with other strategies and back-test them all. multiple strategies. multiple stocks. over time. and i can look at that at the symbol level or have it charted out for me more visually. and i'm not trading on emotion... a buy here...a sell here... there you go. i just hit a buy point and strategy desk fired off a trade. once you trade with it... you won't want to trade without it. td ameritrade. independence is the spirit that drives america's most successful investors. announcer: trade commission free for 30 days plus get $100 cash when you open an account. no big sell-off but also no rally here. bob pisani, by the way, on the floor of the new york stock

exchange. excellent new home sales numbers. look what's been going on here. we've been seeing new home sales four consecutive months on the up side. existing home sales four consecutive months on the up side. case shiller home price index up two months in a row now. these are clearly numbers that indicate some kind of bottom is being put in. why isn't the market a little more impressed? maybe because we've already had a 4% rally in a month that is traditionally seasonally considered weak. august and september the two weakest months of the year back to back. traders have been trying to play the short end of this thing and they've been losing. so a lot of people have simply been capitulating to go along with the overall trade. we've got more economic numbers in a couple days. there's the bell. you know who's next, maria bartiromo. and it is 4:00 on wall street. do you know where your money is? hi, everybody. welcome back to "the closing

bell." i'm maria bartiromo on the floor of the new york stock exchange. stocks seesawing throughout the day today on wall street. investors really going back and forth despite strong readings on new home sales and durable goods. putting support under the market earlier on but it's been back and forth midday. general electric, parent of this company, declining to comment on a report that it is putting a security business up for sale. sources say that the business could sell for around $2 billion. oil prices falling for the second day in a row after a government report showed inventories were up by 200,000 barrels last week raising new concerns about energy demand as well as too much supply. here's a look at how we finished the day on wall street with the dow jones industrial average on the up side by five points. it was, as i mentioned earlier, much higher earlier on. new highs actually above 9,600. new highs through the year. and then in the negative territory just about 20 minutes or so ago. so very much a mixed picture. a billion shares traded here at the nyse with the dow finishing at 9,544. nasdaq was higher but just a

fraction. very much a mixed situation for technology as well as financial services. the home builders and the retailers doing well today. s&p 500 up a fraction, finishing at 1,028. we get all the action right now from bob pisani, our eye on the floor of the nyse. >> there are people who were a little disappointed today. they said we should break to convincingly new highs on the new home sales numbers. but look what's happened on the year, we've been up 4% already. for the month. when people felt we would be down for the month of august. in a sense the market's already anticipated some better news here. and i think that's really the takeaway. >> you have to believe the valuation starts scaring some people just because there are operators of business who have their eye on the ground right here and they say we're not necessarily seeing the robust exuberance that the market is reflecting. >> that's right. go out in middle america and that's exactly what you'll here, maria. >> and corporate america. >> and corporate america. let's take a look at what's going on here today. the important thing, new home sales were great. why was the market so tepid here? the summer leaders that we saw all throughout the last six weeks, the industrials, commodities, financials were the

weak names, and what about the telecom and consumer stocks? they've been the big laggards. those are traditional defensive names. they're up. why would the market be defensive when we're getting better economic news? some people are arguing have you looked at these financial names, looked at these high beta names like home builders in it's time to rotate out of them like maria was talking about and maybe play a little more on the defensive side. not exactly a negative call on the economy of the stock market but maybe a smart trading move. let's take a look at what would happen here today. here's your home builders. they were terrific. most of them sitting at new highs for the year. in some cases like lennar we're essentially back to the prelehman bankruptcy levels. that's right, back to september of last year. how about the telecom names? yes, they were all up here today. but remember something, volume was not particularly strong, nor was the volatility particularly strong, and it's summer. so don't make too much out of this. just note what's going on. the consumer staples were also modestly to the up side. coke, kroger, procter & gamble all those names here. p & g ended the day slightly to

