that will do it for "closing bell." we'll see you tomorrow. stay with cnbc. "fast money" beginning right now. they're going to track this moody's story. take it away, melissa. live from the nasdaq market site in new york city's times square, this is "fast money." i'm melissa lee. the market taking a nose dive today after weak manufacturing data out of china. the s&p dropping 2.5%. its worst day since june 1st. energy, materials, tech, financials dragging the most here. oil ending the day below $79 a barrel. even gold continuing its plunge. so will the selling continue tomorrow? how are you positioning ahead of the trade tomorrow? >> hey, mel. interesting you said europe. it wouldn't be so bad if it was actually germany.

if you're bullish, the market stopped exactly on another number, this 1325 level. guess what? it's a 38.2% retracement of the ranges we talked about yesterday with 61.8. what else you have working for you is the last time we saw downgrades in the bank was basically the low we saw on the market for quite some time. i'm not nearly as optimistic, but i will say there's definitely a chance you could see a relief rally. my level on the stance is still 1292. that's where you have to look in terms of a bull's eye. a couple names have been trying to guide this towards you for a while, specifically caterpillar. the oil market is trying to tell you something. the global growth story we've all been talking about is not really there. >> we pointed that out yesterday with oil down. that probably is one of the things that added to the sell off today. the fact that the markets continued higher, managed to hang in there, despite what was

going on around it, tim. >> when i look at today's action, it reminds me a lot -- we were talking about this in the office. diego brought this up, my partner. this reminds me a lot of august 2010. the next day you really got very little response from markets. excuse me, that afternoon you get very little response from markets. basically, a market that had rallied significantly into that fed meeting was expecting more out of fed, got less. then you saw a massive draw down on the 11th. this feels very slafr in that the markets should have done that yesterday. you noted all the heavy growth head wind we got out of the key places we need it, including china last night. but this market was very over bought into this fed. so as guy pointed out, that 1295 area is a very important place for markets. now, the next level down is probably a place where people really start to get concerned. but this is a range we've traded in. until we break down off of the old lows, which is 1262 on the s&p, i think people are going to be playing a trade here and not

say the world is falling apart. nothing new on any of this data, as far as i'm concerned. nothing new on the moody's that comes down the pike. tell me something i don't know. >> since june 1st, we've been talking about the pressure to be in the markets. with quarter end coming, how does that factor? >> you know, i would think we will see some buying at the end of the quarter just as window dressing, which often happens, particularly in a quarter as volatile as this one. maybe also asset allocation shift. i don't know how many days are left. maybe eight. that's a lot of volatility that's potentially still in there. >> keith, yesterday you made a bold call. you moved 100% to cash. this is what you said yesterday about that move. >> which is the bigger concern that i have. the correlation risk comes on.

in other words, the u.s. dollar goes right back up and everything goes straight back down. doing more of what has not worked will not work, is my base premise from a growth perspective. that's what takes down the market's multiple. you're in a precarious position here. >> you made that call in terms of blasting it out to your clients. what's your call now? >> 94% cash. you're thinking commodities, fixed income and equities. the first move is to buy the dollar and some fixed income. to tim's point, it wasn't just equities that were over bought. bonds were over bought. gold was over bought. when you think about going to 100% cash, you have to think about the rotation in other asset classes. i think the key to the point we've been making since march is about growth. if you get growth right, you're going to get a lot of other things right. if you get growth and the dollar right at the same time -- in other words, growth is slowing both in china and the u.s., uh yo get a big, big problem.

