a balloon? i got worried about something popping here. is that -- >> i just provide the text. that's all i do. >> but it is a balloon with a -- >> don't open on our pr director now. careful. >> the idea this temptation to sort of say, okay, the recession

is over, therefore, we're going to go back to 2006/2007 with high levels of growth, easy money. let's not get too excited about that. we're going to sort of burst that balloon there. because we are going to have -- until something materializes, the next thing that is going to stimulate widespread growth, which we don't know what that is yet, we're going to have a long, hard slog. >> all right. dan's with us for a little while here. how have you been? >> me? i'm fine. can't complain. >> actually, we're going to let him go. he's got a lot to do. >> take care. >> he's got to talk to the art director about the cover. the markets, trying to struggle here. a little profit taking but have you to love the stats. the dow, nasdaq, s&p all up 12% in the last two weeks. we'll round up all of our stars to take the realtime pulse of the markets gains in the home builders.

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dow jones industrial average lowered by 26 1/2 points, 9,067. some people will say lackluster earnings. other people will say, boy, we had a huge run. of course, you're going to take a break. >> let's face it, more sellers

than buyers. thank you for joining us, everybody. let's get to our market reporters now. beginning with bob pa sani at the new york stock exchange. >> good to see you again. stocks are showing some resiliency. we started high. middle of the day sold off. 80 points on the dow. we have been rebounding off that. here's the important thing. tech sell-off after 10:00 eastern time, they were a market leader. there are other sectors doing well today. in other words, there's a little bit of rotation going on. you know about what's going on with the home builders on the better-than-expected numbers there. they never dropped at all today. those stocks are sitting not far from their highs for the day. take a look, for example, at banks. haven't said much. a lot of the regional banks doing great. look at the gains, 10%, 9%, 5%. despite concerns about credit deterioration. we certainly heard that from regions financial. that was a major issue weighing on all of the regional banks. they are bouncing back here today. here's the one thing i'm a little worried about, first, the

cbo volatility index, up 7% today. we had this great, bill rally in the past couple of weeks. a lot of people are looking for a pullback. here's where you would look for it first, if the volatility index. i will talk more about that in the next hour. even techs are coming off their bottoms. >> techs did lead the sell-off. could be taking a little off the top on the 12 or 13-day upside run. also an early morning downgrade to amazon stock by bws financial. they cut amazon to sell. a head wind, if you will, against technology. can you see it showing up perhaps more substantially. it took a little while, i think, from the market to digest that news. yahoo! down 3 1/2%. google down by more than 1%, though ebay is up a couple of percentage points today as it's making changes to its listing business. and microsoft, after the disappointing earnings report last week, microsoft shares off 2%. it's definitely a wait on the nasdaq and wait on the overall

market today. let's go down to r.j. at the nymex. >> we are seeing lower prices lower fractionally right now. low volume here. on top of that, some consolidation. it is, of course, the end of the month. so traders are doing profit taking here and just consolid e consolidating their positions. it's been a huge month as far as oil prices are concerned. near three-week highs as of early this morning. obviously, they're off those highs because they're trading down now. but an important thing to keep in mind here is as investors look at how to invest their money and basically diversify their portfolios, they have been moving more and more into energy commodities as an asset class but the more we see energy commodities move in trend with stocks, the less diversification there appears to be because they tend to be moving in tandem. sue, back over to you. >> thank you very much, rebecca. all right, mr. santelli is back with us ahead of his "fast money" report tonight. >> tomorrow night. >> that's right. you're tonight. he's tomorrow night.