the down side. cyclical names they've been waiting for notable breakouts in the big industrial guys. the 3m, caterpillar, deeres. but they haven't quite made it. we could have done it in the next day or two. today a bit of a setback. those financials, remember, the last several days, these three names, 25% of the volume at the new york stock exchange. for the first time citigroup didn't trade a billion shares. it's been around a billion for four or five days. that's kind of interesting. finally is there going to be a correction or not? that's the big debate. lazzo berini had an interesting note out for his clients. he said those waiting for a correction as a buying opportunity may be disappointed. mr. birini noted that in the rallies that followed the previous two recessions stocks did not correct. >> and he's got great research, laszlo birinyi. we'll see you later. we're getting more evidence that the housing market could be turning around, more good news this morning. cnbc's diana olick with more on the big surge in new home sales,

diana. >> that's right, maria. it definitely took the street by surprise another jump in sales this time new homes up 9.6% in july. and on top of that the june number was revised up. now, at that new sales pace inventories went down to a 7 1/2-month supply from an 8 1/2-month supply in june. that's the lowest level since april of 2007. the real number of newly built homes on the market today is at levels not seen since 1993. now, prices are down 11 1/2% overall year over year but prices are driving sales. >> we do think the housing market has found a bottom and it's bouncing along the bottom quite nicely, but there are some risks still out there. specifically the first thing is that the home buyer credit expirex expires at the end of november. we think the administration and congress need to look into extending that to support the housing market into 2010. >> i admit at this time in the afternoon i get a little bored reporting headline numbers so i went dwreerp into the report and got to see something on page 4

that i found very interesting. that is sales of homes that have not yet started construction, that is, empty lots, rose 33% in july while sales of completed homes, or spec homes, fell 6%. now, some believe this shows more confidence among buyers who are now willing to wait longer to close on homes, not afraid that they'll fall in value. it also shows that builders are focusing on new orders because their margins on the spec homes are much smaller. the builders are now putting up smaller, less expensive homes, and that's quhat what the buyers want, that's why they're focusing on these as opposed to the spec homes, which are still too big and expensive. for more go to the blog, realtycheck.cnbc.com. >> diana olick with the latest there. new home sales just one of the factors impacting trade today. joining me to break down the rest of the day's action todd salomon. scott wren, with wells fargo advisors. gentlemen, it is nice to welcome you back to "the closing bell." scott, let me kick this off with

you. what is driving the summer rally? cash on the sidelines? actual fundamentals? in your view, what is the motivation for this market moving higher? >> i think the motivation so far has been there is certainly some cash on the sidelines. i think that's really only come into play over the last four to six weeks. i think that's where we're seeing the chasers end here. the people who have missed that 50% plus move, i'm talking about professionals and retail investors. that's been a driver. but the market's done a good job anticipating the good news we're seeing now. and i think that's one reason why -- you know, bob pisani mentioned hey, we're not getting much of an up side boost after these good home sales numbers. i think the market anticipated that correctly and we're starting to -- the rally momentum's starting to fade here a little, and i think it's likely over the next couple of months we're going to see a little consolidation, probably a little bit of pullback too. >> consolidation, pullback. todd salomone, would you agree with that?

or would you be putting new money to work at these current levels? >> from a longer-term perspective certainly. there is a ton of cash on the sidelines. you look at 2000 -- beginning of 2008, for example, institutional money market funds, there was like 1.9 trillion. we're up currently to 2.4 trillion, which is down just a little bit from the 2.5 trillion at the beginning of the year. the good news is we don't have the professional investors selling en masse, and we've got them coming back a little bit into the market, but they're not fooling investors. short-term, though, yes, 1,000 to 1,05 on the s&p, major technical resistance, and we're going to bump up against this continually over the next several months, these key technical areas which are going to scare people but it's going to keep the cash in the sidelines and drieft market higher longer term. >> so how do you want to invest in this snfrt today we saw real action in the home builders. you have stocks like hovnanian, lennar doing well. even the retailers, going into the back to school season, the end of year holiday season is that where you want to be positioned?