i think the market could be down another 20 hands tomorrow. >> but going to cash you're making another call which says you don't want to be directionally short. i don't disagree with any of this. we're in a lot of cash here too. i think it's a dangerous place to be having, you know, a whole lot of risk on period because i don't know that i wanted to be short a lot of the names that actually on the equities side have been sold down dramatically. going to cash at this stage sayings these are markets that on some level are fubar. i won't define that for folks at home. >> people are scared to short the market. the rallies market for three consecutive weeks. that's a very important point. that's the question. are you bearish enough? do you press them? today i think you do. >> today was a call coming out to short the market to 1285. mike murphy, i'm curious what

you made of two of our traders saying. >> absolutely. it is scary. this is a scary market. i think you look at goldman's note today. if you go back at end of march, i believe it was, goldman came out and i think the quote was, it's the buying opportunity of a lifetime. i wanted to address keith. keith, when goldman's note came out today, did it make you say, hey, maybe i can go a little bit more invested here. don't want to be all in cash. maybe they're putting a bottom in the market. >> typically, yes, god mgoldman is a contrary indicator. at this point, i don't look to goldman sachs to tell me what to do. unless i see growth reaccelerate -- and i think there's a big whammy out there. on july 7th, china's going to report a gdp number that both they and the market is very worried about. people talk about europe, greece, whatever they want to talk about. the reality is u.s. growth, chinese growth, and german

growth slowing at the same time is what i'm concerned about. >> all right. i wanted to ask you about that goldman call. you saw options that would support somebody getting behind this call. >> that's exactly right. in the spider, which normally that's a retail product, the spy rather than the s&p 500, the spx. we saw a simultaneous trade in the spx and the spooider. both of them around the 1340 level for the s&p, and they were buying those 25,000 times in the case of the spider, selling -- that's 2.5 million shares worth. and selling the 128 strike. so they're basically playing exactly the levels that goldman talked about. 1285 or 1280 is where they would basically stop being short the market by virtue of that spread. as far as volatility, melissa, some of the really big players in volatility have been aggressively buying over the last three days. we call it a call stupid, where they buy one strike and then buy twice as much above it. they have been doing that,

loading up, for the last three days as vols have gone down. these big players have stepped up and bought a ton. the last time they were getting out of a big trade was june 4th on that monday when they nailed the top of the vix or bottom of the s&p range. >> mike, do you believe what the options market is telling us in terms of how people are trading vols at this point? >> i think jon is spot on when he says we've seen a market turn around. you know, for a while, we'd actually been seeing people making bearish bets on the vix. that would be bullish on the s&p. we saw a lot of people betting that the vix would drop. recently we've seen that turn around. today's activity in the vix, over 240,000 calls trading. that's double what we saw on the put side. that's a distinct turn around. we're seeing it in some of the sector atfs. another metric we can look at is the correlation index. we see correlation rising above

70 after it dropped quite sharply earlier this week. that's an indication, sort of what keith was talking about. that's an expectation by the options markets that it's going to be a risk off type of environment. >> all right. we'll see you a little later on in the show. meantime, we've got to talk about oil here. in the after whhours session, o is trading $79 a barrel. in new york, it closed down 4% and hit the lowest since oktd. where is it headed next? let's bring in steven shork. he join us on the fast line. it's not just wti coming in. that spread is down to $10.90, the lowest since january. what should we expect in terms of how low we go? >> you can expect further pain at this point, melissa. we're still in the matter of a correction where we got oil prices up to a stupid level back at end of 2011 and the beginning of 2012 on fears of supply.

market was focused on the potential disruption of supply. since then, we have plenty of supply getting to the market. not just in the middle east, but more importantly here in the united states. a lot of oil that was trapped in the mid-continent last year is getting its way down to the gulf of mexico where it needs to be. it's also getting to the u.s. east coast, where it needs to be. so the market is taking its focus off of supply concerns. now with what we are seeing coming out of china, europe, united states, we are in a massive correction lower because now the fear is not about supply, do we have enough supply. the situation now is, do we have enough demand? given this sell off, the market stand now is we have too much supply, not enough demand, and we are now in a massive correction. i still think we have at least another five, maybe six dollars to go in both the new york market and the london market. >> i agree. i think 75, 80 on brent is where

we're going. oec demand in oil is down 8% since 2005. so the incremental demand has come from the emerging markets. if china's slows, i think that's a near-term head wind. i'm more interested in the price interaction after the iran nuclear talks break down. the oil market should have spiked higher on this news. it did not. do you look at the oil specks on the cftc side? i think people are still hiding here. >> i think it's an excellent point. what you just said is the most useless helping verb in a trader's lexicon. the market should have gone higher on this news. guys, what does that tell you? the market's not going to go higher on bullish news. you know what? i don't want to belong in this market. with regard to iran, everyone made the mistake thinking iran was libya one year ago. when we lost that libyan oil,