get it straight. >> can't tell the players in the program. >> we can't today. but you know what we can tell, there was pretty decent appetite for the auction today. but we still have a lot more to go. >> we do. >> and there's some worry because it's the middle of summer and things are a little light. do you think that will affect the auction or not? >> no, i think it won't. and i also think the 20-year tips is kind of a odd one. most of these get purchased and go into portfolios. they don't have the same trading enthusiasm. but no matter how you slice it, it's reopened, 19 1/2 year and went tremendously well. >> we just talked to dan gross. "newsweek" says the recession is over. does the treasury market act like the recession is over? >> the treasury doesn't care if there's a phrase or sentence uttered the recession's over. >> does it reflect a contraction or not in growth rate? >> i think it shows there could be a dark side. if truly we see more risk appetite because of sentences like that, i think ultimately, if you bite more risk, you're going to be maybe less apt to be in the treasury arena. >> last week we saw that. >> on the yields -- doesn't a

steeper yields curve generally tell us we're going to get growth? >> it does traditionally. but how can we make that interpretation when we're put on a record amount on the long end ever. there's dynamics whether it's reversing the conundrum that i think makes those rules -- >> you agree at this time? >> yes, i do. >> i agree with you. but if things were, you know, typical, let's say, wouldn't this be the first time in a very long time that the stock market and the bond market are telling us the same thing? do you remember, sue, how often we talked about, boy, the stock market is rallying but the credit markets are acting terrified. always been a leader but right now their telling us the same story. >> we are in the high 260s and 10 minus 2s. many of my trading buddies think it will go to 300. you're right. normally an upward sloping curve means the market is sensing inflation because there's grab in horsepower.

what if there isn't a lot of inflation because there wasn't a lot of consumption? what if it's all about the notion if the numberses are so large, we have to demand a concession and pack it in a higher yield on the longer end. >> the risk appetite, michelle and i talked about what was fueling the rally was the repricing of risk and the risk appetite was back. you buy that? you don't buy that? >> i don't really buy it insofar as there's always going to be a crowd but i think especially the equities side. i don't know if higher prices in equities means it once did when the gains were in place. >> oh, here we go. >> true as it is, you know, 70% is fast money momentum trading. >> we like fast money. you like fast money. >> he's just getting warmed up, folks. can't wait to see you on "fast money" tomorrow. >> thank you, rick. straight ahead, this was the first big weekend in the cash for clunkers deal. it went gang busters apparently. is that program going to jump-start sales or is it another giveaway that will

backfire? we will talk to two dealers who see things very differently. if you were with us last week, we had a great debate about high-frequency trading. there was a firestorm about it. quet is, is flash trading actually front-running or the wave of the future? the nyse will weigh in on that. snooi

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get the picture. minor declines for the market. we are focusing on the automakers for the clunkers for cash or cash for clunkers

program. for tod ford today is up about 4-plus percent. honda down a little bit. >> let's talk about clunkers. this past week was the first time whether we see if sales get juiced or not. they have been running at their lowest level in three decades. will we finally be able to pass the 10 million car sales mark? let's bring in two auto dealers who can dell us what they sound on the weekend. he owns several volvo and honda dealerships throughout florida. mr. wescott, let me start with you. did you see more sales because people knew if they brought in their old clunkers, big suvs, that they would get a tax break if they bought a new car? >> there's been a lot of interest in the last two weeks and i think a lot of dealers around the country have sort of presold quite a few. in our case, we have been nine or ten that will sell or deliver today. >> presold. in other words, people came in, in the last two weeks.

i know this is coming into effect on x date. don't book it until after i can get my tax break? >> well, we couldn't really deliver it because the rules didn't come out from nhsta until friday and basically took the dealers to today to register online with it. >> that's nice. what do you think of the program with the new rules? >> well, can you see the rules? >> hold them up a little higher and we will bring you on camera here in a second. too many? >> that's 136 pages. >> okay. >> fascinating reading, i'm sure. >> you can't imagine. it's a lot of fun. >> what's your point? is it not working? >> well, i think it's a waste of money, personally. >> why? >> well, i don't particularly want my daughter paying for it. i think that we're starting to see the economy come around. i would hate to see people out there buying cars just to be buying cars. >> wait a minute. you're a car dealer. you're a yes, man, by definition. shouldn't you say yes to any