>> well, maria, i think that probably if you were really light on your feet and you were a real trader you may have some opportunities here trying to get a little more defensive or something like that, but that's not what we're trying to tell our clients to do. we want them to look out 12, 24 months and take advantage of the opportunity to get more cyclical. you know, we've been pushing industrials. we've been pushing consumer discretionary stocks. they've worked well in this rally off the march lows, and think they're going to work really well in the next couple years as well. this consolidation, this pullback for us, we want to make sure that our clients are positioned for that next 12 to 24-month move. >> todd, what about you? what sectors do you like? >> we like the financials. home builders, consumer discretionary, strong price action in those groups, not crowded trades. wall street has been mainly pitching the quality names, the blue chip names that have underperformed, and we see great opportunities in these names via

short covering upgrades. that's where we have our money. and we'd avoid some of the crowded trades like gold and some of the other commodity stocks. >> you're avoiding gold and some of the commodities names. that's interesting even as you expect the economy to recover. >> that is. it's simply through the fact we think it is a crowded trade. if something were to happen we don't expect and there would be a major pullback, we could see those names taking the brunt of the punishment. >> gentlemen, great conversation, we appreciate it, thank you. scott wren and todd salomone, we appreciate your time. meanwhile, the nation smourning the loss today of long-time senator ted kennedy, who died of brain cancer at age of 77. cnbc's chief washington correspondent john harwood has a look at kennedy's legacy. john. >> reporter: maria, you know, health care's the issue we're all focused orrin now because it's so important to barack obama's agenda. ted kennedy called it the cause of his life. but in a 50-year career in the senate, nearly 50 years he's had an impact on so many issues affecting business and labor,

thes have and the have notes. in fact, president obama on his vacation today made the point that ted kennedy's work has made a huge impact on his own life. >> the outpouring of love, gratitude, and fond memories, to which we've all borne witness, is a testament to the way this singular figure in american history touched so many lives. his ideas and ideals are stamped on scores of laws and reflected in millions of lives. and seniors who know new dignity and families that know new opportunity, in children who know education's promise, and in all who can pursue their dream in an america that is more equal and more just, including myself. >> so let's look at some of those important achievements of ted kennedy's career. civil rights legislation, minimum wage increases, something business hasn't liked, the labor very much appreciates. education reform under president

george w. bush. but he didn't get everything he wanted and he leaves two bits unfinished business. comprehensive health care reform and immigration reform which he tried to obtain under president bush, was not able to do so. but of course people are looking at multiple aspects of kennedy's legacy, and as vice president biden today said, often politics in washington is very personal. >> i was talking with vicky this morning, and she said he was ready to go, joe, but we were not ready to let him go. he's left a great void in our public life and a hole in the hearts of millions of americans and hundreds of us who were affected by his personal touch throughout our lives. people like me who came to rely on him. he was kind of like an anchor.

>> and of course what democrats and the obama white house are now hoping for is to mix the political and the personal and get an extra oomph for passage of health care reform as ted kennedy's legacy. and we'll see, maria, over the next few months whether that will in fact come to pass. >> so many beautiful comments on both sides of the aisle for ted kennedy. thanks very much, john harwood. we've got this market,  meanwhile, on wall street up sharply in 2009. we continue to see the summer rally roll on. and even today when things were quieting down midday today the market continued to tha run if only just by four points or so. as you can see there. the nasdaq, meanwhile, eked out a gain on the session. that as well on the up side. even though that the nasdaq is up about 30% in 2009. the commodities index meanwhile has been underperforming the broader market, and that is the case just for about the last six months or so. it hasn't stopped china, though, from buying up everything from oil to crops.

continual stockpiling going on there. we'll talk about that and whether it's a sign of real value in commodities or whether china is taking on a risky investment. >> will firms jump into the dealmaking in we'll check it out. private equity and the fdic coming up. some people buy a car based on the deal they get. others by the car of their dreams. during the lexus golden opportunity sales event, you can do both. special lease offers now available on the 2009 es 350.