1.3 of high grade oil because of civil war, that was a real loss of oil to the market. with iran, face it, guys. we're never going to lose that oil because iran is starved for cash. they have to sell the oil. i don't care. you could embargo them up the what zoo. they're going to get that oil to the market. the chinese are going to be more than happy to buy that oil from them. so this is not libya last year. the oil will get to the market. also, the big difference between a year ago is the reversal of the pipeline. now we have a good deal of oil flowing. canadian oil, 70, $80 oil hitting the market now. this has been completely turned on its head. we've already taken out both in brent and wti the 38% retracement levels. next target is the 58%. that's $74 wti and $82 brent crude oil. >> all right, steven. great to speak with you. thanks for your analysis tonight. mike murphy, want to go to you

because the oil stocks across the board have been getting crushed. you've got to wonder if these companies have factored into their quarters the lower price in oil that we've seen. >> exactly. this morning you saw one of the smaller companies, key energy, came out and lowered their guidance. the stock was down over 15% on the day on the news. i don't think you jump into the oil names right now. i think what you have to look at is as oil gets down under $80 a barrel, that's going to start to trickle into consumer's pockets. it's going to help a lot of consumer names like a target, like a mcdonald's. these are names we're looking at here. as the price at the pump starts to go lower, i think that's the best way to get money in the consumers' pockets. >> isn't there a fine line? at some point the consumer will look around and see that things are so bad that they're too scared to spend that savings and go to even wal-mart or target. >> i think the person who's going to target and has that extra $26 in their pocket from filling up their tank isn't the same person that's looking and

saying, oh, how is a possible downgrade of spanish bonds going to affect the market right now. >> but they look at a 250-point drop in the dow because that's going to be on the front page of every newspaper across the country tomorrow. then they get scared. karen. >> i don't know how sensitive they are. i think if they have a job and it's cheaper to get to target, then they'll spends money. >> i agree. >> that's more relevant. i was surprised to see macy's get hit as hard as it did today. we love macy's. i like it. i thought it was a bit of an overreaction. >> there's a lot of duration mismatch in the price of oil going down. you don't get that at the pump tomorrow. fyi, there is a huge behavioral concept here associated with that. consumer confidence got crushed last week. it was down -- i think my mic's off. >> i agree energy companies

probably don't have new estimates. i think oil is probably priced $20 higher. this doesn't happen overnight also. the flip side of this is average oil prices for this year are still over $110. you have to have a sustained move lower. i'm not saying we don't have that. a lot of this move is risk off, people. the demand for oil is not going away. oil is suddenly not useless. this is why it's kind of laughable to see oil down 4% today. >> sorry about that. maybe you should put me on mute. >> i think we were all on mute. >> all right. coming up next on "fast," we're continuing to wait for the official moody's downgrades of the five u.s. banks. plus, why does gold continue to fall even when fears in the air and what's the best way to flay at this point? more "fast" straight ahead. i went to a small high school. the teacher that comes to mind for me is my high school math teacher, dr. gilmore. i mean he could teach. he was there for us, even if we needed him in college.

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welcome back to "fast mon " money." welcome back to "fast mon " money." mary thompson on what moody's expected to do when it releases its bank downgrade report. what should we expect? >> a little bit of a head scratcher. a number of people close to the bank were expecting grinds to come out right after the closing bell. we still are waiting for it. this is what's happened. the reviews started back in

february. it's been fairly well telegraphed this is what is expected. there are five banks under review right now, the global investment banks here in the u.s. b of a's long-term debt rating expected to be cut by one notch. the question remains, how many notches is morgan stanley's gown graded by, two or three notches? so that's what we're waiting for. keep in mind that moody's is also reviewing the short-term rating for these banks with the exception of jpmorgan. its prime one rating was reaffirmed. that's what we continue to wait for. of course, this will mean billions in dollars of collateral calls for the banks. all of them have the adequate liquidity on hand. all of that disclosed in recent filings. melissa, back to you. >> all right, mary thompson. thanks for rounding that out for us. just to boil it down, when maria spoke with the ceo of morgan stanley a couple weeks back and discussed the possibility of a three-notch downgrade, which is largely considered not priced