program that comes down the pipe that can potentially bring new customers into your new show rooms at a lousy time in our economy right now? >> do you feel like you should be paying for it? >> those are two different questions. answer the first question, did you see more sales because of it? >> no. we've seen a lot of people in asking about it, talking about it. we weren't registered. we belong to several of the neda 20 groups,having polled abe lot of those people, a lot are not going to do it. if you look at the actual numbers, $15,000 -- i'm sorry, 15,000 dealers participate, that means that's only 12 cars per dealership. nobody knows -- the rules are at what do you call it, freluid? >> what do you think of that, mr. wescott? do you have any of the same concerns? >> i think it's a multipurpose

program. one, it's going to help consumers with up to $4,500. two, it's going to help stimulus the economy, stimulate our industry. three, it is going to be an environmental program. so i'm excited about it. >> 12 cars. what's 12 cars for a dealer in a year? is that a percent small percentage? is that a large percentage? especially considering the drop in sales we have seen. >> i don't think you can use that deviser. there's a lot of high-end ferraris probably won't count. they're not going to get you in a fuel economy to save and probably won't qualify. and it depends what that individual dealers does. >> i will give you the last word, mr. dingman. but i'm going to guess given your attitude so far, you're not out there pushing your salesmen on this program? >> no, i'm not. i think -- the one thing that people need to bear in mind is when you go out to buy a car, look at what that car is going to be worth when it's paid off. all of the lease companies and

everything, they all go by the alg book. that's what they need to be looking at. they need to know what they're going to have when the car's done, over with, paid, down the road, and how much it's going to cost to maintain the car. you shouldn't just be going out there buying a car for the sake of buying a car. don't get me wrong. as a capitalist, i'm perfectly prepared to take your money. >> there you go! that's what we expected to hear from a car dealer. come on. >> but i would add that i don't know if you people can see this or not -- >> the old rules? >> no. this says, the declaration of independence and the constitution of the united states of america. it says in here, "nowhere i'm entitled to money off on a car." >> okay. very good. >> thank you both very much for joining us today. >> fascinating. >> this will be interesting to see how it works. >> he's certainly one of a kind for a car dealer there. when we come back, you probably heard a new boss at the helm of a restructured nbc

universal television division. how does he plan to navigate a changing business climate in a challenging economic time? we will talk with jeff gaspen himself here. and just a few moments from now, mr. bernanke's agenda, is the fed chairman campaigning for another term? if that's the case, how is he doing?

welcome back. in the headlines at this hour, verizon plans to reduce its workforce by 8 oorngs people by the end of the year. boeing shares are lower after getting cuts from equal wait to overweight at barclay's capital. the price cut from $40 to $60 because of additional delays in 787 dreamliner jets. general motors treasurer saying they expect additional money from the energy department. in case you haven't heard, nbc universal, which cnbc is a member, of course, is bringing its broadcast and cable companies gaspin, who will be named the president of nbc universal entertainment. at the same time, executive ben silverman will be leaving the company to form his own production company, along with

barry dillard iac interactive. jeff gaspin joins us live from our l.a. studios, along with our entertainment correspondent. jeff, thank you for joining us. >> thank you very much. >> you have probably seen the wire stories today. the spin is after two years bill silverman was unable to bring nbc primetime out of last place, so you will be asked, sir, how you plan to do it and how long you give yourself to do that? >> you know, i'm certainly not going to set any timetables. what really is happening is a consolidation of all of our television assets under one r f roof. the goal really is to find ways to monetize our content assets as best as possible across all platforms. not just nbc, not just our cabl assets, not just our syndication and distribution marketplace, but across all platforms. >> have you been running the cable business, which is doing much better in networks as far as advertising.

and you have revenue from subscriptions. what does the combination of cable and television say about the business environment? >> look, the cable business model has of late been a more superior model than the broadcast value. and there's two streams of  revenue, subscription revenue and advertising revenue. in broadcast, it's primarily advertiser revenue. and with the current economy, with the current marketplace, with the penetration of dvrs in the homes and people watching and fast forwarding through commercials, that advertiser-supported model is challenged. so we can't change that model overnight. so what we're going to have to do is we have to take nbc as a platform and cable as a platform and try to get more benefit from both. >> i'm sorry, julia. the sense i get, jeff, is that seeing this from the inside as we do here at cnbc and watching the evolution of nbc and the new