welcome back to "the closing bell." i'm hampton pearson in washington. moments ago the fdic approved new rules that will make it easier for private equity firms to buy failed banks. the key change -- lowering the tier 1 capital requirement from 15% to 10%. the standard for a well-capitalized bank is 5%. the fdic board says the policy change strikes a balance. the vote was 4-1. a controversial source of strength provision which would have put private equity investors on the hook for more capital if a bank failed, that provision was dropped. the fdic says these new guidelines will be reviewed every six months. maria? >> all right. that's an important development

there. hampton, thanks very much. hampton pearson is in washington right,000. now a look at the other stories we're following on the "closing bell" taker tonight. discount retailer dollar tree's second quarter profit was up 51%. the company made $57 million, which beat wall street expectations, as bargain hunting consumers helped drive sales, which were up 12 1/2% to $1.25 billion. dollar tree shares tonight up 5%. human genome sciences rallying today on speculation that partner glaxosmithkline could acquire the company to gain full control of their experimental lupus drug. it could be a multibillion-dollar blockbuster drug since it has been several decades since a new lupus treatment was received well at the fda asand getting fda approval. the stock up 6 3/4%. jpmorgan initiating coverage of comcast and time warner cable with an overweight rating today. the analysts telling clients the companies have more growth potential for voice and data

services compared to telecom companies because of low penetration rates. taking a look at the stocks right now you can see it was a mixed performance. china has been on a commodity buying binge recently, everything from base metals to agricultural crops. it's a bet on on economic boom in the short term or a long-term strategy. we get the stats with morgan downey, director commodity strajts strategies along with kevin kerr, president and chief trading officer at carat trading international. let's talk about the motivation for china. clearly china as well as the united states are the major consumers of energy and so many commodities. is this a strategy, morgan, to stockpile so they have enough of these kinds of materials for a rainy day or as their economy continues to transition toward further growth? >> well, i think there are three reasons for china stockpiling. you've got the national government in china is stockpiling copper and oil. and they're doing that in order to stabilize supply, to remove

volatility of supply. you've got the provincial government stockpiling a little bit of aluminum, nickel and zinc. and that stockpiling is basically to support local smelters in china who are hurt when prices drop too well. finally, the elephant in the room in terms of china is stockpiling by individual investors. i just spoke to one of my contacts in china. he told me that nickel is the new gold in china and that copper and nickel holdings by investors, private individual investors, actually probably equaled the amount held by the chinese national and provincial governments. >> but is this appropriate in your view? they don't necessarily need it today, right? >> well, i think that's -- given the volatility of nickel prices we've seen $10,000 per ton and $50,000 per ton all over the last three years in commodity markets. so given that volatility the chinese government's trying to stabilize commodity prices by building this inventory buffer

such that when prices rise too high they can supply the market a little bit and keep prices down, when prices drop too low they can purchase nickel off the market. similar to the way the u.s., we have the heating oil reserve in the northeast here. when heating oil prices spike during the winter, the u.s. government will sell heating oil into the market, and when prices are too low they'll scoop it up and buy it cheap. >> that sounds like a good strategy, actually. it sounds like a smart strategy. kevin, how do you see it? >> well, i see it the same way. i think it's important that understand, though, china has a ten-year outlook while here in the u.s. we're probably looking at a year, maybe two. they are planning for the long  term. they realize demand is going to come back, they're going to hav more demand than anybody else. they're trying to stockpile these commodities, picking them up when they're on the cheap. if you see what they're buying they're buying when the prices are falling and then they stop. today we saw them offer out an auction for soybeans kind ever in a way to at the time market we don't need your beans. i think the next thing they'll be buying is soybeans.

>> so how come the u.s. isn't doing that? >> very good question. i think the other thing china's doing is building these strategic partnerships with e africa, with south america -- >> with russia. >> with russia. i was just in estonia and talking to people will tl. those partnerships are clearly for the long term in oil supply and for agriculture in south america. they are doing these things and the u.s. and europe really are not. >> i would say that the u.s. is doing it. say for oils. china's building its oil stockpiles and it's now just up to 25 days of supply. the u.s. strategic petroleum reserve down in the u.s. gulf coast has 90 days supply for the u.s. we've got 700 million barrels of oil stornlgz on the u.s. gulf coast. >> that supply would only last us about 30 days i think is the -- if we were full of demand again. it's not really a long-term outlook. i'm saying china is trying to build these long-term strategic partnerships which we don't have. >> because they see themselves as a superpower and they want to

