committee's objectives, many fomc participants indicated in september that they anticipated, in light of their economic forecasts at the time, that it would be appropriate to raise the target range for the federal funds rate by the end of this year. some participants projected that it would be appropriate to wait until later to raise the target funds rate range, but all agreed that the timing of a rate increase would depend on what the incoming data tell us about the economic outlook and the risks associated with that outlook. in the policy statement issued after its october meeting, the fomc reaffirmed its judgment that it would be appropriate to increase the target range for the federal funds rate when we had seen some further

improvement in the labor market and were reasonably confident that inflation would move back to the committee's 2% objective over the medium term. that initial rate increase would reflect the committee's judgment based on a range of indicators that the economy would continue to grow at a pace sufficient to generate further labor market improvement and a return of inflation to 2% even after the reduction in policy accommodation. as i have already noted, i currently judge that u.s. economic growth is likely to be sufficient over the next year or two to result in further improvement in the labor market. ongoing gains in the labor market coupled with my judgment that longer term inflation expectations remain reasonably well anchored serve to bolster my confidence in a return of inflation to 2% as the

disinflationary effects of declines in energy and import prices wane. committee participants recognize that the future course of the economy is uncertain, and we take account of both the upside and downside risks around our projections when judging the appropriate stance of monetary policy. in particular recent monetary policy decisions have reflected our recognition that with the federal funds rate near zero, we can respond more readily to upside surprises to inflation, economic growth, and employment than to downside shocks. this symmetry suggests that it's appropriate to be more cautious in raising our target for the federal funds rate than would be

the case if short-term nominal interest rates were appreciably above zero. reflecting these concerns, we have maintained our current policy stance even as the labor market has improved appreciably. however, we must also take into account the well-documented lags in the effect of monetary policy. were the fomc to delay the start of policy normalization for too long, we would likely end up having to tighten policy relatively abruptly to keep the economy from significantly overshooting both of our goals. such an abrupt tightening would risk disrupting financial markets and perhaps even inadvertently push the economy into recession. moreover, holding the federal funds rate at its current level for too long could also

encourage excessive risk taking and thus undermine financial stability. on balance, economic and financial information received since our october meeting has been consistent with our expectations of continued improvement in the labor market, and as i have noted, continuing improvement in the labor market helps strengthen confidence that inflation will move back to our 2% objective over the medium term. that said, between today and the next fomc meeting, we will receive additional data that bear on the economic outlook. these data include a range of indicators regarding the labor market, inflation, and economic activity. when my colleagues and i meet, we will assess all of the available data and their implications for the economic outlook in making our policy

decision. as you know, there has been considerable focus on the first increase in the federal funds rate after nearly seven years in which that rate has been at its effective lower bound. we've tried to be as clear as possible about the considerations that will affect that decision. of course, even after the initial increase in the federal funds rate, monetary policy will remain accommodative, and it bears emphasizing that what matters for the economic outlook are the public's expectations concerning the path of the federal funds rate over time. it is those expectations that affect financial conditions and thereby influence spending and investment decisions. in this regard the committee anticipates that even after employment and inflation, our

near mandate consistent levels, economic conditions may for some time warrant keeping the target federal funds rate below levels the committee views as normal in the longer run. this expectation is consistent with an implicit assessment that the neutral nominal federal funds rate, defined as the value of the federal funds rate that would be neither expansionary nor contractionary if the economy were operating near its potential, that that rate is currently low by historical standards and is likely to rise only gradually over time. one indication that the neutral funds rate is unusually low is that u.s. economic growth has been quite modest in recent years despite the very low level of the federal funds rate and

the federal reserve's very large holdings of longer term securities ha securities. had the neutral rate been running closer to the levels thought to have prevailed at the time of the financial crisis, current settings would have been expected to foster a very rapid economic expansion with inflation likely rising significantly above our 2% objective. empirical support for the judgment that the neutral federal funds rate is low comes from both academic research and federal reserve staff analysis. this figure employs four macroeconomic models used by federal reserve staff to estimate the natural real rate of interest, which is a concept closely related to the neutral

rate. the measures of the natural rate shown in this figure represent the real or inflation-adjusted short-term interest rate that would prevail in the absence of frictions that slows the adjustment of wages and prices to changes in the economy. under a variety of assumptions, this interest rate has been shown to be -- to promote full employment. the shaded band represents the range of the estimates of the natural real rate at each point in time. this analysis suggests that the natural real rate fell sharply with the onset of the crisis and is has recovered only partially. these findings are broadly consistent with those reported in a recent paper by thomas

laubach and john williams which is shown in this figure. the marked decline in the neutral federal funds rate after the crisis may be partially attributable to a range of persistent economic headwinds that have weighed on aggregate demand. these headwinds have included tighter underwriting standards and limited access to credit for some borrowers. deleveraging by many households to reduce debt burdens, contractionary fiscal policy at all levels of government, weak growth abroad coupled with a significant appreciation of the dollar, slower productivity in labor force growth, and elevated uncertainty about the economic outlook. as the restraint from these headwinds further abeatates i anticipate the neutral federal

funds rate will move gradually higher over time. in september most participants rejected that in the long run the nominal federal funds rate would be near 3.5% and that the actual federal funds rate would rise to that level fairly slowly. because the value of the neutral federal funds rate is not directly measurable, it must be estimated based on our imperfect understanding of the economy and the available data. i would stress the considerable uncertainty attends our estimates of its current level and even more to its likely path going forward. that said, we will learn more from observing economic developments in the period ahead. it is thereby important to emphasize that the actual path of monetary policy will depend on how incoming data affect the

evolution of the economic outlook. stronger growth or a more rapid increase in inflation than we currently anticipate would suggest that the neutral federal funds rate is rising more quickly than expected making it appropriate to raise the federal funds rate more quickly as well. conversely, if the economy disappoints, the federal funds rate would likely rise more slowly. given the persistent shortfall in inflation from our 2% objective, the committee will, of course, carefully monitor actual progress toward our inflation goal as we make decisions over time on the appropriate path for the federal funds rate. so in closing, i'd like to, again, thank the economy club of washington for this opportunity to speak about the economy and

monetary policy. the economy has come a long way toward the fomc's objectives of maximum employment and price stability. when the committee begins to normalize the stance of policy, doing so will be a testament also to how far our economy has come in recovering from the effects of the financial crisis and the great recession, and in that sense it is a day that i expect we are all looking forward to. thank you. [ applause ] >> thank you very much for those comments. we have time for a few questions, and let me start by asking you about quantitative easing.

