multiplayer video game "league of legends." yeah, the school says the game is a team sport, it involves strategy just like a traditional sport. robert morris has apparently received hundreds of inquiries from prospective e-athletes. >> on that note, thanks for watching "street signs," everybody. >> "closing bell's" next. and welcome to the "closing bell," everybody. i'm kelly evans here at the new york stock exchange. >> and i'm bill griffeth, once again camped out here at cnbc global headquarters. kelly, what started out as a decent day for the bulls in the equity market turned south in a hurry. around midday, between 12:00 and 1:00 eastern time, those reports that syrian warplanes had launched an attack inside iraq, killing at least 50 people. going to ask you to stick around to find out whether things will turn around here in the last hour of trading here. >> we'll put this question to our guests shortly as well.

one stock soaring is vertex pharmaceuticals after trials for the cystic fibrosis drug. coming up, we'll talk to the ceo about the study results and what it can mean for vertex's bottom line and people suffering from cystic fibrosis. >> about 70,000 people worldwide are afflicted with that. a lot of hope with that drug. yahoo! ceo marissa mayer reportedly caught sleeping on the job, sort of. she missed a key ad executive meeting because she overslept. could that mean big trouble for yahoo! a firm that relies so heavily on ad spending? we have that rather crazy story, coming up here. now, here's where we stand in markets. pretty broad-based sell-off with the dow jones industrial average off 80 points this hour, retreating from that 17,000 mark. it's currently at 16,856. the s&p giving up about six points and the nasdaq the out-performer today. it's just slightly positive, up about four. >> all right, let's talk about all of this in our "closing

bell" exchange today. with us, joe bell from shavers investment research, brian persist restie from wells fargo investors, sam and diane garnick from clear alternatives and our own rick santelli in chicago. rick, i'm going to start with you. what have you heard about the situation in iraq and could that be the reason why we're seeing this sell-off today? >> well, you know, it didn't necessarily correlate with the wrist watch, but it definitely has been a big talking point today. so, i would think it may figure in more prominently, but it's always difficult to tell, bill. and i will tell you this, there is a accumulative effect to what's going on in iraq as it weighs on the psyche of traders. but maybe a more specific, recognizable trait of what happened today, at least from the treasury side, was the spongy two-year note option, bill. as you look at the chart, we can see rates drop down a bit. but yeah, with regard to equities, i'm also hearing many traders on the floor talking

about taking profits in front of a big psychological area in the form of 17,000. >> also, oil fell today. gold did not respond, so there's a couple of other counterintuitive moves as well, kelly. >> well, the drop in oil's one of the reasons traders gave me earlier today that maybe what's going on in iraq and maybe syria to some extent, as important as it is, might not really have been the abcs of what the market's looking at. >> right. >> that's exactly it, not to mention that the sell-off has been deepening since the news hit midday. the dow's off almost 100 points. sam stovall, we were just talking about this. you said maybe it has to do with the looming end of the quarter. what do you mean by that? >> i think there's the possibility that because we had the window dressing period, that usually if you have good momentum coming into the end of a quarter, momentum tends to feed on itself, but just listening to the lack of noise behind me, looking at the weak volume, looking at the number of days without movements of 1% or more, the longest since 1995, and my feeling is that people

are saying, i don't expect much on to happen between now and the end of the month, let's take profits while we can. >> having said that, though, you still think there's a lot of juice left in this lemon, don't you? >> yes. try to squeeze me for information, i can tell. >> yes. >> we recorded our 67th all-time high last week, which has 5% of the trading days of this bull market historically since world war ii. we've seen 7% of all trading days. and if you agree we're in a secular bull market, the average is 9%. so, we have more ways it go before the bull market peters out. >> to that point, listen quickly to a sound bite from robert shiller, who was on "squawk on the street" this morning, asked, of course, about market valuation, and here's what he had to say. >> i have a ratio on my website that's up to 26 now, it's over 26. historically, you know, it hasn't been that high very many times in history. it's been at 26 before. that's roughly where it was in

1996 when i testified. and unfortunately, i said i thought the market was high. it went up another, i don't know, 50% until 2000. so, i don't -- you know, it's really hard to forecast the market. it might continue this boom. on the other hand, it is looking a little high. >> this is a guy who won the nobel prize for measuring valuations. he's got a nobel prize and we don't. >> yeah, and i was just going to say that sam's right, sam's point as well, that you can b n at a high level of valuation or hitting all-time highs, and that doesn't preclude you from doing more and more of it. brian, you sum up the attitude of a lot these days when you say this is the most depressing bull market i've ever seen. could you just explain that? >> well, look, everybody's been waiting for the next shoe to drop, and looking at sam's stats, i buy him there. i look at the fact we've been over 900 days without a 20% correction in the market, which

is abnormal historically. from our perspective at wells fargo, we believe there is still potential up side, but we're willing to concede that the gains are harder to get. this is not a 666 2009 s&p we're dealing with, but if you look at the favorite market, we still think the growth is here and it's decent. we're willing to concede that the growth has broadened out, given the recovery in europe and a soft landing out of china. bigger picture looking forward as a strategy right now, we want to look at this market and say, hey, listen, if i've been overallocated to equities, i probably don't have to add to it now. if i've been underallocated, given the geopolitical unrest, you'll have your spots summer into the fall, so you'll wait for a pullback on that perspective, but broad-based, we believe the global growth story is intact. >> diane, you're very bullish here, but i've got to say, and with all due respect, don't take this the wrong way, i know one of your favorites is the utility stocks. to me, that's a fraidy cat play,

even while you're bullish on the market. >> yes, it's a great time to buy the market. it's not necessarily a great time to buy the broad market. we're seeing tremendous divergence with sectors like utilities, even health care as of late doing very well. and the riskier sectors not doing nearly as well. and if you notice, what we see is that the utilities sector is doing very well. every time yields sell off. so, i think we're seeing somewhat of a secular change during this bull market and that people are chasing yield. and why? because 2008 was the very first year that baby boomers could start to retire. and at this point in the game, people are ready, willing and able to tie in returns, to tie in yield and not need to worry as much. so, while it may be a scodgy sector, i think lots of people are turning to yields there. >> jill bell, all the same, it's interesting to look at the price action, speaking of different parts of this market, in the

homebuilders today, because they're managing to outperform on the back of a couple home sales reports lately that have come in stronger than expected. >> that's absolutely right. the homebuilders had a nice existing home sales report today. we're seeing some nice buy-in there. that's sort of one part of this recovery picture. obviously, a lot of focus on the labor market in general, but to touch on a lot of the guests' poins, we've had a strong run-up especially over the last six weeks, so perhaps a little breather before the dull summer months. bigger picture, i think there's a strong uptrend in place and i think it often lasts longer than a lot of people would expect. and i am not seeing that overwhelming amount of euphoria and optimism. there's still i think a healthy bit of skepticism from market participants that ultimately tells me perhaps we are not near that major market top. >> brian, a depressing bull market, but yet, consumer confidence report came out today, looked very good. what are they so confident about, i wonder, right now? >> bill, i think when you look at this one, remember, we've seen a massive amount of the american balance sheet since

'08-'09, so that's clearly supportive. i think also that you're seeing job creation. that's proving supportive for the plight of the consumer. remember, over 77% of our economy, so that's a big, big deal here. as we look forward here and looking at this depression, i think you need to look at the fact that the market has climbed a wall of worry here in 2014. we should note that. but more importantly as well, you know, you don't have that froth that you felt in the late '90s, and looking at even in the mid-2000s. so, we think you still have room. we're 20, 25 to the top end of our target range here for 2014. we think there is still up side, but we also want to make sure that we have a balanced portfolio, that we have those international allocations, we have emerging market volatility allocations, that's been decent year to date, all slices of pie to improve performance moving forward. >> another important thing. >> go ahead. >> not to let the data really speak for what we're seeing in the market. and one of the things that's really key right now, not only are we seeing housing prices rise and we're seeing consumer

confidence up, if you speak to individual companies like mastercard, for example, they're saying that they saw tremendous growth in sales over the last month, over the last two months. so, they're releasing data on a much more regular basis, and it's certainly forward looking relative to the market. it might even be a great time for consumer discretionary, which did so poorly during the first quarter when we had horrific snowstorms and weather issues. this quarter i wouldn't be very surprised at all if they, you know, all these retail names, consumer discretionary in particular, really picked up. consumers are ready, willing and able to lend. and finally, the banks are getting the loans out there. >> yeah. >> okay. and that's been an unloved space, as you mention. we'll see if there is a rotation as we start towards the second quarter. thank you all for now. >> thank, gang. >> appreciate it. we've got 50 minutes to go and the dow's off 100 points, down 107, in fact. 16,830 as it retreats from the 17,000 mark, bill. and the nasdaq has also now turned negative, off by almost

seven. >> and you know, as this sell-off continues, i'm not convinced it's all about the situation in iraq, either. i mean, not all of the markets are responding the way you would expect them to. so, maybe it is just some profit hrvesi profit-taking as sam is saying as we head to the end of the quarter. coming up, chief economist of goldman sachs jan hatzlus, if he's bullish on the economy and his thoughts on inflation and what could trigger worries for feds and consumer wallets. that's coming up. also, check out vertex pharmaceuticals, surging on news that two of the drugs tested successful in treating cystic fibrosis. on a rally. the ceo will be here to talk about how much the treatment could boost the company's bottom line. and forget about argentina's world cup game against nigeria tomorrow. argentina itself is taking its battle against u.s. hedge funds to the public by running full-page ads like this one over the weekend here in the u.s.