into the stock at this point, he basically said he'd be shocked. but it makes a big difference in terms of the collateral call. >> our numbers say he'd have to post $9.6 billion. that's a bigger number. the bigger question is when morgan stanley reports their quarter, do they have flow issues with counterparties? that's not what people are talking about these days. it was a big issue in 2008. it could be a big issue for morgan stanley. fyi, the cds market is looking at that. it's nauseatingly high. that's what the market is going to be stirring at here on the close. >> just quickly, a headline at the bottom of the screen. monster beverage to replace sarah lee in the s&p 500. remember, just kau sau a csaw as ago monster got downgraded at bernstein on growth concerns. the ceo still expected monster to have tremendous growth this year but slow down to 8 or 9% in

the out few years. so anyway, back to the banks here. you've been a fan of both for quite some time. at this point, it's -- three notches is in the air. what's the probability in your view? >> something less than 100%, but i think it's 100% in the stocks. so i think the stocks are assuming 100%. i don't think the real probability is that high. we now have $179 billion of liquidity. it's much less of a leverage sst situation than in '08, '09. i think there's a chance, maybe a 25% chance, that it ends only being two notches instead of three. this is a better credit than citi or b of a. a three-notch credit would bring it down to the same as b of a or citi. >> in tomorrow's session, i am reading what you're saying. it seems like you're saying that

tomorrow you would expect morgan stanley's stock to rally because you think the chances of a three-notch downgrade are priced into the stock. anything less than that would send the stock higher. >> that's exactly right. if we get a two-notch downgrade, i think the stock trades up. if we get three, it will be down a little bit. frankly, there has been a whisper the last couple weeks that while moody's had signalled three, they're reconsidering. so i would say mostly baked in, but i can't say 100. >> so charlie, moody's downgrades not withstanding, haven't these bank's ability to make money been curtailed in this environment? >> that's the beauty of this. short-term, you're absolutely right. long term, trading is not going down. the value of market securities is going up. the value of the number of investment banks is actually down. the number of providers of liquidity to institutions, which is what jpmorgan and morgan

stanley are, is more valuable longer term. people are spooked about volcker rule. there's no way they're going to be able to define proprietary trading. we all know if you buy stock in a trade, you own it. that's the same whether it's a customer trade or for your own account. >> i want to break in here because we are getting the moody's downgrade crossing the. wire. one notch for bank of america. two notches for citi. as they continue to cross, i'll bring you more. we did see that spike in shares of morgan stanley. maybe it's only a matter of time here. we'll continue to filter the news out to you. tim. >> charlie, how do you think you should value morgan stanley here? depending where you have this price -- say you have a $19 t.a.r.p. on morgan stanley. that puts you .7, .75 priced to tangible book value. we're talking about their earnings ability though. how do you think people should -- and how are you making your call here? are you making an evaluation call on book value? do you care about earnings

potential for guys that get affected by these downgrades? that business may go out the window because of their counterparty risk. >> i'm sorry, guys. i'm going to interrupt you. mary thompson has the headlines here. >> that's right. we want to say that morgan stanley's long-term debt has been downgraded two notches to baa. i'm going to go through these. jpmorgan's long-term debt cut two notches to aa-3. that was expected. its short-term rating was unaffected, as it was not under review. goldman sachs' long-term debt rating also cut, as expected, by two notches to a-1. the outlook remains negative. short-term rating also cut to p-2 from p-1. citigroup's long-term debt rating cut by two notches to