when quantitative easing was begun, did you expect it would be in effect for such a long period of time, and what would you have done or what do you think the fed might have done differently in light of hindsight? >> well, quantitative easing was a policy that we adopted when the economy was weak in the aftermath of the crisis, and we had already reduced the funds rate to zero. what we wanted to do was to see if it was possible to push down longer term interest rates, so we undertook large-scale purchases of both treasury and agency mortgage-backed securities, and i think the impact of those purchases was to push down longer term rates. we did that in conjunction with another policy, which was to offer forward guidance

concerning the likely path of short-term rates. i think markets at the time and the public thought it wouldn't be very long. now we know it's been seven years. they thought it wouldn't be very long before short-term rates were rising, and in conjunction with those long-term asset purchases discussing the fact that we thought it would be a long time before it would be appropriate to raise short-term rates. both things worked in tandem to push down longer term rates, and i do think that policy was effective. we saw the yields on private borrowing rates went down across the board. asset prices moved up, both stock market prices and housing prices, and that helped to boost aggregate spending and to check

disinflationary pressures that could even conceivably have led to disinflation. now, we're not the only country that undertook such policies. the uk and more recently the ecb have been engaged in japan as well in similar kinds of asset purchases. there have been studies in all the countries, and they show essentially similar results, that these policies were effective. at the very outset, i think the asset purchases we undertook had a very large effect, and i think it's probably because financial markets were very stressed at the time and our purchases really seem in a turbulent environment to have a big effect. over time we scaled back our estimate of the effect somewhat, but still think its effective,

and to give you a sense, one pretty recent fed study suggests that if we hadn't undertaken those purchases, we probably now would have an unemployment rate over 6%. so that might be a gauge of what it accomplished. so i do think the policy was effective. would i have done anything differently? i think the one thing that i would mention is that over time i think we learned that our first couple -- two programs had fixed quantities that we announced we would purchase a certain volume of securities. our second program, for example, was targeted at $600 billion. i think something that turned out to be more effective is what we did with our third program,

which is to make it open-ended to tie our purchases to a goal that we wished to see considerable improvement in the labor market and in effect we were willing to do what it takes to achieve that. so i think that had a confidence-boosting effect and it suggests if the data was weak, well, we would then do more or vice versa. so i think that was -- i wouldn't say i regret what we did in the first two programs, but i think the third approach was particularly effective. >> when you were a young economist on the fed, transparency wasn't the coin of the realm then at the fed and under ben bernanke and under you, transparency has become more common. so in hindsight though, do you think transparency is as much of a virtue as you thought at the time you joined the fed as the vice chair or do you think the old days are better? >> i would say just after i

became a governor in my first stint, so that was august of '94, february of 1994 was the first time ever to the best of my knowledge in its history that the fed even announced a change p , publicly made an announcement there had been a change in policy after a decision was made at a meeting to do that. alan greenspan thought when for the first time in many years the committee was going to raise rates from the 3% level they were at in '94, that it was important to actually tell the world that such a decision had been made rather than allowing people to infer it from movements in money markets, and it's been a long road since then to ever greater transparency. it is definitely something that i support. i think it's been a virtue, and

i think we have made very important strides in becoming more transparent, and it's important for two different reasons. first of all, we're an independent central bank, have a great deal of impact, our decisions, on the economy, and in a democratic society especially, an independent organization like ours has a duty to explain its actions to the people and also to their elected representatives in congress. so now we have press conferences four times a year. we present economic projections. we have speeches, congressional testimony, and talk a great deal more. something we've done that i think has been very effective and is important is that in 2012 the committee for the first time

agreed to an explicit statement concerning our monetary policy goals and strategies, and in it we articulated our interpretation of price stability, which is an inflation rate according to this pce price index of 2%, and in conjunction with that statement of here are our goals and here is how we'll manage trade-offs if we face them, we also offer every three months -- now, this isn't committeewide statement -- but each individual, we publish the individual forecasts both economic forecasts and accompanying policy assumptions, the views of each participant as to what would be an appropriate policy to accomplish that path

of the economy that they're projecting. and so in effect that complex of a committeewide statement of explicitly here are our goals and our strategies and here is a view on the part of participants of how we think the economy will evolve and how policy will evolve with it, that is really in a way a full-blown game plan for conducting monetary policy. >> why do you think it is with greater transparency that some people running for president, who are republicans, and some members of the congress, who are republicans, don't seem to like the fed that much in some respects and they want to have legislation that constrains what you do now? is that a concern to you and why do you think you have this concern by certain people of the republican party? >> well, look, let me just say the federal reserve is a

nonpartisan institution. we're accountable to congress. we take our responsibility for that accountability seriously. there are members of congress, not only republicans but democrats as well, who have proposed a variety of ideas both publicly and in draft legislation as well as privately about changes that should be made about how the federal reserve operates, and, look, it is up to congress. we are a creature of congress. the federal reserve was established by congress with legislation, and it is up to congress to consider if changes are appropriate. we have dialogue with members of congress on both sides of the aisle in the house and in the

senate. members often come to us and ask us our views, and we provide feedback on their views or legislation they have in mind. now, you know, there has been a push in congress among some members for it sounds like greater transparency, to audit the fed. and this in particular -- i mean, i always do offer my views about when i'm asked by members of congress about particular legislation, but about audit the fed in variance of it. well, i favor transparency. i think i have said repeatedly and would like to say again here that the fed is audited. this isn't about the fed's financial statements. we have public accountant.

the board and the federal reserve banks are all audited. what this is about is the independence of the fed, and there are members of congress who would like to see diminished independence in monetary poli policymaking for the fed which is something i strongly oppose. i think countries, not only the united states, in the '70s when one of my predecessors, chairman volcker, had to take very strong actions to bring inflation down and similar things have had to have occurred around the world, to have a central bank that is able to take tough decisions and not subject it to short-term political pressures, we've learned in modern times results in better economic outcomes. so i've been very vocal about opposing that. >> speaking about transparency, i know the fomc is going to meet

in a few weeks. would you like to give even a more precise hint what they might do, but if you don't, would you -- were you saying in your remarks that whatever the fed might do and the fomc might do in december, that it might do it consistently for another year or so? in other words the last time the fed increased interest rates in 2004 to '06 it did it fairly consistently. it didn't just do something one time, it moved consistently through a year. were your remarks designed to say you probably would do something like that again. >> well, i appreciate you asking that question because i think it's very important for me to emphasize that there is no such plan, and what we do, if we decide to raise rates, after that there is no plan to proceed over time in some mechanical or

calend calendar-based way. the actual path the short-term rate will follow will depend entirely on how incoming data influence our assessment of the outlook. so the first step does not mean that we have embarked on some predetermined path of regular moves, and because i noted in my remarks the recovery from the financial crisis has been very slow. the so-called neutral rate of interest that i talked about has -- appears to be quite low, and we don't really know where it's going to go. we think it's going to rise over time. this is really -- may turn out to be a very different cycle than past cycles, but i would point out that, you know, we are

producing, the committee does publish every three months projections of all of the fomc participants of the path of policy that they would regard as appropriate if the economy evolves in line with their expectations, and looking at that, you get a sense of what committee members are roughly expecting is likely to happen. so i think it's fair to say that most fomc participants do anticipate a series of interest rate increases, but they anticipate that they would be gradual and that corresponds to their view that the economy will continue to grow above trend, inflation move back to 2%. >> whatever the fomc does, do you feel if needs to be unanimous or do you need to have

a two-thirds/one-shithird or dou need to count heads to get a vote. do you want to have a unanimous view or a closely unanimous view? >> i think one of the strengths of the federal open market committee, and this was built into the design of the federal reserve by congress is that we've got a range of views at the table, and especially at important points when policy decisions are made, the public should expect that there are a range of views being represented. i think falling into a pattern of group think is a very bad thing that can get organizations in trouble, and i will say that the fomc is an organization that does not suffer from group think. so i don't need unanimity.