get back to their superpower stat sxus they're not going to let any shortfalls get in their way. what does this mean in terms of investing? >> in the commodity space there's going to be opportunity on either side. china's a smart trader, doing what they do best, looking when prices fall, buying the xhaeper commodities. i think it's a tricky time for trading there's opportunities on both sides of the market but i think longer term china's going to continue to be a buyer of these commodities. >> morgan, should we be as a country looking at this skeptically in terms of what china's doing, creating these new relationships, china-africa, china-russia? should we be afraid or skeptical of these new relationships away from the united states that the u.s. doesn't have any involvement in? >> that comes down to it's more of a political influence type of decision. i think china's going to get the resources that it needs to grow, whether it -- we like it or not. we're competing on the international stage with china for all commodities, and i think the free market and the best

price will win it. china can pay more for oil or nickel or copper than we can in the u.s., then that's where the supply will go. i don't think necessarily the strategic links are going to deny the u.s. commodities if we can pay a dollar more per barrel or a cent more per barrel in china. >> as far as the strategy right now, morgan, what's the strategy based on everything we just heard? >> i don't think you're going to see the same spikes in prices in some of the base metals, for example, nickel and copper you've seen over the past four or five years. i think into those spikes you'll see i think the chinese government will actually sell some of their stockpiles. i think they're going to try to manage prices for base metals in order to stabilize their economy. >> all right, gentlemen, great conversation. we appreciate it. thank you. >> thanks, maria. >> morgan, kevin, we'll see you soon. up next, consumers have been trading down to less expensive food during the recession. so how is organic grocery chain whole foods greatly

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welcome back. take a look at this chart. whole foods stock up more than 200% in 2009. how would you like that return? how is the organic grocer thriving during the recession even as traditional rivals like safeway and kroger struggle?

cnbc's rebecca jarvis is right now inside a whole foods store in new york city with the company's secret to success. rebecca? >> reporter: hey, maria. their success is really not just about picking the right products but also finding the right location. take this brand new location near columbia university, just footsteps away a very educated, affluent community. and that's been key to the business model here. even with customers' needs changing and many people trading down, whole foods has also successfully marketed itself to those changing demands. >> trade-down is happening. so consumers come in, a $50 bottle of wine becomes the $20 bottle of wine. but the value campaign has done a nice job at keeping their customers loyal. >> reporter: and that loyalty is paying off. major disparities between what whole foods' business is doing versus the competition. in fact, it's clobbering the competition here in new york city, where on an average week the average store of whole foods

does about $2 million in sales. over a year that equates to about $100 million in sales. compare that to the average grocer, which is doing $20 million in sales. and you see how good it is to be whole foods. and it's a feat that mushkin attributes to john mackey's leadership. in recent weeks mackey has come under some pressure for the health care op-ed he penned, but investors are bidding up the stock nonetheless. in fact, in the last week alone it's up 6%. maria, up on the day. and rich peterson over at standard & poor's tells me that of all the s&p 500 performers whole foods is in the top five in terms of its performance so far this year. a strategy that's working well for them. back over to you. >> sure is. hot stuff. rebecca, thanks so much. up next the fdic eade ease something rules on private equity investment. but will it really lure firms back into deal making when it comes to troubled banks? úú i'm here on this tiny little plane, and guess what...

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the fdic is voting to make

it easier for private equity firms to acquire troubled banks. cnbc's hampton pearson with the details. hampton? >> reporter: this afternoon the fdic took an outside the box approach to stop the drain on its insurance fund triggered by an almost epidemic wave of bank failures. 81 and counting so far this year. the worst wave since 1992. bank closings so far this year have cost the fdic an estimated $21 billion. moments ago the fdic approved new rules that will make it easier for private equity firms to buy failed banks. the key change, lowering the tier 1 capital requirement from 15% to 10%. the standard for a well-capitalized bank is 5%. the fdic board says the policy change strikes a balance. >> i do think that the compromise position that we've struck today is a good and balanced one, and based on certainly what i've seen so far i think private equity will continue to bid with this