baa-2. its prime two rating has been affirmed. lastly, bank of america, cut by one notch to baa-2 from baa-1. its short term p-2 prime rating affirmed. those are the downgrades. again, the one we're focused on, morgan stanley's long-term cut by two notches. its short-term rating also cut. back to you. >> mary, it's karen. i have a question. for morgan stanley with the two-notch downgrade, how much will that change their cost of funding? do you know? >> off hand, i don't know. i'd have to double check on that, karen. >> okay. mary thompson, thanks for that. in the meantime, we see a sharp reaction in a lot of banks here. you see that shoot higher, up by 4% in the afterhours session. charlie, you're out there. you made that call correctly before this thing crossed. at this point -- the last time you were on, you said jpmorgan was the prettiest girl in the room. with this downgrade cloud off of

morgan stanley and it is a two notch, does that make you more bullish? >> first of all, you may have to back up the cameras because my smile is so big i may not fit on your screen. what i will say at this point is that morgan stanley is probably -- think of it as the best house in a bad neighborhood. it's clearly a tough business. as you were saying before we broke out on this, there's no doubt that the investment banking business is challenged right now. volumes are down. risk appetites are down. the point is that's a short-term phenomenon. last quarter they annualized 9% return on equity. there's no reason the business should be trading at 50% of book if they can earn 9% of equity. if they're earning 9%, the stock should be earning close to book. we think there's a lot of upside room in morgan stanley once the fears of liquidity come out. >> if you look at the series of catalysts that go for it, it doesn't end here. at end of the day, going forward you have volcker implementation.

we have to figure out how they're going to backstop their derivatives expose sure. there's a lot going on here. do you see any risk in buying a bank stock because it's cheap without that actual catalyst in your back pocket? >> absolutely. you should not put your whole net worth in a bank stock. they are highly volatile situations. when something is trading at 50% of tangible book, you've got a huge margin of safety. investment banks have traditionally traded between one and two times tangible book. that's the best way to trade them. people fought to be partners at goldman sachs and morgan stanley for 50 years so they'd have the right to buy stock at book. >> that's great, but they did it at leeman too. cheap gets cheaper. if you're going to pay .5 times book, you might as well pay .2 times book. you sound like you're very certain they're not issues. >> i've never said certain. i'm saying 50% of tangible book, those riskings are absolutely in

the stock. these are bank holding companies that have access to the fed window. they don't have the same challenges. they are much less levered. they have $179 billion in short-term liquidity. they don't have the liquidity problems. >> all right, charlie. going to leave it there. thanks for your time. in terms of the trade tomorrow, do you think these gains stick? >> well, to re-enforce what charlie said, they've traded a ten-year average of 1.7 times tangible book value. he's talking about deep, deep value. i don't think people need to go in with two feet here. i think morgan stanley had a lot of people speculating, more than any other name out there. i think it can hold these games. coming up next, another "fast money" exclusive. the ceo of red hat talking about the disappointment today. stay tuned.

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welcome back to "fast money." take a look at that spike in shares of morgan stanley. up more than 3% on news that moody's gown graded two notch, even though three notches had been a possibility out there. let's head back to mary thompson at new york stock exchange.

i believe she has the statement from morgan on this. >> that's right. morgan saying in a statement, while moody's revised ratings are better than the initial guidance of three notches, we believe the ratings do not reflect the key strategic action the company has taken in the recent years. the company goesn to say, with our derisk balance sheet, stable sources of funding and strong leadership team, we are well positioned to deliver for clients and shareholders. back to you, melissa. >> all right. thank you very much, mary thompson. again, morgan shares up by more than 3%. let's talk the plunge in gold today. it drops 3%, giving up its entire gains for the year. >> for the first time in years, i'd much rather own the minors than i would gld. i'd much rather own the minors than gold bullion or the gold

futures. that's a huge change. for the previous four or five years, even as gld, even as bouillon has gone to new highs, the gold mining shares have just deteriorating. we've begun to see a change in that spread relationship. >> and dennis joins us once again with the next leg of his call. the other part of that conversation, dennis, was that overall you're bullish gold because of the leadership gold equities have shown his to be kplip where do you see it going now? >> well, once i stop laughing at myself, i'll tell you. first of all, you had a terrible circumstance today. once gold broke 1595, it was stop order after stop order hit with sharp pencils from very angry margin clerks looking at weak equities, looking at weak crude oil, looking at a strong dollar, looking at a lack of qe-3. once 1595 was given, it was over. they just hit stop after stop