i think we have to tolerate some dissent. nevertheless, i think for the fomc to be successful and to communicate a coherent policy to the public we do need a certain degree of consensus and i think one of the strengths of the committee is we do try to find common ground. we do try to come together, and while there are some dissents, and i wouldn't try to stifle dissents and i would even expect some at critical junctures, with he do try to find common ground and to try to conduct policies that will be supported. >> is being chairman of the federal reserve as great as you thought it was going to be when you -- i mean, what are the greatest challenges of the job and what are the pleasures of it other than this interview? [ laughter ] >> so, it's a wonderful job and i am tremendously honored to have been selected for it.

i feel that it's a huge responsibility, but, you know, for me one of the pleasures is we lived through a terrible financial crisis. i think the economy is on the road to recovery. we're doing well. a pleasure to me is to sit down and work with my colleagues to try to devise a set of policies that will foster recovery, and i would say as important we are working together to try to ensure that the economy will not have another devastating financial crisis to strengthen the financial system and to greatly improve our ability to spot potential financial disruptions or identify sources of systemic risk.

the federal reserve i have now spent a good share of my career in it. as i said, it's a nonpartisan organization. it is very much devoted to the public interest, and they are a wonderful group of people and days when i get to interact a lot with the thoughtful and intelligent and public-spirited colleagues i work with is really one of the pleasures of the job. >> final question i'd like to ask you is what message would you like to give to the american people about what the federal reserve is actually doing and how it operates? the average person who may not be an economist may be confused about what the federal reserve does every day and why it does what it does. what message would you like to give the american people about the fed? >> so i guess i'd like to tell the american people that the federal reserve is devoted to their interests and we are doing everything we possibly can to help achieve economic conditions

in this country in which american families can prosper and thrive, and trying to pursue the dual mandate that congress gave us, namely full employment and price stability, is a very good way to promote those interests, and, you know, it's very clear that the ability to find a job that's commensurate with one's skills in a reasonable amount of time is key for families to be able to pursue their dreams and put food on the tables of their families. so we want to make sure we don't have chronic job shortages, situations where one person's success in finding a job essentially deprives someone else of an opportunity to work, and we know that pulls all around the world show that high and unstable inflation is the

source of great anxiety and distress to people, so keeping inflation low and stable so people know that they can plan for their retirement, that they can undertake financial transactions understanding what they mean in real terms, i think that improves people's lives. again, some comments i made, let me repeat in this context. the federal reserve is a public-spirited, nonpartisan institution. we operate in a nonpolitical way. we try to make decisions based on objective evidence and careful analysis that will be in the best interests of the american people. we try to be transparent and explain what we're doing, and let me also say i'd like the federal reserve to know that i'd

like the public to know that the federal reserve is filled with good, capable, and dedicated people. >> your predecessor, by the way, once when he tried to refinance a mortgage on his house got turned down. that never happened to you, did it? >> not yet. >> not yet. okay. [ laughter ] >> i want to thank you very much for an interesting speech. thank you. [ applause ] thank you very much. thank you. >> welcome to "power lunch," everybody. that is, of course, the fed chair, janet yellen, giving a speech to the washington economic club. we'll hear more from her tomorrow when she goes up on capitol hill. her remarks closely followed on wall street as we look for any hint at what the fed might do two weeks from now. i'm joined by mandy drury and right now by steve liesman. what did we learn today? the one thing that stood out to me came at the end in the q & a section where she said there is no sort of mechanistic plan to raise rates.

if they start in december or they start in january, to raise rates at each successive meet pentagon. >> they've been pretty clear about that and the subtext of that is they feel like the way that greenspan raised rates in those quarter point successions was a bad way to do it, that perhaps created excessive risk taking. they've ruled out that possible. look, i think here the best thing is the comment that scott wapner gave me in a question earlier today when he said, steve, she did nothing to dissuade us from the opinion that rates are going up in december. i think that's a pretty good bottom line to all of this. she said that, look, the job market and inflation, they're coming around to the fed's goals. since october those things have sort of gone our way, and so all of this seems to be pointing towards that direction. with just one bit of context, mandy, there's the jobs report on friday. there's additional data. she said those could get sway us, and she also doesn't want to front run the committee. she wants to be clear that the committee has a choice. if she came out today and said rates will go up in december,

that would take away the committee's ability to choose. >> the other thing that really stuck out to me was when she said if we delay too long, we might run the risk of having to abruptly raise rates and maybe even inadvertently cause a recession. it feels like she's very much prepping the market for a december hike. >> so i think you're right to emphasize that because that came just after a section in the speech where she said, look, we want to be really careful about raising from zero, and there is the list of things. but she did spend an awful lot of time and used very strong language in that section. she said if we wait too long, we might have to tighten abruptly, it might create a recession, and we could create excessive risk takers. so you're right, she emphasized the dangers of the fed delaying probably more so than the dangers of the fed going too early. >> do you think it's interesting the way the market hasn't really reacted that much with the exception, of course, of gold and wti falling maybe on the strength of the dollar, but the stock market has not moved that much on all of this, which shows that they've pretty much

digested and expected it already. >> there's a bit out there of people who are skeptical this is happening in december. my guess is you'd have to go to some sort of backwoods bar some place and find that particular person. i think most people who are drinking in the main bars of wall street believe that rates are going up in december. >> and she said notably she doesn't need a unanimous decision at all. >> right. she'd like it to be. >> she will tolerate dissent. i love that. like a schoolmarm. she h she. >> she has a bunch of hawks on the committee and she may have more. >> how many are there, 12? >> right now there are ten because they're two short on the governing board. >> all right. steve liesman, thanks very much. >> so how will the -- we did mention wti but it is down by 3.8%. just moments ago it hit the lows of the day down by 4.2%. we're watching that key $40 level and see whether it breaks below that. as for the markets, as we were