meanwhile, negotiators for the financially struggling country are meeting with those hedge funds to stave off some kind of debt default. we'll tell you why it matters to your for the folio when kelly and i come back on "closing bell." so what i'm saying is, people like options. when you take geico, you can call them anytime you feel like saving money. it don't matter, day or night. use your computer, your smartphone, your tablet, whatever. the point is, you have options. oh, how convenient. hey. crab cakes, what are you looking at? geico. fifteen minutes could save you fifteen percent or more on car insurance.

welcome back. >> welcome back. argentina -- sorry, bill, go ahead. >> let me tell them about the market, first. >> yes, please. i don't know, yeah. >> if you're just joining us, we are seeing selling. this is the first appreciable volatility we've seen in a while, kelly. we're down 123 points on the industrial average, and this started around midday. whether it has to do with iraq is debatable and the situation there, but be that as it may, we are seeing this appreciable sell-off. the dow and blue chips are hardest hit, down 7.4%, while the s&p and nasdaq are down a little less than that percentagewise here. now, argentina waging war with wall street, the country battling with u.s. hedge funds, now asking a judge to issue a stay of his ruling against the country in order to avoid a new credit default. >> this comes on the heels of argentina launching that marketing blitz over the weekend looking for support against the hedge funds in the form of

full-page ads. three of the usa's most influential newspapers ran those ads over the weekend. more now on argentina's marketing strategy and whether it could pay off, we're joined by theresa barber. thanks for joining us today. >> thank you for having me. >> quick history lesson. 2002, argentina reached an agreement with their bondholders at that time to avoid default? all but what, 7% of the bondholders opted in. it's the 7% holdouts that they're now faced with negotiating with right now. what are they after? where do you see this going here? >> well, i think the crux of the matter is that there is no bankruptcy law for companies -- sorry, for countries. companies can declare bankruptcy. the city of detroit can declare bankruptcy. >> right. >> but countries can't. so, they have had this other offered mechanism where they negotiate with their bondholders. and obviously, argentina did not

have a clause in there that said that the holdouts would be dragged along with 93% of the people who agreed to restructure. so, that's really at the crux of this matter is that we don't have a good mechanism for countries to go bust. >> and teresa, there are implications here that the u.s. ruling the way it has mean effectively that argentina can't even keep paying the people who will hold its restructured or previously defaulted on debt without paying some of these holdout funds first, because then those funds will be held in contempt. so, a lot of people are wondering, as this june 30th deadline looms, what argentina does with a series of ultimately bad choices here. >> yes. argentina actually has three problems. first of all is the ability to pay. if all the holdouts were to get 100 cents on the dollar, then that would be $15 billion they'd have to pay out, which is more than half of their reserves. so, there's the ability to pay

issue. secondly, they have this coupon payment of $1 billion that's due on june 30th. if they also have to pay another $1.3 billion to the holdouts, there is a real issue of whether they can actually come up with the money. and then the third issue is there's a law, speaking of rule of law, in argentina that says the government may not give a better deal to any other creditor than they gave in the 2005 restructuring. so, many people think what they might do is put $300 million $400 million in escrow right now, and then after this law is no longer in effect at the end of 2014, negotiate with the holdouts january 1, 2015, but it's complicated. >> if the holdouts are willing to wait that long, that's for sure. >> and if a u.s. judge is willing to go along with that. >> yes, exactly. just more of the complications there. so, we've teased what this should mean to people's portfolio here in the united states. why should investors in the u.s. care about argentina's ability

to pay off its debts right now? >> i think the reason they should care is that it's important for all developing countries. because for example, we went through the example of greece. greece was bust. it needed to have some sort of bankruptcy protection. but since that doesn't exist for countries, they had to have another mechanism. now, if everybody thinks, oh, i can be a holdout and ultimately get 100 cents on the dollar, why should anyone go to the negotiating table when there is a default situation? >> and that, teresa, brings up the central problem here, which is that for a lot of people, they'd say, well, fine, if you want to offer some way internationally of providing a route to bankruptcy, doesn't that then lead to moral hazard? in other words, won't that encourage countries to be more propagate, to not be fist capitally responsible, et cetera? do you see another option, instead some kind of international overriding, maybe the imf does something to

standardize the process now that argentina has made this much more difficult by bending how it was traditionally handled? >> yeah, possibly those interested in the international financial architecture, like the imf, might do something at that level, but more practically, i think what will happen is that contracts that are written between bondholders and bond issuers will include a drag-along clause that says if a supermajority of people agreed to restructuring, then you will be dragged along. to date, a lot of these drag-along clauses haven't been very good, but i think we'll see them get better. on the other hand, of course, the purchasers of bonds might want to have exactly what argentina had so that hedge funds can take advantage of it. >> yeah. lesson learned. have that drag-along clause, that's for sure. >> have the drag-along clause, yeah. >> teresa, thank you for joining us. >> it's been a pleasure. thank you. all right, heading toward the close, see how we're doing with 40 minutes left in the trading session. we continue lower. this is the low of the session, i think right here, down 128 points on the dow industrial average.

>> it could be a long 40 minutes still as people look to see how much deeper this sell-off today could go. what's the best state for business this year? our scott cohn has been giving his all day and he'll join us live from the mystery winner in just a few minutes. >> we don't know who it is. my guess, colorado. i think i'm on to something with that, i don't know, based on the hints he gave earlier. we'll see. i've been wrong before, many, many times. next, goldman sachs chief economist jan hatzlus with his view of the economic recovery, fed policy and how soon interest rates could rise, lift-off economically. we'll talk about it coming up. [ both ] when we arrived at our hotel in new york,

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welcome back. the dow jones industrial average off 125 points, having its worse day in over a month. in fact, the s&p off by two-thirds of 1%, down 1,950 right now. we began with the nasdaq slightly negative. we began the hour with it slightly positive. it has since turned around, joining the other two. now, philadelphia fed president charles plauser spoke earlier today and suggested the economy is recovering so quickly, the

fed may raise rates sooner than people expect. >> i believe we are closing in on our objectives, perhaps faster than many might think. so, while i supported the recent policy statement, i have growing concerns that we may have to adjust our communications in the not-too-distant future. specifically, i believe that forward guidance in the statement may be a bit too passive, given the underlying economic conditions. >> joining us in an exclusive interview, we're always pleased to welcome back jan hazlus, chief economist at goldman sachs. jan, welcome back. >> good to be here. >> do you agree with mr. plosser? are we going to be seeing lift-off sooner rather than later? >> i agree with the idea that we're closing in on the objectives. i think in general, the news has been pretty constructive. they continue to pick up, despite the weakness in gdp in the first quarter, so i agree with that part, but my view is i think there is more room to go before that calls for monetary policy tightening. i think that's still a long way

away. >> we had robert shiller on this morning, talking about stocks being at the high end of historical valuation, saying again, in doesn't preclude them from going high, but they are. do think the combination of that, plus the economic improvement you've mentioned would lead the fed to be more reactive, this fed, anyway. >> i mean, i think asset prices do matter, of course, because asset prices transmit the impulse of easing monetary policy to the economy, so the more easing of stock prisices, e more credit spreads you get will lead them to lifting the rate and moving. but while we're clearing closer to the levels of financial conditions that would call for that than we have been really throughout this entire recovery, we're still not there. it's still not yet time, and we think it's still going to be, you know, some time early 2016, maybe late 2015, but that's still quite a ways off before you need to tighten.