media that we keep incorporating into our business model, the sense i get is that nbc primetime is less important than it was to this business model from some years ago. it's still very important but not as important because of the growth of the other parts of th business model right now. am i right on that? >> right. it's less important to our bottom line because we have other assets that have covered some of that. cable in particular has done incredibly well. it's still a very valuable component of our portfolio, and we need to make -- to get more value out of it. we have been faltering a bit in the past, and it's still the only place you can aggregate as large an audience at any given time. >> i hate to ask a backward looking question. michelle here, if you would have been in charge, would you have done the jay leno move? >> absolutely. i love the jay leno move, and i will tell you why. for many years, all three broadcasters have been offering the same thing to the audience,

dr dramdy, procedural dramas, complex dramas. and you know what the audience has done, they've gone to their dvrs and watched shows they have recorded. they've gone to cable. now the broadcaster, at least one broadcaster, us, nbc, is offering the viewer some alternative at 10:00. i think it will be good for all of broadcasting. i think abc and cbs will benefi a little bit for some viewers that want to watch scripted  content. but i think nbc can really benefit because we're providing a true alternative to the broadcast audience at that time. >> julia? >> you also oversee syndication of digital distribution. lately there's been a lot of talk about monetizing content online. do you have any thoughts or strategies in terms of how  you're going to try to create sort of what jeff zucker referred to as digital pennies or digital dimes and analog  dollars, to create a digital dollar revenue stream out of al of that? >> you know, the marketplace financially hasn't caught up to everything that we're doing, but it will.

right now supply is a little greater than demand. as the consumer and as the advertiser realizes the value  and the connection that online  viewing makes for this audience there will be more demands. we will be able to monetize our sites more and those pennies will turn to dimes and will tur to quarters. will they ever turn to dollars? i'm not sure. but it's going to be about the whole equation, all of the pieces of the puzzle, not any one place. >> and the consolidation, shoul that help in terms of economies in scale or in terms of the relationship with advertisers across all of the platforms? >> i think that the  consolidation will help to the  extent that if i am trying to choose between several shows to put on nbc, we might now start thinking about how will that  benefit in the after market? will there be value for usa down the road to put that show on nb right now? because you have to realize, us is successful to a large degree

because of their original  programming, which the team has done very, very well there. "royal pain," which is the number one new hit show on cable this summer. they have done very, very well with that. but they also are reliant on acquired series that they get like "ncis," "house" and the  "law & order" franchise. we have not generated enough of those from the downstream model and we need to do more of that, so we can start thinking about  nbc as a funnel ultimately for those platforms. >> last question, what about in genre called reality tv, where, let's face it, we have tried to find franchises at nbc that will be long term, that can work for us, like a "survivor" or "american idol." we have now "america's got talent," but the question is whether it will be moved to primetime in the fall? what about development of more  reality tv, do you see that as a

long-term franchise for us? >> you know, my roots are in  reality tv. i'm a huge fan and supporter. "the biggest loser," which i believe is in its seventh or eighth is has done incredibly  well. it's on two hours a night. it's on in both the fall and spring. it used to be just one stim a  year. "biggest loser" is an asset for us. "the celebrity apprentice," i spoke with donald this morning. >> you sound like you're a  long-term proponent of that concept still? >> i am. we do "real housewives" on bravo and it's an enormous hit, all four franchises. the audiences wants it. sometimes it's a guilty  pleasure. sometimes it's just a great  show. >> that is a good way to put it. >> as we laugh guiltily here, yes, as a matter of fact. good luck, jeff. great lakes aga congratulations again. thanks for joining us.

coming up tonight on cnbc -- maria bartiromo talked to government and industry leaders to help solve a problem touching every american -- health care reform. >> there has to be a balance here because when i sit at a town hall meeting and listen to a grandmother saying how she's got to cut her pills in half because she cannot afford them, we've got to have a balance. the unfettered spending, and the unfettered ability to raise prices on the pharmaceutical drugs means that people are not going to be able to access care. >> don't miss michigan governor jennifer granholm, the head of the american medical association and dr. bill frist in "the meeting of the minds: the future of mshhealth care." that airs tonight at 9:00 p.m. on cnbc. the host, maria bartiromo. let's go to neverland. can you imagine alan greenspan taking questions from just plain folks at a town hall meeting? not a chance. but ben bernanke did it last night and he's also been doing interviews and writing op-ed pieces. what is his agenda?

is it fed transparency or more about his reappointment? >> can it be both? we'll debate both sides when we come back. one four star hotel.