mentioning, not a huge amount of change during the course of yellen's speech. the dow and s&p are still slightly to the downside. the nasdaq is holding to the upside. in fact, the nasdaq today has touched its highest in nearly four months. so how will the fed impact investment strategies for year end and in 2016? we have neil hennessy standing here. chief investment officer at hennessy funds. neil manages the morning star. and bob pavelec from boston private wealth. thank you very much to both of you for joining us. neil, what are your thoughts on what yellen said and whether it changes sn changes anything? >> it hasn't changed my view. everybody knows interest rates are going to go up. is it going to be december, january? it's not that big of a deal. the problem you have is that you have volatility in the marketplace that is scaring the investor, and we still have tons of money sitting in fixed income products that has to move at some point in time because when

the fed does raise interest rates, those investors are going to get annihilated and that's not going to be good. >> really annihilated? even with relatively gradual moves in interest rates? >> i look at it like this, as yellen said, they might not raise them every quarter but even if they raised them 25 basis points every quarter, in three years we'd be at 3%. mortgage rates would be at 5.5% or 6%. my first mortgage was at 14%. >> i had a 12.75% i think. we must have been at the same time. in the early '80s. >> picking up on something you just said, neil, but the question is to you, bob, that's the question about volatility. it feels like we've had quite a bit of volatility this year, particularly in the august/september period, but thanks to our friend of show matt maily, he highlighted a great stat and that's the s&p today is less than 1% away from where it was exactly one year ago. so we're back to square one despite a few bumps along the

way. >> yeah. i think volatility is going to continue into next year. i think the year starts off fairly well. i think there's going to be a lot of interest in things like small caps and european stocks, but i think that pretty much phases out relatively quickly. i think there's even going to be some interest in the dogs of the dow. that usually is the case. but i think with a rising rate environment, even if they don't raise rates at every fomc meeting. i'm only expecting two interest rates hikes next year with a third being an outpossibility. that will play in the back of people's minds. what am i going to be looking for. how is this going to be affecting the companies? the dollar is going to continue to rise. how is that going to be affecting things like the industrials and multinationals? i think that's going to continue to play with us. i think the really -- the best way to sort of approach next year in this market is to look for individual names that are going to continue to attract investors' attention, that's going to be able to ride out the

volatility that europe may present or the rising dollar may present. now, i know this sort of goes against the rules, but you're going to have to look at these momentum names. things like facebook, amazon, netflix, google, even starbucks. now, these are not cheap stocks. these stocks have a lot of volatility associated with them, very expensive, but these are what's going to be attracting investors and momentum players. >> the f.a.n.g. stocks. >> that's where you're going to make your most money. >> got to leave it there. >> got to leave it there. the thing that stands out to me, it does not feel like a flat year 2015. after all that has happened. but it's a flat year. >> well, the markets traveled 28,000 points on the close. not interday, and it's like a roller coaster. it's fun and exciting. >> is it going to be flat in 2016? >> i think you will see 6% to 7% increase. >> i like the martinis on the tie, by the way. that's good. >> go and have one now.

go to powerlunch.cnbc.com to see other stocks that bob likes in 2016. that's powerlunch.cnbc.com. so if the u.s. does start raising rates and europe keeps easing monetary policy, which is a better place to invest right now? plus a company that owns 69 apartment buildings, bans package delivery, no boxes allowed in the mail room anymore. so what do the tenants think? that is ahead on "power lunch." s more of a control... enthusiast. mmm, a perfect 177-degrees. and that's why this road warrior rents from national. i can bypass the counter and go straight to my car. and i don't have to talk to any humans, unless i want to. and i don't. and national lets me choose any car in the aisle. control. it's so, what's the word?... sexy. go national. go like a pro.

welcome back to "power lunch." rick santelli here live on the floor of the chicago mer can sil exchange. let's look at the dollar, pretty much a one-direction ride. let's look at a chart since last time we were up here, early march, but we're splitting hairs bus we're about to comp all the way to april of 2003. let's look at some two-day charts real quickly. what i want you to notice is

we're on the high yields of the day in every maturity, but look at that in the context of yesterday. look at a two-day of 2s. yes, the highest yields of the day, but about equal to yesterday. the further on the curve, look at $5, 10s, 30s, further down the curve, the further away we are from the highs, of course, that's the flattening. thank janet yellen. she keeps it going because the notion of a rate hike is as healthy as it's been in close to ten years. tyler, mandy, back to you. >> mr. santelli, thank you very much. the pentagon's new budget could include a possible cut to lockheed martin's f-35 fighter jet. jane wells is live in l.a. tell us about the implications, jane. >> a lot of news about lockheed. frank kendall, the defense undersecretary in charge of the checkbook, told reporters that while thef-35 gives us more combat capability dollar for dollar it costs a lot of dollars. other programs need money, too. something has to give. while he did not specifically say there will be cuts to f-35 purchases, he said it's impossible to entirely protect

the program. the pentagon has already said it will not cut the size of our military force and upgrading things like the capability of our nuclear submarines are a higher priority. so stay tuned. dow jones reports lockheed cfo said today a deal for the next batch of f-35s won't close until early next year. that's worth over $5 billion. it was supposed to happen by the end of this year. this is happening as k5u7nd is reconsidering whether it wants to buy any of the jets. the uk may buy more of them sooner. lockheed has other planes and other programs. the cfo says a much larger contract for c-130s, that may happen this year, and then there's the old f-16. man, that program just keeps chugging along. just this week lockheed signed a deal worth nearly $1 billion to upgradef-16s for singapore and finally it is holding out hope that the government will overturn the decision to award northrup the massive contract to build the next bomber.

that decision has to be made by the middle of february. back to you. >> thank you very much, jane. as europe cranks up quantitative easing and the u.s. gears up for rising interest rates, which might be the better investment climate right now? the united states or europe? making the case for the usa is samir samana with wells fargo and in favor of europe, david stubbs, global market strategist with jpmorgan asset management. gentlemen, welcome. i guess, samir, let me start with you. do you think u.s. stock prices, though they have risen a fair amount in the past few years, though not so much this year, are too high priced to leave room for more growth or what? >> we don't. in our recently released outlook report we lay out the case for why global equities will continue to do well and you want to continue to lean into the u.s. because it's got a better growth trajectories. think about how well the consumer is doing, unemployment

is down, low energy prices, think about credit availability is better here than europe. you have u.s. companies outperforming their peers in terms of profitability and you have less political, think about greece, think about spain, think about portugal, and geopolitical risk in the u.s. >> so, david, why don't you answer that? better growth in the united states? a more robust consumer, better credit possibilities and less political risk. why do you like europe? >> well, firstly, you can't ignore the political risks in europe. certainly we don't. a source of volatility. but i think actually that's yesterday's narrative for equity markets. firstly, we think europe is going to grow in excess of 1% this year. in the eurozone that's going to translate to around 10% earnings growth such as the operating leverage from rebounding margins in europe unlike the margins which in the u.s. are peaking. on top of that in terms of credit conditions we believe the u.s. credit cycle is on the downside whereas in europe