criteria. >> reporter: a controversial source of strength which would have put more private equity on the -- that was dropped. the fdic says these new guidelines will be reviewed every six months. >> we get more now on what the fdic decision means for private equity and the outlook for the industry with rich peterson director of credit and risk strategies at standard & poor's. along with bob profusek, a senior partner at jones day. good to have you on the program. what do you think this decision means? has this gone far enough? >> well, it's not gone as far as we would have liked it s&p the signaling of a more cooperative attitude toward private equity is helpful. and the notion that people won't have to cross-collateralize basically their investments very helpful. we don't know yet what they said about the tier one capital requirement. that is a critical factor because that just raises the equity cost for private equity.

>> it says a capital requirement for private equity investments and banks was lowered to tier one common equity ratio of 10% from the 15%. >> that's better. >> it is going down to 10% on tier one. >> but for new banks it's only 8%. so it puts private equity at a disadvantage compared to frankly anybody else starting up a bank fresh. >> what's the drawback here, rich? i mean, you know, here we have a troubled banking situation where the banks need the capital, got private equity wanting to invest the capital. so why the struggle in terms of getting this passed do you think from the fdic's standpoint? >> i think the view is the escalation -- or expected escalation of more failed banks right now as we speak we've been averaging ten failed banks per month this year. expectations are those numbers could be into the triple digits by 2010. i guess the mandate in part for the fdic is to guarantee some taxpayer assurances that losses

will not again occur. if private equity acquires the institution. let me say the track record is very sketchy in terms of private equity. tpg made a $7 billion investment with the investor group in washington mutual and that worked out. we saw this year wilbur roth led a group by bank united out of florida. that's only a $900 million deal. that ranked according to our capital iq numbers as the biggest private equity transaction this year. >> you make a couple of points here. i'd like you to weigh in on this, bob, because on the one hand these deals haven't necessarily panned out. they haven't made money for these investors. on the other hand, what about that? you know, sheila bair's worry. i mean, let's say we get into 2010 and 2011 and with do see a commercial real estate blow sxwrup we do see another 200 banks fail, is this going to just spread the failure? and again, that too big to fail situation comes up again because private equity is also going to

get impacted. >> well, private equity's impacted, but that's private money. what's wrong with that? what's wrong with putting more capital in? frankly, while there has been some pluses and minuses, the government's done real well on the bailout money when you think about it. an article the other day, the government has a paper profit of $11 billion on citi and had a 23% return on goldman. that's not bad. the taxpayers did all right. the point is that -- my point is that private equity isn't what a lot of people in washington think of a bunch of gordon gekkos running around stripping banks and stripping companies and stuff. it's very grown up. these are huge institution al investors and they are backed by huge institutional investors. i think it's the kind of people we want to have owning banks. >> do they want to own these banks and run these banks? are they in it to turn it around, make a quick profit and sell it? that's also a criticism, right?

>> they're in it, and that's one of the proposed rules, that you have to hold on to it for three years. kind of ironic if you're a car dealer in texas you can buy a bank and nothing's going to be imposed on you. >> a car dealer. that is ironic. >> but if you're kkr or wilbur ross all of a sudden we're all worried about you. nowish let's not kid ourselves. part of this, in addition to the historical perspective, is the anti-pathy toward wall street in washington. i don't think that's true of the fdic per se but the fdic has thoi about congress and there is plenty of that in congress. >> absolutely. rich, what do you think? >> again, the track record is very sketchy. the fact is -- >> when you say the track record has been sketchy, in other words, they haven't done well on these investments or they're -- >> well, few and far between. >> so you don't necessarily think they're going to be there with the capital if they're allowed? >> they could be there but -- >> they haven't. >> they haven't been there. reluctant to venture -- if these