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when four star hotels have unsold rooms they use hotwire to fill them, so you get them at prices lower than any other travel site, guaranteed. h-o-t-w-i-r-e, hotwire.com you have the "60 minutes" interview, you have op-ed pieces here and there. you have this town hall meeting he taked with pbs. fed chairman bernanke has been putting himself out there with more and more information, more transparency than any of his predecessors. but is this to give more transparency to the fed or is it just a bid to save his job? joining us with their thoughts on this, the chairman of cumberland advisers and cnbc contributor and professor at the

university of maryland. two of our favorite people. good to see you both. thank you for joining us. >> thanks, bill. >> what do you think? what's been up to? >> ben is doing what a fed chairman should do, which is explain monetary policy to a lay american public who do not understand its mechanics or purpose. it's too bad his predecessors didn't do it. the fact that he is doing it should be applauded. if he gets reappointed, fine. and if he doesn't get reappointed, fine. it's a proper thing for a fed chairman to do. >> okay. >> what do you think, peter? >> well, i absolutely agree in the sense that i think it's his job to tell the american public what he sees, what he's worried about, what he's doing about it and why. >> do you think there's another agenda, though? do you think it's -- he's trying to help his bid for reappointment or not? or do you think that's not on the table? >> you get reappointed by doing a good job and ben is doing a good job by discussing this. let me go on. if he has a town hall meeting, though, i think he then starts to cross the line because he has

to answer questions that he doesn't script, and he has to start justify administration policy, because -- >> he does that already, david. he already does that in front of congress. can i tell you, looking at these people last night, a lot of their questions were a heck of a lot better than the ones i see from congress. >> they are so much better than the ones from congress and that's why he ought to do more meetings. i was about to say peter and i agree, but it doesn't look like it. so here we go again. >> the issue is that when we get into the kind of crisis we're in now, the fed loses some of its independence simply by the circumstances. it has to cooperate with treasury more than is normal. so when he goes out to a town hall meeting, he's in a very awkward spot. he can't contradict the administration in the answers that he gives. >> let me throw this out quick. when alan greenspans with the w although many years, he restricted his appearances. what that served to do is

whether he spoke, when he spoke, we listened and it carried weight and moved markets and so forth. does ben bernanke risk reducing the currency of the fed by being out there too much, david? >> well, there is a frequency factor which dilutdilutes, but don't believe bernanke has reached that at all. and bernanke is now the hot topic and has been. look at "the new york times" sunday, you had a debate between anna schwartz on one side and rabiny on the other over whether you should reappoint him. it's a hot topic. the point is this, the fed chairman gets out the public season. they start to learn about monetary policy. he talks about the independence of the central bank. he relates to the history in his own studies. in this case, like peter, bernanke is a professor. he's been in front of classrooms. can he handle questions. he's comfortable with it. i think he should do more of it. >> peter? >> when you talk about campaigning, one of the things bernanke is doing is he's campaigning for the independence

of the fed. ron paul, i believe, has been observe ska observe skating and demagoguing the issue. they have been audited. its regulatory activities are audited in the same way the fdic's activities are audited. what is not audit sd monetary policy. bernanke is getting out with the facts that, that should be left alone of the just like we don't have the congress inspecting what goes on inside the supreme court, they shouldn't be inspecting what goes on inside the governor's room or the open market committee room when they're making monetary policy. >> all right. therefore, it's time to go. david, peter, good to see you both. thank you for joining us. >> thank you. >> you can call -- go ahead. >> that's like a fourth arm of gro government, if it's like the supreme court? that's the weird thing. >> these are interesting times. >> netherworld there, isn't it? >> you can call it high-frequency trading, flash trading. some call it frontrunning. call it what you will. it is setting off a firestorm. now a top senator is taking dead aim at it.