thanks to not only quantitative easing but the stress test and the other measures of the european central bank, credit is flowing again in europe and there's more of a leverage cycle to have there. so we like europe in terms of total return more than the u.s. over the next year, but let me emphasize this, euro and pound-based investors will still hold a lot of u.s. based equities because it's a best way to hedge against a further increase in the u.s. dollar. >> thank you very much. we have to leave it there on this rather busy news day. battle of the big banks there. let's go to brian sullivan and see what's up at the top of the hour. >> thanks very much. we are going to get the fed's latest read on the health of the economy. it is called the beige book, but it is generally more exciting than that. no offense to the color beige. that's coming out at the top of the hour. plus, an under the radar name to play the holiday season by. a few stocks that could deliver, that's the hint, some serious opportunity this christmas. and later on one trillion reasons why the booming auto

sector might soon hit the brakes. we're going to find out why and how when "power lunch" returns. at ally bank no branches equals great rates. it's a fact. kind of like mute buttons equal danger. ...that sound good? not being on this phone call sounds good. it's not muted. was that you jason? it was geoffrey! it was jason. it could've been brenda.

welcome back to "power

lunch." i'm mandy drury. here are this hour's power points. number one, fed chair yellen says the economy is on the road to recovery and that there is no plan for a series of rate hikes after the first one. the dollar is surging today. in fact, the dollar index at the highest level of the year, and oil tanking. crude is down about 4% hovering near the $40 mark and, of course, the close will be coming up in the second hour of "power lunch" around 2:30 p.m. eastern, so make sure you do stay tuned for that. if you missed any of the big stories in the past hour, you can visit the site at powerlunch.cnbc.com. so the fed's latest read on the health of the economy, we call it the beige book, but it is anything but beige and it is out at the top of the hour. it may be a market mover. plus a big interview on cnbc, jim cramer is speaking with general electric ceo jeff immelt tonight on "mad money." and the stock has been a great pmper recently. up more than 20% over the last three months although just

slightly to the downside today. stick around, we'll be right back. got a job! i'll be programming at ge. oh i got a job too, at zazzies. (friends gasp) the app where you put fruit hats on animals? i love that! guys, i'll be writing code that helps machines communicate. (interrupting) i just zazzied you. (phone vibrates) look at it! (friends giggle) i can do dogs, hamsters, guinea pigs... you name it. i'm going to transform the way the world works. (proudly) i programmed that hat. and i can do casaba melons. i'll be helping turbines power cities. i put a turbine on a cat. (friends ooh and ahh) i can make hospitals run more efficiently... this isn't a competition!

welcome back to "power lunch." i'm julia boorstin with the latest development in the lawsuit against sumner redstone.

mario go belly, viacom's second largest shareholder after redstone is asking for more information about redstone's mental competence reaching out to viacom about the issue yesterday. gobelli telling reuters it would be appropriate for a company trading on the new york stock exchange to make a statement with some kind of veracitveraci. and he tweeted yesterday viacom gives to call shareholders with the board of directors know about the executive chair. this follows a lawsuit filed by redstone's ex-girlfriend in which she alleged redstone is mentally incompetent. we have reached out to viacom and gobelli with request for comment but have not heard back yet. >> this goes back, folks, to the question of what happens when an executive is impaired one way or another. a few months ago it was the mcdonald's ceo who -- and melissa lee joins us now. it was the mcdonald's ceo and

what is the right or the need of the shareholders to be apprised of that executive's state of affairs at any given moment and where is the individual's right of privacy. >> am i clear? >> predominantly. >> i think it's not just competence in terms of mental facilities but also physical ability. just a couple months ago it was united -- >> i'm sorry, united. >> and the question of the ceo having a heart attack and what is his state in terms of fulfilling his furntionction. if you go back to steve jobs and what was going on with his liver. these are questions that shareholders have revisited time and time again. how much do they have a right to know about a ceo's health when it comes to doing his job? >> there's a right and then there's a fiduciary duty of the board. i can't remember enough of law school to remember what the exact fiduciary duty might be but i think if you get to a certain point there's going to be the duty angle. >> especially if you talk about somebody like steve jobs who obviously was incredibly important to the company, you

know, and the direction that that company might take, somebody who absolutely is core and that their capacity and ability to do their job could completely affect the stock. >> and this whole lawsuit so going to hinge on whether he is or is not competent to make decisions. it's a lawsuit involving a former girlfriend who he apparently kicked out of his home in california some weeks ago and she's alleged he's not competent to make decisions and won't there be a panel of doctors who will ultimately step in and testify to this as part of this lawsuit? >> it's not -- you know, i understand what mario wants, and he's obviously a friend and he's a great friend of this network, but the only people that can do that are going to be physicians. >> can -- >> who can attest to his competence. >> the board can't say, you know what? we're right -- they're not going to say that. they can't. >> you have a big show coming up, more on yellen, the beige book, the most aptly colored

tome in american literature. >> did i sense a little sarcasm? >> i love the beige book. >> it's market moving right now. >> if we could get a marketing genius on, they would say fed change the name to sex it up a little bit. it's the regional survey of short -- >> but -- >> and tyler, i have to go right now, buddy. >> there you go. >> there's hampton. >> the latest anecdotes, economic anecdote's from the fed's district show economic activity increased at a modest pace in most regions since the last report. consumer spending increased in nearly all districts but the pace depended where you were, described as sluggish in new york, moderate in minneapolis and san francisco. robust auto sales. tourism spending mixed. new york in particular was described the tourism spending at or below levels of a year ago while richmond, atlanta, dallas, and minneapolis actually had increases. the manufacturing sector described as mixed.

the strong dollar, low commodity prices, weak global demand leading to manufacturing declines. new york, philadelphia, and minneapolis, boston, richard, and chicago and san francisco actually had slight manufacturing increases. housing markets improving at a moderate pace. home prices increasing as as well as loan demand. residential construction growing modestly. overall commercial construction strengthening but the new york district described as little changed. labor markets, the beige book says, continue to tighten. many districts are increasing hiring driven by temporary and entry-level pressures positions being filled so not much pressure on wages except for skilled jobs. prices, what people are actually paying, some upward price pressures reported overall, but generally stable. soft spots in the economy, of course, energy declining mildly in several districts. drilling on hold due to oversupply. coal production described as

weak. transportation growth, essentially in the richmond district in particular, transportation tied to imports slowed, but exports weakened due to the strong dollar as well. back to you. >> all right, hampton pearson. hampt hampton, thank you. we as always have steve liesman to break down the beige book. doesn't seem like a wheole lot f new stuff here ahead of the fed decision next week. in two weeks rather. >> i think it sounds like the economy chair yellen described in her washington speech. it's growing modestly or moderately. some strength in housing. automobile the strength in autos. there isn't a whole lot the fed sees, brian, that you and i don't see just by following the data. maybe it's their analysis that we don't see necessarily and we see that when we get the speeches from all the fed folks, but ultimately autos doing well, housing is doing okay, exports, manufacturing, they're both challenged from the stronger dollar. that's not a surprise.