transaction, even though it's the highest number of bank failures since 1992. you look at the track record of private equity. numbers have just nose-dived from 2007. and now you're seeing firms trying to work out the debt they incurred on things that are still going to have to be restructured in 2013 and 2014 when it matures from the initial deals. >> another issue we ought to focus on is the fact that who owns private equity? you're saying private equity are mature long-term investors. some of the pension guys, they've put money into private equity. people are allocating their portfolios different. they have been over the last five to ten years. and more americans own private equity stakes and they may not even know it through pension funds. could that be one of the motivations for the reluctance? >> i would think public pension funds own a lot of the private equity world. a lot of it. and those are teachers and firefighters and all the rest of

it. if the real criticism is we're worried they're going to make too much money, that after all was the point in today's "wall street journal" oepd on this topic, don't we want them to make money? i mean, what is wrong with this? we contrast that to we're all invested in the stock market too. is the stock market more patient tan private equity? i don't think so. i think the stock market is the biggest short-term investor in the world right now. so we're perfectly fine if you're publicly owned, but turn it over to kkr or carlyle or somebody like that, we get all worried about it. it just doesn't add up. >> meanwhile, it's not necessarily these wealthy guys, you know, only because like i said private equity's a lot more broadbased and you've got public pension funds, invested in private equity. so what's wrong with them making money? it's a different world. >> and i would say while the track record isn't perfect part of it is it's been really tough to invest. and are we better off that cpg

did make that investment or someone i mean, the bank failed, but it failed maybe later than it might have. >> in the absence of any other knowledge. we don't know whether it happened faster or sooner. but as you alluded to earlier, the pension funds, they were initially one of the opponents of the announcements, they wanted these rules eased. >> they sure did. gentlemen, you make great points. thank you very much. we so appreciate your time today. bob profusek and rich peterson. high yield bonds on a roll this year. but are they still a good investment with the economy showing signs of stabilization? some answers on that, next.

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all the action overseas. at cnbc's asia headquarters i'm adam bakhtiar going global with your money. well, high-yield bond funds have had a good month so far. 30-plus percent year returns attracting almost $15 billion in assets. has the rally begun to run too far too fast? joined by jim keegan of the ridgeworth immediate bond fund and brendan white of the touchstone high yield bond fund. gentlemen, good to have you on the program. what's your thoughts, jim? >> at this point, maria, all risky assets have run very far very fast in a short period of time and our view right now is the economy is experiencing what we consider to be transitory growth and it's all about the consumer. the consumer is the lynchpin to the u.s. economy and the global economy and we just see that there's a secular change going on in consumer spending behavior driven by four factors -- less consumption, higher savings, less leverage, more regulation, and higher taxes. >> so what do you do then as an investor? >> well, i think what you do right now is you've got to

become more defensive. and within the high-yield bond sector we would be getting more defensive, upgrading the quality, and downplaying the lower-risk -- the high-risk lower-quality parts of the market, which have actually been the best-performing parts of the market. >> don't get so greedy at this point after the moves we've seen. >> we grant the market has had a great rally this year. as you said returns are you will well over 30%, spreads are in over 1,000 basis points. it's been quite a rally. and there might be some reason to expect a pause in the market. a lot of times investors might want to cake taik some dhipz off the table after such a rally. in addition we've had a considerable amount of supply come into the market. it would not be surprising to see a slight pause on the market, maybe a little bit of volatility but we think there is still value in the market, we think with spreads still at 900 off the curve there's an opportunity for an attractive return going forward. we would also agree with jim. we think it should be more defensive. and our style does focus on the more defensive sectors within

high yield. it's important we focus on not only up side but up side and down side, and it's important to focus on the defensive sectors that we think offer an appropriate risk-return trade-off. >> like what? what are you invested in right now? >> our style tends to always focus on the defensive sectors because they tend to have a better risk return relationship. we tend to be allocated to energy, health care, utilities, cable tv, types of industries, types of sectors that have stable and predictable cash flows, ones that can withstand an up and a down in an economy. >> jim, you've cashed out completely in terms of high yield right now? where are you right now? >> no, we have a very small allocation in the intermediate fund to the high-yield sector. >> but you made some money and sold a big portion, right? >> not a big portion. we never had a big portion. what we've done is started to take some profits in our high-yield funds where we do have a very high-quality orientation just like brendan spoke about. >> what was behind the big move upward? give me the case for owning