>> are there weak spots in the economy you're looking at that tell you that, or is it just you don't feel this growth is sustainable without further easing by the fed? >> i would say neither. i think while there are clearly some weak spots, i mean, there's housing, but i do think that we're starting to pull out of that weak spot on the housing side. i do think that the growth pace is sustainable. i just think that we're still climbing out of the hole that we fell into in 2007-2009, and when i look at where the labor market is, and in particular, when i look at where wage growth is, which is still really only 2% if you average through all of the different indicators, that still tells me that there's a reasonably long ways to go before you really want to take steam out via tighter monetary policy. >> i mean, do you think inflation will stay roughly in this 2% year-on-year range that it's in right now, especially against the backdrop -- and we're going to talk about this in a little bit, but pwc today

saying it thinks medical costs, which have been an important part of disinflation, are going to rise in the years ahead? >> i think for cpi around 2% seems about right. i think that's probably what we're going to stay. by 2015 i think we might be a little bit higher than 2%, but bce is the index that defines the target and the fed's primary index, and that is still well below that percent and will be a while. my expectation would be until after the end of 2015 before we get to 2%. >> well, i'm curious, if you feel the growth rate is sustainable at this point, why prolong the quantitative easing process and delay the raising of interest rates? what would happen if we started doing that sooner rather than later, do you think? >> well, i think -- i don't think anything dramatic would happen if there was some monetary policy tightening, but if you're still missing your

mandate on the employment side, on the weak side, and inflation is still below your target, unless you have a strong view that you're going to get there really, really quickly, then i think you still want to err on the side of more monetary accommodation rather than less monetary accommodation. i think that's sort of the rationale. i mean, of course -- >> you know what fed critics say, just, you know, stop it now cold the way they stopped qe-1, the way they stopped qe-2, and let the market mechanisms of the economy do their thing to try and keep this economy going at some point. you know, why slowly take us off the morphine drip the way you are? just stop it right now. >> so, i mean, i think on the qe side, of course, we are in the process of winding that down and everybody's expecting that it will be wound down either by the october or by the december meeting. so, it's really more about the question of whether you want to

lift interest rates in an environment where you're still missing your mandate, both sides of your mandate on the weak side. and you really have to decide whether you would rather see more growth or less growth in the short term, and there are definitely environments in which the fed will want to see less growth, because they're worried about overheating and excessive inflation. but when you're missing on the other side, i just don't think it's the right time. >> all right, then we heard that from janet yellen, her rhetoric certainly wasn't along the lines of trying to spook markets this time around, bill. perhaps having learned or seen the reaction of her more hawkish, as some might view her comments last time. jan, good to see you. appreciate it. speaking of which, former minneapolis fed president gary stern is going to sit down with me next hour of the show. wait until you hear the grade he gives fed chair janet yellen, straight ahead. >> meantime, we have 30 minutes left in the trading session with the dow down 112 points. we've come off the lows of the

session, but still, biggest decline we've seen here, the worst day for the markets since about may 20th, so about a month. coming up, how in the world did lois lerner's e-mails vanish? the former irs executive is at the center of the targeting scandal. a congressional panel is digging deeper into the e-mail disappearances today and we'll have the latest developments. and up next, it's been the stock of the day, vertex pharmaceuticals ceo on the successful clinical trial of two of its drugs in treating cystic fibrosis. wall street sent that stock soaring by 40% today. meg terrell talking to that ceo after we come back after this.

welcome back. a sell-off on wall street today, especially the second half of the day. we had pretty good minor gains on the open this morning, but now down 118 points on the dow, backing away from that 17,000 level. nasdaq's down 17 points. the s&p down 12. kelly? dominic chu is tracking some of the big movers. >> starting with energy, the sectors, the worst performing one in the s&p 500 today, but it's still the second best performer so far in 2014. so, to keep things in

perspective there, energy a nice run, taking a pause today. now, a rough day for web.com shares, falling more than 20% as google announces it's begun testing a competing service that registers internet domain names, so a big competitor possibly coming to web.com. also, a strong day of trading for some of america's biggest homebuilders. better-than-expected data on the new home sales front jolted shares of big names like d.r. horton, lennar and pulte, all bucking the trend, up on the session. and groupon popping 6% at one point as analysts at piper jaffray say the deals on their website are expected to rise by 30% this year. but remember, the stock groupon has dropped about 40% in 2014. there's still a long way to go for that stock. lastly, finishing off with vertex pharmaceuticals exploding! this stock is up 40% on the day. investors are sharing the positive news that its drug combo is an effective fighter against cystic fibrosis, so those shares rocketing higher on that piece of news.

back to you. >> that's been the stock of the day, dom. thank you. more now on why this new therapy is such a major development for vertex, bring in our biotech and pharma reporter meg terrell. meg? >> reporter: hey, there. we're here with vertex right now, and this has been a huge day for the company, reporting phase three data on their cystic fibrosis drugs. this is a combination of two medicines. we look at how they work. cystic fibrosis is caused by mutations to a gene known as cftr. when the gene's dinefective, it hampers the movement of fluid across the cell wall and leads to thick mucus in the airways. the first medication to address the disease was kalydeco. only about 2,000 patients with cf have mou tasions that that can help alone. more have a bigger problem. the protein can't get to the membrane at all, so vertex is testing lumacaftor, which aims

to help the protein get to the cell wall, where then kalydeco enables it to open a passage for chloride. the combination of the drugs could help more than 14 times as many people. joining me now is vertex ceo dr. jeffrey leiden in a cnbc exclusive. dr. leiden, thank you so much for joining us. >> thank you for having me, meg. this is a wonderful day for cf patients and their families. >> absolutely. maybe you can put into context how big of a deal this is. the stock obviously reacted well, but for patients with such a hard disease. >> i think you showed it nicely on your video. this was a tough problem and one that vertex scientists have been working on for 15 years. the idea was to design a set of medicines that can actually treat the underlying cause of cystic fibrosis in the most common form of the disease that affects 22,000 people around the world. >> and the clinical impact, let's talk about that, because some people might look and say 2.64 percentage points.

how significant is that pore people? maybe you can put that in context. >> let me start for the viewers by putting the disease into context, which is, this is a disease, as you know, that affects children and young adults, and it's a disease that affects many different organs in the body, but the main one is the lung. over time, these kids lose about 2% of their lung function every single year, so it gets harder and harder to breathe, until finally, they get infections, and unfortunately, they still die in their mid to late 20s of their lung disease. so, you can understand the urgency of this kind of medicine. until today, we really didn't have treatments that treated the underlying cause of the disease and prevented that decline among them. when you look at our data, what it said is treatment for six months with this new set of medicines caused an increase, we actually gave patients lung function back, of about 3% to 4%. we increased their pulmonary exacerbations, so the flare-ups and infections that cause them to go into the hospital and require iv, antibiotics and et cetera, and they gained weight,

because these kids usually have a problem with losing weight from mall absorption. when we talk to families and kids with this disease, they say that every percent improvement in lung function, every pound of weight gain they get and every day they don't have to spend in the hospital is really meaningful to them. >> let's talk a little bit about price. we have to address this. it's been a huge issue. orphan drugs often cost hundreds of thousands of dollars, kalydeco above $2 hoappened,000. that's the first drug. how are you thinking of pricing this and are you taking pricing into consideration when you're doing that? >> it's way too early to talk about the price of this new regimen. we've only seen the data for, you know, the results for a few days, really. what i can tell you is everybody at vertex right now is focused on two things, getting this medicine submitted to regulators and approved and out to patients, and then bringing our next set of medicines behind this that offer potentially even more benefit forward in our pipeline and out to patients. right now for the next year, that's where we're going to be

focusing. >> absolutely. and to help people understand, you have an orphan drug price around $200,000. can you help people understand what goes into that pricing? that might seem high to a lot of people. >> well, we think about a lot of things when we set the price of a medicine, right? first one is how much value does it bring to patients? and as we've just discussed, we believe this new medicine brings a lot of value to patients in all those different ways. also, the size of the population. our first medicine was approved for over 2,000 patients worldwide. this medicine has the potential to help more than 22,000 patients worldwide, and that will certainly go into our considerations as well. first we have to get the drug approved and out there to patients. >> of course. and you mentioned, of course, there's a lot of kids with this disease. this study was done in patients 12 and up. how are you looking at when to get into younger patients? there's probably a lot of people clamoring for use before you can get it approved. how are you thinking about that? >> i think the right thing to do and what we did was first try it in kids 12 and older, because obviously, until we know more about the safety of the drug, we don't want to try it in young children. but one of the reassuring things

about these results is the drug was well tolerated and safe in these older patients. and so, our plan is now very quickly to move it into that younger population of patients, and the reason is, we think if we can start treating kids early, before they lose that 2% a year lung function, we actually might be able to modify the course of this disease, and that's what i'm most excited about. >> absolutely. dr. leiden, thank you so much for joining us. >> meg, great to be with you. >> back to you guys. >> aon a day where their shares are rallying. bill, providing hope at potentially a cost for families and people suffering with cystic fibrosis. >> sure hope that works out. 20 minutes to the close. the dow is off 121 points, just off the session low, still one of its steepest sell-offs in more than a month. the s&p is negative by what, 13 at the moment? wow. and the nasdaq off 20. >> we've got the top state for business revealed next hour. what's your guess? do you have one? >> mine's washington. >> okay.