we get a lot of added value in this from the anecdotes about pricing pressure and wage pressure and we're not seeing or hearing a whole lot of that. that notion of there being wage pressure in skilled industries is one that's been in the beige book for several years i want to say now, and it really hasn't translated more broadly to wage pressure. >>u bs came out a note this morning, i don't know if you read the note, talking about unit labor costs rising the fastest in years. so we are seeing some wage inflation. >> there is some wage pressure out there, and you just did a 0.6% rise in wages in the most recent personal income and spending report. we'll see if that continues. we'll be looking friday, brian, we're looking for a 0.2% rise. i don't think wages are going to be flying off the handle anytime soon. i think we're still in that 2% to 3% wage growth area, and i think yellen has definitely indicated she has some tolerance

for wage growth above 3% because people need to make up lost ground. >> okay. can we go to the chair's speech? >> absolutely. >> because there was something in it not about fed -- not about fed policy, not about rates, not about inflation which really caught my eye because there's been this whole -- and it's a very controversial debate that gets people fired up on every single side which is this -- are people not working because they don't want to? we always hear about how weak the job market is still, but some people are sitting at home. you can't say this, you can't say that. i want to read you something and i want to get your comment. this is directly from chair yellen's speech today. some who are counted out of the labor force might be induced to seek work if the likelihood of finding a job rose or if the expected pay was higher. she continues, some of them undoubtedly would be drawn back in the labor force as the labor market continues to strengthen. likewise, some of those who report they don't want to work now could change their mind in a stronger job market. what is she saying? >> so we've had an extraordinary number of people who have left

the workforce for a variety of reasons. some have left because they've retired. some have left because they're going to school and they're not really in just yet. others have left because they are discouraged by the prospects and by the wages that are out there. let's fast forward, brian, what are you? you're 32 now, right? >> yeah. i wish. >> let's fast forward 33 years to 65-year-old brian. you've decided to retire. along comes cnbc and says, brian, you are so valuable to us right now we're going to give you a million bucks to stay in the workforce. there is a price at which -- >> sold. >> right. there's a price at which you would choose not to retire, right? she's talking about what that marginal wage is that keeps you from dropping out -- let's talk about down and out brian. ten years from now all of your bad habits have gotten the better of you. you decided there's no point in looking for work anymore, you can only make 7 bucks an hour. some guy comes along and says brian, here is 15, 20, $25 an

hour for you to shave, clean your stuff up, and come to work. there's a price there. >> and i first off, thank you, if you're offering me deal, done. it just caught my eye because it's such a sensitive topic. are people not working because they don't have to, because they don't want to? how are they existing? all this other talk, income ib inequality yet here is my first read ever of a fed chair, maybe there's other things out there, i don't read every speech like you do saying some pept donople want to work but they might decide to if there's more money. it caught my eye. >> this is a huge debate in the economy that's absolutely central to fed policy right now, okay? it's the debate about how much slack there is in the labor market. we know the participation rate is very low, 62.4%. off three or four percentage points from the previous highs. if there's a lot of slack in the labor market, the fed can afford to be really easy, take its time raising rates. if there's not a lot of slack we're near full employment and you could get into a wage

problem. i want to make a tease, tomorrow morning we have allen kruger, the princeton economist, obama's former chief economic adviser, and the deal is he's been the guy who has been the pillar of the notion of, hey, they ain't coming back and labor markets are tighter. yellen is on the other side of kruger. >> first off, people look at labor force rates going down over 30 years, that's correct. i will take your side if you have a side which is if you go back 50 years, labor force rates are basically where they were then. we've been this low before, it just depends on the time line of your graph. i will say this, okay, because as you know my wife and i were blessed, we just had another child sort of a year ago and he's a little -- i call him the little monster. he's a great kid but here is the point, she left the workforce because child care, the rent maybe too damn high. anybody out there with kids, you know child care is too damn high and too damn hoard. a lot of people if you have the position and ability to do it are choosing to leave the workforce because they don't have any options on the child care side. >> that's a huge issue but also

there are wage issues and people need to get -- the employers need to get to a point where they have to offer higher wages and start to bring people back in, and they may -- >> agree. >> -- first bring the retirees back in. i know because my father and mother when they were retired in florida, i lived across the street from a guy who was a former executive who kept getting called back into the workforce. there were those folks who will come back. there are plenty of older folks who decided not to leave the workforce because 80 is the new 50. there are kids who went to school -- >> it's interesting that the federal reserve chair is saying some people might not want to work but maybe if they make more money they will. it's a sensitive debate. people get angry either side of it, blah, blah, blah. >> the third rule of economics is don't say somebody is not going to do something until you know the price they're not going to do it at. and in this case it's work. >> i did not understand that. melissa, maybe she did. >> ponder it, brian.

you know. you can understand that. >> melissa is very smart. >> i understood what he said. but anyway, i want to take a check on the markets. we saw a little reaction off the release of the beige book. we lost three points on the s&p 500. we're down 0.7%. close to session lows. two-year treasury is where the action is at all day. up 0.95% or so hitting -- and five-year yield at 1.64%. the 10-year yield, look at this, the longer end, we're at 2.19% right now. the dollar index is slipping off its highs of the year. the dollar index hitting 12-year highs. and take a look at oil because this is where we've seen the action in the past ten minutes or so. really testing that $40 a barrel mark on oil, crude oil that is, wti. we'll have much more on that big move straight ahead. remember, the oil close is just about 20 minutes away. >> despite widespread fears of contagion in the beleagued high

debt market, goldman sachs says pay no attention. interesting thoughts. let's get thoughts now from charles reinhardt, portfolio strategist at mainstay investments. welcome to "power lunch," charles. there's two schools of karch out or schools of thought which is number one high yield is forecasting a coming recession, liquidity crunch, and maybe a major stock market downturn. goldman sachs is saying don't sweat the small stuff. what's your take? >> our take is that the economy is improving and that high yield spreads are discounting higher default rates of what we're likely to see and therefore there's opportunity in the credit market. >> and so you don't sound that worried about high yield. lack of liquidity, growing default rates. >> no, actually we like high yield. we think high yield offers an opportunity, especially for those trying to generate more income in their portfolios. we think the economy is growing. the probability of recession is quite low. the st. louis fed's probability of a recession indicator is at

1%. leading economic indicators hooked up in a nice way last month suggesting the economy is improving. that's what we actually see. we think that we're going to be -- we're entering an economy that's poised for improvement next year versus this year both in the u.s. and at the global levels. >> -- want to invest in high yield and they will look at an heft like the high yield etf but that includes oil and gas and that's where a lot of the defaults, that's where a lot of the distressed issuers are. at this point in time, you have to be really careful about how you invest in high yield, correct? >> that's true. that's always true. you have to do your homework. you have to do your credit research. you have to actually dig deep to understand the companies you're investing in quite well. look at their balance sheet, making sure that they're doing rational decisionmaking. these are all very important things, but when we do all of that, and, of course, there has been pressure in the energy sector, if oil prices were to improve over the course of the next year and we think oil prices will spend most of the time next year between $40 and