after stop. i would much rather, as i said the other day -- if i'm going to own gold, i'm much rather own the gold equities than the gold shares. if i'm going to own gold, i'd much rather own gold in euro terms, yen terms, and canadian terms than u.s. dollar terms. today that, helped a bit. when gold is down 3% and the currencies move 1.5, you're still down 1.5, and you still look rather foolish. >> dennis, let's gijust assume any terms that the dollar goes a lot higher from here. what would you do then? >> if it goes to 90, gold has to go lower. that's all there will be to it. the correlation between gold and dollar is really quite tight over any protected period of time. if you take it to 90, if you take dollar-euro to 120, if you take the yen to 85 or 90, then

gold obviously, in any currency term, is going to be lower than it is right now. no ifs, ands, or buts about it. >> okay, dennis. thank you very much. in the past, you said in dip in gold is an opportunity to buy. >> i still believe it. on days like today when the s&p get squashed, people get forced out of their gold positions. until i see a central bank even whisper about selling their reserves, i think gold is still a buy. it's painful, i understand. i'm not a gold bug. i think what's going on in the world, this race to zero in global currencies, what winds up winning in the end will be the gold market. >> if you look at that, it's 12 years in. the only thing that's gone up for 2 years, by the way, other than gold is my weight. the reality is that gold is a bubble. if you believe that qe is out of bullets, there's no more qe, the dollar can get a lot stronger and gold can get a lot weaker. >> do you believe you'll go down soon? >> i can start losing weight. >> guy, you're disappearing.

>> still thick. >> much less thick, we have to say. all right. let's move on to the next item. red hat beat street earnings yesterday, but the stock got crushed after hours. red hat stock down just over 6% today. joinings now is red hat president and ceo, james whitehurst. always great to see you. i'm not going to go too much into billings numbers. there's so much explanation about impact of fx on that particular number. i want to get to the stock sell off. for a stock that had been trading at something like a 74 times multiple prior to the big decline, i think investors are looking for any ching in the growth story. jpmorgan today wrote that the business momentum of red hat moderated in the quarterer. this was slower than the growth rates in the previous five quarters. that's a concern for investors

investing in a stock with this sort of multiple. can you address that? is jpmorgan missing something here, or is the momentum slowing? >> we feel great about the momentum of the business. i think there are two things that made the headline number look low. obviously, fx made a difference. our billings growth was 16% ass headline number. in currency terms, that was 20%. that was about half the gap in our historical growth rate in what we did this quarter. the other gap was that we intentionally slowed our growth of services while continuing to keep our subscription growth the same. we basically have services at a 30% gross margin that we use to help drive our 94% gross margin subscription sales. we have a clear strategy to work with partners like other systems integrators to help us grow our subscription business. we intended to and guided to the fact that our services would grow a bit slower.

if you adjust for those two things, we're right where we've been for five or six of the last quarters. we feel comfortable. >> i thought mel's point about evaluation, that's why the stock got bludgeoned like it did. let's talk about operating margins. i thought that was the silver lining. almost 26%. is that sustainable? can you continue to see that move north, or do you think you're topping out here at that level? >> we can certainly continue to keep the margins going up. you know, for us growing at the rates we are, we have to invest in front of growth. what we basically committed to doing is continue to grow our margins at about 100 basis points a year. so we can continue to do that in the future. certainly if and when -- hopefully well far in the future, our growth rate actually slows. you'll see significant additional margin improvement. that's an easy lever for us to pull. >> earnings reporteds are always in context. for you, the context was adobe and what it said about europe.