so, we've got the two pot states. i'm guessing colorado, you're saying washington. >> the pot states, yes. that's right. >> right? >> yes, that's right. >> anyway, scott has been giving hints since yesterday, revealing the top five all day. number one will be revealed next hour here on "closing bell." >> i can't wait for that. also ahead, former minneapolis fed president gary stern gives us his take on inflation, fed policy and when he sees the central bank hiking interest rates.

welcome back. so, a bit of a bid for treasuries today as the yield sinks below 2.6% and red arrows across the board for markets. the dow off 110 points. cnbc, meanwhile, highlighting the top states for business, but it's still a big mystery which state is at the top. >> senior correspondent scott cohn is in that state. where are you again? >> reporter: i'll tell you in about an hour. i like your idea of pot states for business. we're always looking for spin-offs, and that could be interesting. we have been counting down all day america's top states for business. we're going to reveal the full study, including where your state stacks up in about an hour on the "closing bell." for now, though, a reminder of where we've been. state number five is north carolina, with an improving economy and abundant workforce.

four is nebraska, a business-friendly state with an economy that's chugging along. number three is utah, a perennial favorite that is attracting lots of business capital. number two again this year, texas. solid economy, great infrastructure. but costs are rising and health care remains an issue. so, who is number one? we've been giving you hints, starting yesterday. let's recap those as well. the hints are -- don't cry for me, famous brownies, a long way to learn, i feel the earth move and can't get it out of my head. so you know, you can keep on guessing for the next hour or so. follow us on twitte twitter @scottcoencnbc, use #topstates. when we reveal the number one state in about an hour, you will then be able to go to topstates.cnbc.com, see where every state ranks. we've ranked all 50 states in our ten categories of competitiveness. it's coming up, guys. >> so, i guessed colorado. kelly, you guessed washington. one of my tweet buddies just

sent something else, and i think he may be on to something here. i don't know. i won't say what he guessed, but -- >> i have been enjoying following it along via twitter, scott, so keep it going. >> everybody's been putting their guess out there and it's fun that there's no real consensus on who it is yet, and we still can't tell based on your background there, too. >> and a lot of the front-runners were just ruled out. >> no south dakota -- >> what was that? >> don't know. okay, thanks, scott. see you next hour. good stuff. heading towards the close, about 13 minutes left in the trading session here. coming off the lows, the dow down 103. i think we were down almost 130 points at the low here. if you've seen fatter health care bills lately, you're not alone. a new study may make you feel ill over where health care spend is heading. we've got the details for you in the next hour of the show. [ male announcer ] the mercedes-benz summer event is here. now get the unmistakable thrill...

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ten minutes left in the trading session with the dow down 100 points. we were down about 128, 130 at the low within this last hour. joining me, our buddy from o'neil securities, kenneth

bacarri what is this? we have the report that syria had flown into iraq and bombed and killed 50 people and that's when the market fell, but it didn't feel like it. >> that's just when the market fell, but all that really tells you is the simmering nervousness underneath, right? the market's a little bit overbought, looking for traders and investors are kind of looking for reason to take some off the table. you've got a report like that, which was kind of out of the blue, even though we understand there's unsettling in the mideast at the moment. you get a report like that, it causes people to say, you know what, let me take some money off the table. it's exactly what you saw. >> heading toward the end of the quarter, any of that? >> maybe a little bit, but there's a big rebalancing on friday, and actually, the end of the quarter's on monday. i think the market's going to be held tight in here through the end of the quarter. i don't think they're going to challenge 17,000 before the end, but nor does it feel like it really wants to collapse. i think it just feels like it's much more of a traders' market. >> meantime, some of the economic data have been fret go pretty good. the consumer confidence, even

though that can be volatile, was pretty good, the home sales number also. the housing data has been pretty good lately. >> it has been good, and the market is a little bit ahead of itself, a lot of people saying it's a little bit in overbought territory. so, even though it's getting better, the market's been churning. it's not been collapsing nor taking off, just churning and trying to let the fundamentals catch up to where it is, so it makes perfect sense. >> so, what are you doing right now? >> what am i doing? >> i asked you first. >> i'm actually -- no, right now i'm just hanging out. i've got customers that i'm trying to clean up a couple things on either end, buy and sell, so i'm not weighted one way or the other. i've got people tweaking the position. >> this is not a dip you would buy here necessarily? >> not yet. also, it's late in the day, right, so nobody's going to really take it. they'll wait and see what the news looks like overnight and then tomorrow will be a new day. >> do you watch gold at all? do you watch oil? >> yes. >> oil has really perked up here. that in some ways could actually be good for the stock market,

and especially the energy stocks -- >> certainly for the energy names, but listen, gold and silver, look at those precious metals, they've rallied. that tells you they're a little bit concerned about inflation. >> right. >> when stocks like that are rally after the janet yellen commentary, they tell you it's a little bit concerned about what it's really saying about inflati inflation, so keep your eyes on precious metals for sure on how they react over the next few trading days. >> and art cashin's always telling us to watch the ten-year yield, especially if it goes above 2.6%. we're below it today, but it's been hovering around that 2.6% level here for a while. >> right and you've seen what the market's done, it's been struggling, the market, not really sure which way to go. >> thanks, kenny. >> yep. >> see you later. we'll take a break, come back with the closing countdown for this turnaround tuesday. by the way, shark tank tuesday, too. wait until you see the panel coming up next hour. after the bell, this story getting a lot of traction on cnbc.com. yahoo! ceo marissa mayer showing up two hours late for a dinner

with big ad executives. two hours. reportedly because she overslept. really? kelly and the gang will throw that up for discussion in the next hour of the "closing bell." you're watching cnbc, first in business worldwide. ♪ ♪ [ girl ] my mom, she makes underwater fans that are powered by the moon. ♪ [ birds squawking ] my mom makes airplane engines that can talk. [ birds squawking ] ♪ my mom makes hospitals you can hold in your hand. ♪ my mom can print amazing things right from her computer. [ whirring ] [ train whistle blows ] my mom makes trains that are friends with trees. [ train whistle blows ]

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the day, and it was around midday when it started to fall and we got those reports that syrian jets had flown into iraqi territory, bombed and killed 50 people. was that the reason we saw the sell-off? anybody's guess at this point. hard to say. the yield on the ten-year fell as bonds were purchased, and that pushed it below what art cashin has identified as a key level of 2.6%. there it is at 2.57%. at the same time, interestingly, the vix, the fear indicator, perked up. this is the best day it has had since april 7th, up about 10% today, bob pisani. what are you hearing? what was this sell-off about? >> don't drive yourself crazy looking for a reason sometimes. >> that's my job, though. that's my job. >> i know. just watch the tape. what i saw here was the number one momentum group is energy, has been all month. it's the best performer on the s&p. we saw energy stocks, which were weaker late in the morning, sell off notably after about 1:00, 12:30, 1:00 eastern time.

then we saw other momentum names, airline stocks, for example, weaken. we saw semiconductor stocks weaken. what does that mean? well, you had all sorts of ideas and rumors out there, but the bottom line is with momentum names in a market like this that's fairly thin, you don't need a lot of reasons to sell off. you need a rumor of a reason to possibly sell off. so, rather than exhaust yourself trying to figure out, was it iraq, was it syria, or was it a sloppy bond auction? i heard people mention the bond auction at 1-5. maybe that was a factor. whatever, we don't need a lot of excuses. we are slightly overbought for some of these momentum names, and particularly in energy stocks, so a name like an eog, for example, dropped about 4%, on what? on virtually nothing that was out there, but those have been names that are now heavily bought and traded, and an eog, there you see. there was no news out on eog today. >> right. >> but you see that drop. around noon it started to move to the down side. that's what it is to be a momentum name. >> and you should have seen oil perk up on this word out of

iraq. that didn't happen as well. that maybe is even more telling about what is going on today. >> oil dropped -- thank you. >> there it is, see? >> oil dropped at 1:00. if there were serious concerns about whether sunni militants had taken control over refineries completely or lost some control, you know, these pieces of rumors we heard didn't correspond with the way we're watching the market move. so, rather than exhaust yourself, we don't have clear information on what's going on there. we just watch the tape. the tape saw the momentum names drop. those are overbought on a short-term level. so, for whatever reason there was some profit-taking in some of the momentum names. and what i thought the most important thing today was those excellent new home sales numbers, confirming the existing home sales numbers. and the s&p rose at 10:00 on that. there is a clear piece of news that you could trade on. there is a clear piece of news that the market reacted to. >> until midday. thank you, robert. see you later. have a good one. we're heading toward the close here, down more than 100 points.