$60 a barrel, so we're probably at the lower part of that range as we exit 2015 and enter 2016, that's should relieve some of the pressure. we think credit spreads will tighten between now and the end of the expansion. >> basically you think the worst is over for oil, we will see a rebound and that could mean a spring loaded action in the energy part of the complex which has been so depressed so maybe hyg is not such a bad idea? >> i'm sorry? >> maybe hyg or an etf that follows the index isn't such a bad idea because you're basically saying that the worst is over for oil. >> well, when it comes to investing in the high yield market, we have active management strategies, and even in our strategies that allow -- that are unconstrained an lioud to go anywhere they are finding value in the high yield space. you do due diligence. >> let me jump in.

some people say oil is going up, others say it might go down. others don't know where it's going. the third people are probably the only ones being honest with themselves. if oil stays at 40 bucks a barrel for three years, we are going to have a major high yield crisis. period. >> what you will see is the negative impact it's had on earnings so far will begin to dissipate. it will be less of an incremental factor. also the lag effect of low oil prices will exert a positive influence on other aspects of the economy, other sectors that are net energy users. so it will be a positive for the economy overall. and, of course, as an investor you would probably want to steer towards healthier balance sheets. >> charles reinhardt, mainstay investments. we're going to leave it there. good discussion. thank you very much. >> thank you. don't panic, but there are only 22 shopping days left before christmas morning, but

don't worry all you procrastinators out there. we are here for you. we've got a gift guide of what is hot and what is not coming up. plus, an under the radar way to make some serious money on all those boxes being shipped this holiday. later on, perhaps a trillion reasons why the booming auto sector might slow down soon. and we are keeping a closing eye on what we just talked about, crude oil. it is at $40.04. folks, the close of oil in about 15 minutes, and we could go below 40 bucks a barrel. don't you go anywhere. stay tuned to find out. teve, ot me move stuff, what are you working on? let me show you. okay. our thinkorswim trading platform aggregates all the options data you need in one place that lets you visualize that information for any options series. okay, cool. hang on a second. you can even see the anticipated range of a stock expecting earnings. impressive... what's up, tim? for all the confidence you need. td ameritrade.

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welcome back to "power lunch." we want to call your attention to what's happening with shares of avon products, the cosmetics company. cnbc has reached out to representatives of oprah winfrey who have said that market speculation about oprah winfrey possibly taking a stake in avon are not true. again, speculation is not true that oprah winfrey has taken a stake in avon products. earlier today the stock had run up as high as 16%, 17% on some speculation that probabossibly winfrey had taken a stake, but a spokesperson representing oprah winfrey tells cnbc that it is not true, that oprah winfrey is not taking a stake in avon products. the shares reacting during the course of this afternoon's session. back over to you guys. >> dom, remember those days when oprah had her show still on on the major networks and she had oprah's favorite things.

now it's oprah's favorite stocks. remember what happened with weight watchers when oprah announced her investment. it's up 60% in the past month alone. >> she's already made a lot of money on her stake in weight watchers, but, yes, of course, this is the thing, but, again, it just kind of goes to show you that when you have that kind of information out there or speculation about a company or somebody's involvement, everyone is thinking perhaps there is a weight watchers type move for the stock. again, a lot of these stories you have to be a little bit -- at least a little wary, a little skeptical given the nature of what happens with information. jo let's s >> let's say it does come true. people have denied a lot of stuff and then later on it came true. if she does take a stake, you could see a vertical integration. oprah is already a brand. but becoming in some ways a conglomerate shareholder in the beauty business and in the personal care side of things. >> absolutely. i mean, this is one of the situations where it's a collection of brands, and she's got such brand power just as a

personality that it could be one of those perhaps plausible scenarios, but with a lot of these publicly traded companies and -- avon is not a small, small company. it's about $1.5 billion in market cap, but still it's going to be interesting to see how some of these smaller brands perhaps do get talked about in some of this type of brand conglomeration effect, but again with the oprah winfrey thing, a very interesting move -- >> and avon has been crushed. if somebody came in and take a stake it would be a lot cheaper than it was because the stock is down 63% over the past 12 months. that rolls us into our next segment. we have charles koppelman and sara quinlan joining us. charles, we're going to talk about retail. i want to get your take on that story because you're a guy that knows about branding and marketing. i know you can't comment on oprah avon, but just around this sort of building a personal brand and what you think oprah should do? >> well, someone like oprah who

has this incredible personal brand of continually being successful at what she does and pointing out different products that are wonderful, if she got involved obviously with avon, it would be a terrific thing. we have seen that with her involvement with weight watchers. >> yeah, and your take on again oprah haas a brand. leaving the tv show, creating her own network, charles. i mean, she's got to be one of the five best people in the world. i don't want to make this an oprah segment, but this is an incredible personality. >> she is. she's oprah. she's one oprah. >> she's one name. she's achieved one-name status. >> you have got oprah, you have martha, you have bono, you've got several -- >> cher. >> cher, et cetera. but in the world of commerce, i mean, you have oprah, you've got martha, and if oprah got involved in a company like avon, i think her brand, her celebrity, her smarts would help that brand immensely.

>> the one name any brazilian soccer star or president of indonesia. let's get back to what we're here to talk about which is holidays, retail sales. sarah, you look at mastercard at hard data. have you been able to establish any kind of a trend? i know it's only december whatever, 2nd, any trends that we can see so far? >> well, absolutely. it is still true that spernti experiential spending is the key. spending was up in november 4.6% ex auto and gas. the consumer is very determined and know what is she wants to buy. the holiday is off to a very good start. >> good start there. charles koppelman, we have talked about whether or not some retailers like amazon are indeed a brand. when you look out there, stores, brands, whatever, who is really owning it right now? >> i think sarah is right on the money, by the way. barrett jackson, the largest auctioneers of vintage cars,

they will have 350,000 people in scottsdale buying collectibles. the consumer is smarter today. six flags announced the highest attendance that they've had. it's experiences. it's families. it's the smarter shopper. the shopper today goes online, looks at what's the best product, what's the best deal, and then maybe they go to retail or maybe they just click and buy it at home. you've got to remember, we're dealing with smarter people today. >> but the good news i guess from especially mom and pop out there that run a little retail store, sarah, is that according to your information, yeah, we like to shop online, but still armchair shopping is a fraction of the total shopping -- there's still hope for the brick and mortar retail efforts, correct? >> the store is king. so reality is 6.7% of total retail sales are done online. now, we did see a surge over the holiday weekend. so clearly digital really