on your conference call, it was practically the last topic on the call. that's the strength you saw in southern europe. can you give us more color as to whether or not you see the strength continuing, if there are science of continued strength in europe or moderating or staying as it is. just give us some sort of qualitative assessment there. >> well, first off, we're seeing a lot of strength in europe. in a constant currency, so in a euro denominated business, it grew over 20% last quarter. in fact, southern europe was stronger than the rest of europe. that's not to give anyone any false optimism there. we have a very good value proposition. so when companies are looking to cut costs, they often come to us. so we had some very large deals with both spanish and italian financial institutions. again, these are companies under tremendous cost pressure, and they're replacing more expensive systems with ours. we continue to see really good strength throughout europe, in particular southern europe. i wouldn't necessarily say that

would be typical of the traditional technology company. >> all right, jim. we got to leave it there. thanks so much for your time. we appreciate it. jim whitehurst, the ceo of red hat. this is a story we've been following. we've talked to jim so many times. for a company of this valuation, you look at any little miss. >> we have seen this before in red hat. we've also seen moves of this magnitude in the upside after the march quarter. although i think the tape is a little squirmy and we might bounce a little tomorrow, red hat is worth a look. coming up next, where should you be looking to invest for the long term right now? we have your "fast money" portfolio. that's up after this break.

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welcome back to "fast welcome back to "fast mon " money." time for "fast money" portfolio -- actually, we want to go to mary thompson with more on morgan stanley. >> just a quick recap of the actions taken by moody's today on the five global investment banks here in the u.s. we want to reiterate, of course, that the ratings downgrades were as expected for all of them. there was some question as to whether or not their long-term

rating would be cut by two or three notches. it was cut by two, and the stock respond in the after hours session, rising on that news. this is essentially what happens b of a's long-term ratings cut by one. jpmorgan and goldman sachs by two. citi and bank of america have the lowest rating among those. back to you. >> all right. thanks so much, mary thompson. it is now time for "fast money" portfolio where volatility means long-term investing. our next guest says betting 5% of his portfolio on it, in fact. joining me is the president of laventhal asset management. taking a look at some of your stock picks, you wouldn't think these are the steady eddy picks when you look at a caterpillar or green briar. they seem to be more leveraged to global growth here. give us the reasoning behind how you can get behind that. >> sure. but if you will, i'll divide

them. caterpillar would be more of a steady eddy. i'm surprised how volatile it is. trading now at under nine times this year's earnings, which i think they can meet with a hop, skip, and a jump. that seems like a no brainer. green briar, you're right, is one that's going to be more volatile. it's a small-cap stock. they manufacture and repair rail cars. there's still an awful lot of rail traffic on the u.s. rail network. these guys are benefitting by repairing all those cars as they go whizzing by. the drivers of that rail traffic are some of the things that we know about, like fracking and the materials that need to be used with fracking as well as the transport of crude oil in the absence of a pipeline from the territories of canada. you know, we do see a lot of value in green briar, again, trading at eight times this year's earnings, which again they should hit with no problem whatsoever. >> and this is a better way, in your view, as opposed to buying a railroad? >> railroads are a little stodgy. there's a reason i'd rather talk

about green briar. i see more opportunity for green briar to appreciate from current prices. >> at a time when we're talking about oil, that makes a lot of sense, but how much of that is priced into a spike up of airlines everywhere? i know there's a lot of synergies that come out of the merger and the cost side. >> well, for years, at best, the airlines have been a trade. you talk to most long-term portfolio managers, and they say you're crazy going into an airline. the key difference that's changed here is management now has discipline with regards to capacity expansion and running these businesses as profitable enterpris enterprises. that's where all these extra fees like baggage fees come into play. but if grow back 10, 15 years, as soon as times would get good with low oil prices and good demand, executives build out their fleet and running planes

at 50% capacity. it's been a long time since you've had an empty seat next yo to you on a plane. that's because the managers have really gotten disciplined. that makes this a little more of a long-term play. >> quick question on your portfolio construction. you have this interesting debt in volatility against some of these longs you have. have you found that to be more effective? >> well, in short, yes. really, what it's a response to is as much as we like caterpillar, united airlines, and green briar, there are plenty of clients out there saying, look, i believe in your thee sisz, but i'm tired of this roller coaster up and down. what can you do to make money for me in a stock market that's going nowhere? the answer is to put on a volatility hedge, which is our way of hedging out the macroeconomic risk of financial crises as well as wondering what's going on in china.

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