so, the biggest decline we've seen on the dow pointwise since may the 20th. stay tuned. coming up, second hour of the "closing bell." and yes, scott cohn reveals the best state for doing business, coming up now with kelly evans and company. i'll see you tomorrow. thank you, bill. you're watching the "closing bell," everybody. i'm kelly evans and here's how we're finishing off a tough day on wall street with all three major indexes turning negative. in the last hour of trade, the nasdaq joining the other two, losing momentum already, and it looks like the dow is going out with its worst day in a month, down 113 points, the nasdaq giving up 18, the s&p giving up 12 and the vix moving up a little bit today. let's get right to it with today's panel. ayman jeffeeamon javers up from. and eli from the "washington post" and mike san tilly from yahoo! finance.

and "fast money" trader guy adam adami. did dubai help? >> that's a ridiculous number. that's clearly not a great thing. i was talking to b.k. and brian kelly at the same time. he said those housing numbers in a bull market, the bull should have grabbed on to this and run, and they did early, but then we failed. so, it's sort of interesting. i mean, again, i am not going to make a big deal out of one day, but i'm still, and i said it to you a couple weeks ago, so i've got to be true. i've been wrong, but i think the s&p would trade down to 1,860 by the end of the month. i've got four trading days left and we'll see. i think there's a shot of that happening. >> that's actually what sam suggested last hour, maybe this has something to do with the looming end of the quarter. mike santilli, i'd like to know what year this is. >> i was thinking 2005. we've already had bigger gains than 2005, which was a range-bound market, not much digesting last year's gains. it seems like there was a real

nervous equilibrium, near all-time highs, and the market seems to be saying what else you got? good economic data, as guy just mentioned, didn't really tack on too much there. and everyone was saying we were overbought, everyone was saying the ranges were too narrow and i think this was the path of least resistance, where they could just come in a little bit and let's all acknowledge that when volatility has been almost nil, 60 basis points seems like a lot, and that's what we're talking about. >> and lance it was also referenced from comments from robert shiller earlier on the network, where he said markets had been this highly valued based on how he looks at things in 1996. he warned about excessive valuations then. of course, things continued to take off. do you see parallels between the period we're in today and the late '90s? >> the bubble? yeah, i actually feel like there's a lot of opportunity. when i see the market going up, when i see companies investing, companies acquiring, you know, google just bought dropcam. this is about excitement that there's all these new technology markets, new spaces that they

can expand into, and that's what they're doing. so, i don't have that same feeling. >> i covered that dotcom bubble back in 1990, and it's a totally different feeling, because you could sit down with financial experts who could walk you through the balance sheet of a company and explain, this is why this company is going to lose money every time it sells in the broad market and you don't see that kind of thing now, where it's a totally fictional company that can't possibly make money. that feeling is not in this market. >> elan, this is something that the fed is thinking about as well. the journal was writing about how complacency may spur more response from the meeting last time, but that didn't seem to be the case. >> you saw janet yellen mention the word uncertainty in her press conference eight times, so there is a shift in messaging from the fed to say if the data turned out better than we said or by the forecast, which it has been for the past four or five years, we might have to be a little different. you can't ignore the fact that the economy is moving closer to the fed's goals. i was at charlie costa's speech

this morning where he brought up the point that hawks have been wrong about inflation for many years, but one thing they might be right on is how quickly the unemployment rate comes down. it's all going to depend on whether or not discouraged workers come back into the workforce. it's been predicted since 2010 and we haven't seen them come back yet. >> that's what's different from the 1990s. so much of this depends on what the fed says. policymakers in washington major make a huge deal over the market. while we are seeing a huge number of ipos out there that people are worried about, so much matters what they decide in washington. >> think about small companies, small businesses. we just had two developer conference conferences with myspace. apple and google kicks off tomorrow. that's a lot of entrepreneurs, small businesses, making apps and making money and that goes into the economy. so, i think that is part of it that i don't feel is always properly measured, but it's a very important and exciting part. >> in terms of trying to draw analogies to the late '90s, basically right now, any of these trends that are usually

what feeds bull markets, you can talk about m&a, you can talk about really generous credit markets or low volatility. we've now been conditioned to lead to saying those are excessive, they're negative, they're going to be the downfall, whereas they're really good trends until they get too far. and 1996 is a great marker right there, because that's when we did an overshoot phase to the upside in the '90. >> the whole psychological part of the irrational exuberance in 1996, right now might be irrational skittishness because people have stepped away from the market. they've been badly burned from the 2008 financial crash. they're not coming back in, they're not as enthusiastic. you don't have the kind of guy on the street saying i'm whole hog, i'm going in. that dynamic is missing and that's what makes it different. >> by the way, to go back to the pain that is out there right now connected to the market being at all-time highs, it's the fact that a lot of the macro funds, a lot of these credit funds, hedge funds were betting on more volatility. they were effectively short

macro developments. and you know, the phrase this year you hear over and over is kind of long and wrong with regard to the market keeps moving to the long side of a lot of these positions, and they're the ones who are left wrong. by the way, losing money, getting fired by clients. so, this, i guess, sets up the pattern or the question for the back half of this year -- is it more of the same or do we feel like we're at some sort of point, reversal point here? >> inflection point. that's what everybody's looking for. you know, mark haines, may he rest in peace, he was a genius. i think that when mark basically called the bottom, i think what he effectively did is, there had been a rash of people that now want to be the guy or gal that calls the top, which is why we have these conversations about inflection points. but nobody rings the bell at the top, as we've said a gazillion times. you're just looking for some of the signs, some of the warning signs. and i keep coming back to it, but this is as stubborn a bond

market as there's ever been. and for a rising rate environment, rates sure have a way of staying stubbornly low. and i'm still in the camp that it's not just the u.s. i mean, you talk about it all the time, kell. just look at yields around the world. i mean, you're talking about crazy levels. and if growth is where the market suggests that it is, then rates should be higher. it's just, to me, it's just, at some point, something's got to give. it hasn't yet. maybe it will in the back half. >> and the markets, i guess, mike, have their own version of the usa/germany match, which is to say, how does that yield spread -- >> wait, do you know how that's going to turn out already? >> i guess on the markets. the soccer game -- football game, sorry, i wouldn't try. >> football. >> is it that that spread is an historic wise and that has caught a lot of people wrong-footed as well. >> exactly. so, essentially, a scares to the income is the reason for low equity volatility. i mean, the idea that you're kind of stretching for this extra yield and looking for the

incremental spreads wherever you can find them and selling volatility into it is where we got today. to me, the key is going to be, assuming we get a little more sell-off, a little more pullback, kind of how the mood reacts to that, because the pattern has been we go down a couple percent in equities and it's panic time and you want to see that again. >> by the way, the homebuilders looking okay today. as we mentioned, talked about that a little bit last hour. guy, before we let you go, this move in groupon and a couple of these momentum names, for lack of a better term on a day, again, where you're seeing a little bit of a bid to safety in this market, they're popping. what do you make of the move? >> it's momentum back, maybe. i think you see the google deal, i think it's a land grab in a lot of this space. i think a lot of it is these stocks have been beaten up. i think people are getting back into them because they've become a binary play. groupon effectively is that. but there's a chance that maybe somebody steps in and grabs these guys, not unlike a lot of other names out there.