these, the high-yield market from the start. >> in many respects the rally we've experienced this year is very much warranted. you think back to the beginning of the year the environment we were in was very difficult. we had a banking system on its back and the high-yield market very much requires access to capital and has continuing funding needs. we were talking about nationalizing banks. people forget about that. citigroup at $2 a share. a real troubled banking system. with the return of the banking system and with access to capital increasing in the higher market that has helped companies refinance debt and prolong the prospects. so the rally we experienced is definitely warranted. what we need for the next stage of the rally as jim suggested is an economic recovery and a recovery that's going tone sue will be slow growth but we think will be enough to allow for an allocation to high yield that will be prudent. >> moody's predicting that default rates peak at 12% by the end of the year, just about the levels of past recessions. past performance do you think is a guide to what's ahead? >> i don't think so, maria. i think baked in those numbers

are the fact that high yield companies have been able to refinance. there have been some debt exchanges that have been done. maturities have been termed out. i think there are some good things happening. but that's a sign of what brendan talked about. which is the banks are capital constrained and loss constrai d constrained. and that's the reason why the high-yield companies have been able to do what they've been doing, because the banks can't realize losses in this environment. >> so how do you start transitioning out? give me the best way to do that. by holding on to some like you have but also transitioning out of some of these riskier investments. >> i think at the end of the day you have to make judgmental calls on the sector in general, but we are bottom up security selectors. in any environment we look at it as a mix of high yield bonds and investment grade corporate bonds. it's all about the bottom up fundamental financial flexibility, financial strength and liquidity of these companies. that's the most krit k58 variable to us right now. >> sure. do you agree with the investment grade corporate right now, brend

s an? >> we think staying with the manager or with sectors with companies that are higher quality and more defensive in nature. rather than transitioning out we think focus should be on those managers and those sectors that can provide good up side and down side participation. that's our goal. >> like which ones? >> again, energy, utilities, cable. those are sectors that over the long haul have provided a good upside down trade-off. we think it might be prudent to be more defensive here but we think it's primarily because the lower quality has had quite a run that maybe unwarranted. >> they certainly have been where the action is this year. gentlemen, thank you. so good to see you both. thanks. california meanwhile cleaning house to try to close its budget gap. we'll explain how the dddddd

welcome back. california holding a huge garage sale this week as part of its effort to get the state's financial house in order. cnbc's jane wells is in burbank with a closer look at some of the unusual items the state is trying to sell. jane? >> in an unusual way, desperate times call for thinking outside the box. that is exactly what the governor is trying to do. we show you the video putting up hundreds of surplus items for sale.

furniture, microwaves, computers, lots of blackberries. and then, of course, 500 cars, all in an effort to raise millions of dollars to go towards the billion the state needs. now, many of these items are already for sale on ebay and craigslist. so those of you outside of california can logon and bail us out, by the surfboard and many unusual items like a dozen dental chairs. we have been told they came from state prisons. eight have already sold. only four left. come on down. to boost the value of some items, the governor is leveraging his star power and autographing some items. schwarzenegger's signature could boost the sale price for items $400. just a short time ago this afternoon, the governor dropped in on one of the fastest-growing companies in california but one that has yet to turn a profit, twitter. he credits the social networking site with many things, including many of the followers of his on twitter gave his many ideas for enhancing this garage sale.

>> why don't you assign advisers to the cars? why don't you assign motorcycles? you can get more money for it. these are all ideas that come from people. i think it's great. >> he also signed a racing bike, which is being auctioned off there. and the governor also spoke fondly and sadly to twitter co-founders vince jones and evan williams of the passing of his wife's uncle ted kennedy. and he also launched a twitter forum called my idea 4 ca.com, where anyone can pitch their ideas about how to make california better, because, maria, well, things really can't get any worse financially. take all of the ideas we can get. >> jane, that's really outside of the box and really got to hand it to you, governor schwarzenegger. jane, thanks. see you a little later, jane wells. up next -- what could move the markets tomorrow. you're watching cnbc. some people buy a car based on the deal they get.

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