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senator charles schumer has asked the s.e.c. to curb the practice of high-frequency trading, also known as flash trades. in a move that raises the stakz on whether computer-driven trading really is give some investors an unfair advantage over others. we will hear from larry lebowitz. have you for joining us. >> thank you for having me. >> it's been clear to market participants in the last few weeks that some of the exchanges give to preferred customers advance looks at order flows, right? that's the issue that everybody's talking about here. do you guys do that? >> we do not do that, no. that's not a practice we engage in. >> so what's your position then when it comes to this? >> well, i think we have to be a little bit careful here. there's been a lot of talk about high-frequency trading. that really is very separate from this flash order practice. high-frequency trading is electronic market making and other practices that are actually very helpful to the

market. flash orders is a particular practice by which an exchange extend an order to a select group of participants before it goes out to the marketplace. >> you're saying you don't do that, is that what you're saying? >> that's correct. >> why not? >> we don't actually think it's good for the marketplace. we think there's a potential for information leakage. meaning other people who receive those orders have knowledge about the order. in the old days, the specialist in the new york stock exchange received that information first, and as a result we had heavy surveillance of thoses or. we don't believe the same kinds of checks and balances exist in the current system. >> i'm sorry. just to follow up on that, because that could be front-running. that's pretty obvious, isn't it? >> front-running is illegal. if anyone is front-running, that's illegal. it's up to the venue sending those orders out to police to make sure that's not happening. what we would want to make sure is that, that surveillance is in fact occurring. >> let's point out to viewers, maybe it's become obvious to them, you don't do this but many of the other exchanges do. so you would like to prohibit it, right? then they lose a revenue stream that you are not participating

in right now? ? we can just as easily choose to go along with the practice, as a couple of our competitors have. we don't think it's good policy. we like the s.e.c. to really look at it. and under the right safeguards, meaning proper surveillance, proper disclosure, not just to the broker but to the end client. so if you're an institution and you send an order to the broker, that you know they're sending it out that way, under certain conditions it might be legitimate. but it has to be surveiled to make sure that the information isn't being misused. >> what about those who say that it provides a liquidity factor and a volume factor that because of the downturn we see on wall street and the economy was missing, that it fills the need. you disagree with that? >> i disagree with it. i not providing a lot liquidity. and in fact in general, the electronic markets and the new york stock exchange markets, which has a specialist dmm market and other market makers, actually all of those worked

very well during the downturn. it's just that markets were finding the right prices. just a lot better than the over-the-counter market. >> mr. lebowitz, what about the collocation fees, where firms pay to have their servers sitting right next to the exchange's servers because that physical proximity actually helps them to trade faster and by default gives them another advantage over other people. do you guys accept collocation fees? >> sure. collocation has been a widespread practice in the industry for a long time. the important thing to understand is nobody who's colocated can see an order before it hits the marketplace. that's just never happened. what you also find is most brokers have colocated space. so that most orders that originate from an institution or a public investor, end up going through colocated space. >> having said that, we're talking about three different things here now. >> absolutely. >> chuck schumer is taking aim, it appears, at all of it under the umbrella of high-frequency trading. >> i think he keeps using the

word flash trade, right? maybe we're mixing it up sometimes. i have seen him use high-frequency trading and i have heard him use flash trade. >> in reading his letter, it's clearly designed more about flash trading or general order practices rather than the more high-general frequency trading which has been used in the last week or two. >> you agree with him? >> we have been on record as being opposed to the practice and thinking the s.e.c. should examine it. >> larry lebowitz, thank you for joining us today. >> you missed the big fight. >> i heard about it. >> you didn't hear about it? you could have heard it all the way in north carolina. >> i thought it was just more thunder and lightning. >> there was a little of that. >> we will be back with more "power lunch." getting ready for "street signs" at the top of the hour. welcome to the now network. population: 49 million.

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