so, i think they've sold off enough where it gets interesting for folks again, and i think that's what's going on. groupon being one of them, but you're seeing a bounce back in a lot of these names, 3d printing names as well. so, does the market have it right? we're going to find out. >> i was just going to say, i think groupon's attractive because it's so much in the mobile space, so much about local and giving people deals, but it's still kind of a joke for some people. if you watch the recent orange is the new black, there was a groupon joke within there. it's one of the best jokes ever. i can't repeat it, but it is the problem for this company, you know, that it needs to really capture the imagination of the public in a way as a truly useful tool. >> well put. guy, thank for now. i think a lot of people are googling that right now. guy, good to see you. appreciate it. >> see you later, kell. >> catch guy adami and the "fast money" crew at 5:00. we'll be talking with the ceo of sunpower about their plans for solar storage. don't miss that. straight ahead here,

obamacare and higher industry plants have slowed down medical cost increases, but a new study finding prices may be about to start rising steadily again. up next, we'll tell you what's behind that and how kk be fixed. also, yahoo!'s ceo marissa mayer reportedly fell asleep and missed a meeting with top media and advertising executives. coming up, whether that's excusable behavior for a company that needs ad dollars to survive. we're also minutes away from finding out the top state for business in 2014, and you may be surprised by the result. i know we will. plus, we'll hear from the governor of that winning state just after the big reveal with scott cohn. keep it right here. you're watching cnbc, first in business worldwide.

welcome back. health care inflation has slowed significantly over the past five years. that may be about to change, though, and bertha coombs joins us now to explain why. hi, bertha. >> hi, kelly. after five straight years of declining health care spending growth, pwc is forecasting an uptick in 2014. researchers see costs rising 6.8% for large employers next year. that's a slight increase from the 6.5% growth projected for this year, driven by some troublesome trends with the

improving economy, workers are no longer delaying costly procedures. and now, fewer big drugs are going generic, so new high-priced drugs perhaps driving speciality pharma costs up dramatically, while the consolidation of the health systems is driving up prices for care. employers are battling price increases by making workers dig deeper into their own pockets. 18% of large employers offer only high deductible plans and 41% are considering high-deductible only plans in the next five years and 85% are considering cost-sharing measures like flat-rate reimbursements and using preferred cost-effective providers and prodding workers to be overall better health consumers. it basically means, kelly, that we all have to be more responsible about how we spend our health care dollars. >> yeah, well, having more of the impact on consumers is certainly one way of doing that, bertha. thank you. now for more analysis, the man

behind the study, rick judy, a principal at price waterhouse coopers industries. rick, welcome. >> thank for having me. >> look, this is a trend that not just consumers as we're discussing, but also economists are watching, because frankly, the drop in medical inflation has been part of the drop in overall inflation, so do you think we're at a turning point here for it to move back up? >> yeah. i think you summarized it well. we've seen five years of decline in the medical cost trend growth trend, and now we're at that point where it's starting to tick back up. so, it's a warning sign for all those in the industry, but it's also very encouraging, because the history has shown us that when we have come out of these recessions and the economies have improved overall in the u.s., we've typically spiked much more dramatically than where we're at now, so it has moderated. >> well, before i bring in the panel, why do you say it's a warning sign to the industry? if anything, and i'm reminded by reading "the economist" about some of the pressure the health

care industry was feeling about lower cost increases over the last couple years. if anything, this is relief on that front, right? consumers are bearing more of the brunt of this. >> yeah, there's definitely a growing trend around consumers and their having to take more responsibility for their health care, and that's quite concerning as the trend continues to grow. however, we feel that that cost-sharing puts more of the onus and responsibility and accountability on the consumer. and what that's driving is greater transparency in the industry, and ultimately, we feel that that will drive cost down and quality up because of that transparency. >> i see. i see. >> rick, it's eamon javers here. i'm based in washington full time, so we've spent a lot of time covering obamacare, and i know your study might not have gotten into some of the effects we're starting to see, but the purpose of the obamacare national experiment was to bend the cost curve of health care, and i'm wondering what you're seeing on the cutting edge. are you seeing that cost curve starting to get bent as a result of what this country has done or

is that not happening in the real world? >> we're very optimistic about some of the foundational things that are happening in the industry. some of the things around risk-based payments and those types of experiments, as you call them, that are going on in the industry, are really starting to bear fruit. when we talk to hospital executives, they're embracing this and preparing for a world that's going to be shifted away from fee for service and more towards these risk-based types of schemes. so, we're encouraged by that. i think we're also encouraged by the focus within the industry around cutting costs, and that's with hospitals, insurance companies and the like. they're very focused on the administrative cost-cutting initiatives, whether it's the supply chain, whether it's creating shared service functions, but also on the clinical side in trying to drive some standardization across their hospital systems in a way that they haven't seen before. so, we're encouraged by that. >> and when you talk about cutting costs, are you talking about cutting out waste and fat in the system or are you talking

about cutting costs that are going to matter to those of us who are consumers of health care? when i go in to see my doctor, i'm not necessarily worried about how much it costs, i'm worried about whether i'm going to get well again, right? >> well, i think there's a lot of dynamics that are driving this. i think fundamentally, there's inefficiencies in the system. and so, whether they're administrative or clinical inefficiencies, we've got to embrace those cost-cutting opportunities. i think wiring up the health care system the way that we're doing now, while it's adding costs in the short term with all of that i.t. investment, it's going to be a system that's going to expose, i think, a lot of other inefficiencies and expose the data to the consumers, to the clinicians and everyone, the like. >> mike, do you think this time will be different, that this recovery, despite the increase they're forecasting, because more of the brunt is put on the consumer, it will keep prices in check or no? >> i think yes, although i think it gets very muddy, because overall spending is going up because overall consumption is going up, right? i mean, it's hard to tease out

exactly what's a price increase versus an improved technology or treatment or just more people using more because they have access to it. so, i do wonder if when we talk about health care, inflation's going to fall into the category of those non discretionary things like food and energy if we try to strip away from the core when we're actually figuring out what's going on in the economy. >> starting to see the boomers come into the market more and more, so talking about increased consumption in health care, you'll start to see those folks ratchet up. >> and we asked the ceo how much the treatment for cystic fibrosis might cost, he said we don't have an answer yet, but the drugs are incredibly expensive. >> when you talk about the cost of health care inflation as it relates to the economic data, one thing that's important to remember is that health care costs are weighted differently in the fed's measure of inflation, pce, than cpi. and pce, medical care costs are about 20% of the total calculation for inflation. they're only 6% in cpi. >> wow. >> so, if you see medical care costs start to rise, that could

have a real impact on how the fed views inflation going forward. >> absolutely. it's why this is such an important study. rick, thanks for being here to explain it to us. good to see you this afternoon. >> thanks for having me. some people on wall street are worried that janet yellen isn't taking inflation fears serious enough. gary stern will tell us whether he's worried about inflation now. and apparently, americans are more focused on planning their next vacation than planning their retirement. the shocking results of a brand new study, later on the "closing bell." thank you daddy for defending our country. thank you for your sacrifice and thank you for your bravery. thank you colonel. thank you daddy. military families are uniquely thankful for many things, the legacy of usaa auto insurance can be one of them. if you're a current or former military member or their family, get an auto insurance quote and see why 92% of our members plan to stay for life.

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welcome back. fed chair janet yellen dismissed enflasion concerns last week, but some people, including cnbc.com's jeff cox are wondering if the fed is missing inflation threats like it missed the meltdown in 2007. >> thanks, kelly. you might not be able to tell from big market moves, but wall street's not really happy with janet yellen. it's not something the fed chair did, but didn't do, which is give inflation any serious due following last week's meeting. i've been inundated with notes from economists, strategists, you name it. they believe the fed is not taking inflation seriously enough. capital economics for one flat out said yellen was wrong for her comment that inflation is just noise, and tom pore khellie at rbc wondered if maybe this wasn't yellen's subprime moment, a reference to ben bernanke's dismissal in 2007 of the threat

that subprime mortgages pose to the economy. one more point, the day after the fed meeting, the market's black swan index, which measures extreme fear, spiked to its 2014 high and is actually up 12% this year. so, taken all together, kelly, yellen will have to be very careful about how she approaches inflation in the future or face the market's wrath at some point. >> jeff, thank you. let's get more thoughts on inflationary concerns. we turn to a fed veteran. gary stern is a former bank of minneapolis president, and he joins me now. welcome. >> good afternoon. good to be here. >> so, what do you think about those concerns that this could be a subprime moment? >> i think they're probably exaggerated at this point. i think chairman yellen is right that fundamental underlying inflation doesn't look like it's getting ready to accelerate by any appreciable amount right now. inflation -- there's a lot of inertia in the inflation process, so when inflation is low, it tends to stay low and so forth. if i had any quibble with the

fed's rhetoric, it's really about their willingness to tolerate 2% inflation or maybe something higher for a time. because if you're a central banker, you should be careful what you wish for. if it goes to 2.5%, or perhaps more, it might be very hard to rein in or bring back down to the target. so, i would be kind of careful along those fronts, but i think she's right on the underlying situation. >> and here are some of the components, in particular tom porchelli referenced, looking for signs of inflation moving back up -- rents, medical care, we were just discussing, you heard pwc's forecast there, even clothing. >> yes. you know, you can always find components of the consumer price index or whatever measure you're looking at that are rising significantly. they tend to be accompanied by components that are stable or declining as well, and i would point over time, at least, to things like technology and electronic items, where especially when you think of all

their attributes today and all the things they can do on a quality-adjusted basis, the prices of those goods and services have come down a lot. so you know, i think the environment is more balanced. >> well, the environment also depends, of course, on whether consumers can accept these price increases. so, if it is happening that rents are moving higher, that there's upward pressure on medical care, for example, and people don't have incomes rising along with that, doesn't that mean that the consumer price index is almost more of a gauge on consumers than upward pressure of inflation? >> well, that's right, and consumers will adjust. you know, we've seen over and over again, if the price of beef rises relative to the price of chicken, people will consume more chicken. if medical expenses are going up a lot and you can't offset them with, say, insurance, you're going to reduce your use of medical expenses and defer things that don't have to be taken care of right away. >> so, what about the wage piece, then, the all-important

one we heard jan hazlus reference this past hour as well. we have seen job growth above 200,000 for a couple months now, the unemployment rate is moving down more quickly than anticipated. still, there's a lot of so-called slack out there. >> right. >> so, at what point do you think wages move to that 2%, 3%, 4%-plus range that would allow consumers to pay these higher prices? >> well, i think that time is still off in the distance, because global excess capacity is probably greater than domestic excess capacity, but after all, we are in a global economy. so, even if the labor market continues to tighten, and i expect it will, and i think that's all to the good, i don't think we're going to see a lot of upward wage pressure. and some of that may be offset by productivity gains in any event. >> and that's what makes it so interesting. should the fed respond to global excess capacity, i guess it doesn't really have a choice. >> well, it doesn't have a choice to the extent that the global situation feeds into domestic prices and so on and so

forth, which it clearly does. and you know, i think the fed -- one of the fed's strengths is they are very good at gathering and analyzing data from a wide, wide variety of sources. so, they may not always make the right decision, but it usually isn't for lack of paying attention to the information that's available. >> but now i'm going to have to go back to 2006 and say there was plenty of information. i mean, look, it's not as if the subprime meltdown occurred in a period before there was measurement and analysis of prices across the economy and of trends across the economy. if anything, the more information that we have had, the less well informed the fed often appears to be. >> well, sometimes you don't ask the right questions, that's true. sometimes you ask the question, but you don't get a definitive answer. and in terms of housing prices, i was in the fed at that time. we had studies that said there was no bubble in housing prices, you could relate them to economic fundamentals and explain them with fundamentals.

we also had studies that said, no, you couldn't. it was clearly a bubble. and both sets of studies were credible. in that environment, it makes decision-making pretty tough. >> and what would you like in the main concern today to be, something parallel to subprime? is it the subprime situation in the auto space right now, is it developments in credit markets generally or something else entirely? >> yeah, you know, if you could really identify the next source of the problem, that would be very fortunate for all of us. i don't see any great imbalances in the economy today, but i do think if i had to point to one thing, i would guess that there is less slack in the domestic labor market than perhaps the majority of federal reserve officials think, mainly because of demographics. we know the baby boomers are retiring, we know that's a significant development. i'd be careful not to underestimate that. >> last question, then.

as we know, monetary policy takes 6 to 12 months, maybe longer to really be felt in the economy, and if we think the unemployment rate will keep dropping, should the time be now for the fed to get ahead of this, as charlie plosser today seemed to suggest? >> yeah, that's always the critical question, when do you start to tighten and by how much? my own judgment is that time is not right now. it's still several months off. my best guess would be by early next year. hopefully, that will be seriously on the agenda. i would add, i don't think the fed wants to surprise market participants at all, so i think we will get plenty of signals, plenty of communication before they actually act. >> that seems clear already from this fed. gary, thank you. good to see you this afternoon. there were more fireworks last night in the investigation into those lost irs e-mails. >> so, you told us that all e-mails would be provided. when you discovered that all e-mails would not be provided, you did not come back and inform us, is that correct? >> all the e-mails we have will

be provided. i did not say i would provide you e-mails that disappeared. if you have a magical way for me to do that, i'd be happy to know about it. >> much more on that testy hearing is coming up. also, yahoo! ceo marissa mayer reportedly falling asleep on the job, missing a key meeting with ad executives, and this isn't the first time she's missed an essential meeting with them. we're going to look at whether her job could be in jeopardy because of these missed opportunities. white chocolate lovers don't like dark chocolate. milk chocolate lovers don't necessarily like dark or white. before we couldn't really allow customers to customize their preferred chocolate. we needed a scalable cloud solution allowing them to select what they are looking for. now there is endless opportunity to indulge. customization is made with the ibm cloud. you are gonna need a wingman. and with my cash back, you are money.

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welcome back. it has been a wrestling match for the top spot on today's "hot list." for the big winner, let's check in with cnbc.com managing editor adam wastler. >> the top material from scott has been kicking it for us all day long, and once he tells you what the top state is, we will have the full 5 50-state database on the website ready to go, but still, the champ today has to be marissa mayer falling asleep, being late to an important advertising meeting by about two hours. people have been loving that all day long. that's my hot one, but it's going to get a lot hotter on the website in a few minutes, kelly. >> that's for sure, allen. thank you for now. speaking of marissa mayer, there's more on the controversy. apparently, this isn't the first time she's been fashionably late

for a meeting with important executives. nick carlson is writing a book called "marissa mayer and the fight to save yahoo! " due out next year, and jerry della famina from della famina advertising. we have a business alliance to share and co-produce editorial content. mike santoli took off because of that. he'll come back next hour. nicholas carlson, are we making a mountain out of a mole hill or is there a pattern that can be gleaned of marissa mayer not paying enough attention to these important executives? >> no, it's strange. it actually is a weird habit of hers to be late to important meetings, and it's actually caused problems in the past. she had a potential coo candidate early on in her tenure and she just sort of blew off the meeting, was very late to it and then he bolted the company after that because of it, and she once blew off the unilever ceo. it's a problem. >> jerry, do you think the ad execs, how do you expect them to respond? how would you respond in this situation?

>> well, ad execs are used to being treated like dogs, but not in front of our clients. two hours is insane! i mean, she should not have been two minutes late. so, that's a real problem, and there's no excuse for it. >> what's weird about it is that she's such a detail-oriented executive in all other capacities. she's just very prepared all the time. it's just a strange habit of hers. she's got executive coaching, and it's hard to see why she can't just sort of fix this problem. >> lance, with apologies for stereotyping, is there a sense of kind of not having inner personal skills that a ceo needs because you're so good or on the tech side of things or something like that? >> well, if you've read stuff about her, she's socially awkward, scheyhshyer than she realizes. she treats meetings in an odd way, like schedules meetings but doesn't show up or shows up late, kind of on her own schedule. but i want to be clear about something. this is, to me, this is a blip. i visited yahoo! probably eight or nine months after she had

taken over, and to a person, people could not stop talking about how she transformed a sleepy place into a place full of energy and dynamism. so, yeah, she's got a sleeping problem, but no one is sleeping on her watch. i mean, i've got to tell you -- and what is she doing? she's crazy! she's buying everything in sight. >> go ahead, ylan. >> i just have to bring up the woman issue here. as the woman on the panel. and i have to wonder if her real issue was admitting that she slept through the meeting as opposed to pretending like she had more important things to do and was meeting people who had even more money. >> in washington, they say it's a gaffe when you accidentally admit the truth, right? >> exactly. >> so, maybe that was her truth, accidentally admitting she slept through it. jerry, i wonder from your perspective if people would be more sympathetic if they knew the context of her story. had she just gotten off an international flight, worked 14 hours the previous day? why was she sleeping and would the ad execs give her a pass if maybe they had more detail about what was happening there? >> i don't think so.

i think first of all, there's a famous joke about the husband knows that -- he's four hours late. he calls his wife and he says, don't pay the ransom, i just got free. see, it would have been better if she lied, frankly. you know, i think she actually antagonized a number of people. wpp was really angry at her at the next meeting because she doesn't answer his e-mails. >> yeah, i think -- >> so, without -- she could have picked on omni com, she would have had a trifecta. three of the top advertising agencies in the country mad at her. >> i think it's an important point to make that, you know, she may have been sleeping, that may have been just what she said. there's a pattern here of disrespect for people's time, and it's, you know, and i've been reporting on this book for, you know, a couple years now, and i've gotten lots of calls from sources inside the company, outside the company being like, i don't feel like a human when she doesn't show up for two hours, when we keep getting the meetings postponed and delayed,

and it's just very strange for such a detail-oriented executive that she hasn't narrowed in on this problem and just fixed it. but i think what's actually going on is she's overbooking herself. this is a person who only sleeps four hours a night and she's trying to do too much. >> yahoo! says "we value our partnership with ipg and all of our advertisers." lance, your last point. you're saying look, give her credit for what she's doing to the business, but the point is, this is one of the most important parts of the business she has to get right and is she not getting it right? >> 2 percent growth year over year, so it's low and the amount she's making on ads is going down. so, this is literally the group of people she cannot make angry. i don't agree with the idea that you lie to people. tell them the truth, but then make it up to them fast. do something smart, and you know, don't go hiding. marissa mayer has been an unusual ceo. she has not done the things the way everyone else does. so, take advantage of that, step forward, do something smart. don't just buy another company because that does seem to be the

knee-jerk reaction, but do something. >> i live in fear of sleeping through something. i've got a 7:00 a.m. hit on "squawk box" tomorrow morning, i'm going to set four alarms now, particularly after this conversation. i think everyone can relate to that, right? >> knowing i was going to be on this show. >> exactly. >> jerry, thank you for being here. nicholas, great to see you as well this afternoon. now, it's hard to drum up sympathy for the internal revenue service, but the head of the irs had a punishing appearance before the house oversight committee last night. more hearings were held today. we'll get you those details, coming up. and up next, scott cohn revealing this year's top state for business. have you guessed it right? >> reporter: don't you want to just keep on guessing? do we really want to reveal it? i guess we do, and we will do it after the break. we will tell you, finally, who is america's top state for business, when the "closing bell" continues. ♪ [ girl ] my mom, she makes underwater fans that are powered by the moon. ♪

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welcome back. yes, it is time. all day on cnbc, our scott cohn has been tossing out hints for you to guess the winner of this year's top state for business. no more hints. here to end the guessing, the secrecy, the mystery is scott cohn and a special guest. scott? >> reporter: well, we have a few of those, kelly. you know, we've been crunching numbers for months looking for a state whose business climate is solid as a rock. 50 states, 56 metrics, 10

categories of competitiveness. who is america's top state for business? dekalb school of the arts choir, tell us, please. ♪ georgia, georgia ♪ the whole day through ♪ just an old sweet song keeps georgia on my mind ♪ >> reporter: from stone mountain, let's take a look at georgia's climb to the top. for eight years in a row -- >> our top state among america's top states for business is -- >> reporter: -- we've criss-crossed the country. >> i've been standing outside all day long. >> reporter: putting every state to the test. >> america's top state for business 2012 --

>> america's top state for business 2013 -- >> reporter: and this year, a new champion -- georgia. the peach state, the cream of the crop. with 1,659 out of 2,500 points. it's a big jump from georgia's eighth-place finish last year. georgia's best category, its workforce, tops in the nation for the third year in a row. georgia ties for first in infrastructure with america's busiest airport and one of its busiest ports. and georgia's economy finishes a solid third. unemployment is still high at 7.2%, but georgia is adding jobs at a steady clip, a priority for first-term governor nathan deal. >> my focus on job creation's paying off. >> deal's in a tough fight for re-election. his opponent says the recovery is uneven. >> you can't have a strong economy if you leave the middle class and small business behind. >> reporter: georgia does finish 32nd for quality of life, mainly because of poor health, also

32nd for education, which the state is trying to address by adding $500 million to this year's k-12 budget. the top individual income tax rate is 6%. the corporate rate 6%. plus, a net worth tax that tops out at $5,000. the state sales tax 4%. georgia's largest private employer is delta air lines, the largest industry is agriculture. yesterday we were at calloway gardens in pine mountain, georgia. it's a beautiful facility that connects man and nature in a way that benefits both. now, as for the hints that we've been giving you. don't cry for me refers to the have i dahlia onion which creates less tears because it's sweeter. brownies, this is the birthplace of the girl scouts and headquarters of u.p.s. a long way to learn. berry college slt longest continuous campus in the world. i feel the earth move? oakie if i gnocchi swamp.

and you heard can't get it out of my head, "georgia on my mind." nathan deal is joining us from tel aviv, appropriately enough, where he is on a trade mission. governor deal, i guess we have handed you a little bit of a talking point while you're over there. what is your message as you court business around the world? >> well, my message is what you have confirmed with this rating, and that is that georgia is the best place in the united states in which to do business. and we are very pleased with the results of our visit here in israel and we are picking up a couple of new companies that are coming to georgia, and we are spreading the word. and hopefully, with this announcement tonight, this will make it even easier for us to attract more business for our citizens. >> reporter: we talked about the weakness in education and your general election opponent, senator jason carter, has been talking about the $500 million as sort of a last-ditch election year ploy. what is your response to that? >> well, in previous years, when

our economy had not rebounded as much, senator carter voted for my budgets in the three previous years. it's only when we had the largest increase in k-12 spending for education that he chose to vote against it. i think that has a lot to do with the fact that he decided he wanted to be governor. we are consistently adding new revenue to our k-12 education budget, and we are making reforms to try to make sure that we continue that first place as a workforce in motion. and it requires that we build it from the bottom up, and that's exactly what we're doing. >> reporter: governor, i have to ask you at the risk of raining on your parade, when you ran for governor in 2010, you left congress amid an ethics investigation. there had been ethics investigations since by the state. we know that businesses want a stable state government. can you assure businesses now that if you're re-elected that there will be no more investigations, scandals of the like that have plagued you before? >> absolutely.

you know, when we have ethics complaints, the ethics complaints against me were heard by our state ethics commission, and they abolished and decided that there was no merit in any of them and they were dismissed. i think we know that if you want to play politics and use that as a weapon, it is always available to someone. i think that is one of the lowest forms of politics, but we have run a very proper state government. it is a state government where people have trust and confidence, and that's the reason that businesses choose to grow in the state of georgia. >> governor deal, thank you very much. congratulations. safe travels on your trade mission. >> thank you. >> we want to let everybody know, you can see where your state stacks up, the full study now at topstates.cnbc.com. dekalb school of the arts choir, take us on out! ♪ georgia, georgia, the whole day through ♪ >> i could listen to that all afternoon. the dekalb school choir.

i love it. people are lighting up the cnbc.com already, i'm sure to check out more on georgia taking the prize. vacation and retirement have several things in common, but planning may not be

welcome back. the irs commissioner continuing to get grilled on the hill and the latest hearing on the house oversight committee. representative darryl isa of california has had enough. >> my time is expired and i've lost my patience with you. we now go to the ranking member. >> eamon, it seems like it's more. >> absolutely, look, there is a lot of questions of what happened with the lois lerner e-mails and where that is going. what we see with john koskinen is a tough series on capitol hill hear for him as the head of the irs. he has not been shy at all.

he has been pushing back aggressively. he was asked whether or not he owed people an apology. he said, no, i don't feel like i owe you an apology. he has not given an inch. that's why you see frustration from darryl isa there. we will have to wait to the end to find out. but as of now, some real questions about what happened here and who was responsible. >> in today's third hooerg hearing in five day, where they brought the white house lawyer briefly a lawyer for the irs. >> that person is well acclaimed, does not have any idea what was going on with these e-mails, why there was not a back-up copy, do you buy all of these, let me put it this way, in a market we know, there is no coincidence, it seems like a string of coincidences. >> as a reporter who covers this, it's not my job to buy it or figure out what happened. who know what happened. there is a bureaucratic process here for handleing these e-mails, there are processes for back-up tames.

we have to physical out were they stored somewhere? why haven't they been produced and why isn't there coming from the irs we can't get these stories back and all this happened before loiser became a controversial figure in the first place, so their argument is se could never have plotted to destroy these e-mails because she did not know at the time it would be a controversy. so you got to wade through a lot of this here. >> we will do so in the days ahead. >> that summer vacation is right around the corner, do you put as much planning into your permanent vacation, though? that is retirement planning or vacation planning verse retirement is just ahead, tomorrow make sure to tune in the closing bell, white house bucket director jeff zients will join us. we'll be right back.

they would allow homeowners to store power. we have the exclusive. >> all right. over to you guys. >> "fast money" starts right now, new york city's time's square, i'm melissa lee, your traders are dan nathan, brian kelly, guy adame. sell-off hits the street a. late day sell-off with the dow seeing its worst slide in over a month. energy clocking in as the worst performing sector, fighting 2% as worries over violence if iraq outweighs volatility numbers. the vix begin i finishs better than in months. should with be concerned? put in context, it's 13 handts