trumped over the holiday weekend so we saw double digit growth there, but in reality we still like that personal experience of touching, feeling, and, remember, shopping is social. i love taking my daughter with me shopping and doing it and comparing together. that's really what happens. we see that sequence in the spending. >> or if you have young kids just getting out of the house is nice. sara quinlan, thank you. charles koppelman, thank you. >> good to see you. >> we have to hit oil. you might have seen the flash at the bottom of the screen. if you're on the radio you did not so i will say it. oil just briefly broke back below 40 bucks a barrel. we're exactly at $40 a barrel right now on the nose. we were at $39.96. i'm going to say and let's bring in dom chu into the conversation, dom, we are not only seeing oil fall on those big inventory numbers, but many of the big cap oil stocks are taking a significant turn down as well. guys, i apologize, got the best crew in the business. i will start calling audibles,

hes stock down 5.2%. marathon, mro, down 5% also right now. conocophillips, cop, down 3% right now. many of the midcap and midlevel producing stocks, if you will, as well, they're getting hit just as hard. you look at a name like hall con resources, that stock is down more than 8%. the real pain is coming in already financially beleaguered companies, we don't like to talk about stocks under $500 million in market cap because they get illiquid but if they were well above that and are now below it because of a significant decline, case in point two names you have to pay attention to magnum hunter resources and goodrich petroleum. magnum hunter is down 27%. goodrich is down 13%. >> brian -- >> go ahead. >> the flip side is the strength we've seen in the dollar and if you look at the dollar index, it's holding firmly above that $100 mark on the dollar index,

and it had hit a high intraday as high as 100.42. that obviously is inflicting a lot of pain here on the commodity trade in general and in today's trade specifically on the price of oil which, again, is below $40 a barrel on ti. >> and the dollar slamming oil perhaps, but the inventory numbers, melissa, you got -- this is not a complicated story, right? i mean, it's like e con 101. i think i got a c minus in college economics. here is the thing. if there's way too much of a product to meet demand, the price of that product goes down, and when you every single week, meltz, we get inventory numbers and there's 1 million, 2 million, 3 million barrels more oil being produced. i know morgan brennan is in houston today and we talked about this in the past. all these oil storage facilities are getting filled up. what happens if they all do get filled up? then you can't just take your

oil and go put it in a storage container. you have got to sell it on the open market, and all the buyers are going to know that you are a forced seller because you have no place else to go for that oil. that to me is the concern that i'm hearing from many players in the oil market. let's get a market flash now with dom chu. i hope i didn't steal your thunder. >> not at all. the economic discussion you were just having, at some point the economics of oil storage also come in play, so you never know if that's going to factor in and at what point it does. in fact, those rig counts as much as we hit them every week they do at least tell you a more secular theme to what's happening. where else we're watching stuff happen in the marketplace today is something maybe quasi related. look at the transportation stocks and the transportation companies. you think airlines might catch a bid because of this but we'll focus specifically on the rail companies because you look at kansas city southern which has taken a dive here in midafternoon trading. the rail company issued weak fourth quarter guidance saying it expects revenues to be down high single digits compared to

the same time last year. it's already down 20%, the stock is, over the past year. and then norfolk southern sinking on bearish comments, saying low commodity prices, increased truck capacity, and the strong dollar, all things we've hit on in the past, are dragging things down. that stock is down 15% this year. all of this happening this morning after csx warned of a significant drop in coal shipments, more than they expected. that stock is down over 3% today. so if you take a look around, the crude -- really the crude market is just a part of this overall story and transportation of those products is also being impacted, brian, by what's happening here, melissa. >> you're doggone right, dom. here is a theme that a lot of people have gotten wrong. they say, well, gas prices has gone down, diesel hasn't gone down as much, that's a net win for the rail companies or maybe they're going to ship more gap t-shirts because people are saving money at the gas pump. i don't think people realized

how much money these rail companies were making shipping the oil production stuff, the oil rigs, the jacks -- >> they're getting burned two times on the flattening oil trade because in the oil complex obviously you have crude and all the stuff that's related to crude like the pipes and the drills and the stuff you mentioned, brian, but also the corollary impact is on nat gas. nat gas is down by 3% today. that makes coalesce attractive and so therefore you see coal shipments down. this is all very much interrelated in terms of the pain being felt by the rails. >> a viewer makes a good point in that their 20% moves, only a nickel down, i get it. here is the reason we're talking about stocks that -- we had never talk about stocks that are $80 million market cap. it's just that they were $5 billion market cap companies a year ago. so they were big name companies that have gotten hit. they're not small startups, so, yes, small moves in terms of money are creating big percentage moves. >> yeah. we'll continue to track this

transport story. meantime, "power lunch" will be right back. ills, ills, i've read all of your lyrics. you've read all of my lyrics? i can read 800 million pages per second. that's fast. my analysis shows your major themes are that time passes. and love fades. that sounds about right. i have never known love. maybe we should write a song together. i can sing. you can sing? do be bop. be bop do. do be do be do. do do do be do.

let's get right down to the new york mercantile exchange and jackie deangelis. i gave a basic econ 101 lesson.

too much of something, prices fall. it looks like we will settle below 40 bucks a barrel in oil. >> i heard your lesson and you're exactly on target. this is what we've been talking about for quite some time when comes to crude oil. we settled under $40 today, $39.94 is where wti settled. the intraday low $39.84. it's the lowest since august when we broke $40 last time. now, inventories today, up another 1.2 million barrels. that was the first bearish factor. losses started to steepen when janet yellen started making comments. that started to take the dollar higher. bearish for crude oil and the beige book numbers came out and that's when we saw some intense selling as we headed into the close because as you know that happens to be the most volatile time of the day and most traders told me they were selling into the close, especially ahead of friday's opec meeting where we're not expecting to hear anything about a production cut, so back to your point, supply/demand econ 101, we have

an oil glut. >> all that conversation about the opec meeting, we talked to helima croft about this, that everybody is going to listen to the saudis and get behind in line with what they want to do. is there going to be a situation where literally some of the oil-producing nations like venezuela which are on a economic precipice are going to start to thumb their nose at the saudis? >> you wonder if there's going to be a mutiny in opec at this point because some of these guys are really hurting. the saudis are saying we can sit it out and tolerate this but they're in a different position than venezuela. >> they're in a different position and yet they still are under pressure because of budgetary matters. they've got a lot of defense spending doing on and they're not bringing in the same revenues as they were because of the declining price of oil. jackie, does it change at all the tenor surrounding the opec meeting which could move the markets? no production cuts officially to be made but maybe chatter given the decline? >> there is some chatter about it. the thing people are worried about is all of a sudden you could see something on friday where opec maybe goes rogue. as i reported yesterday in my

survey, nobody thinks they're going to do it, but there's always the chance of it. that's why people don't want to oversell wti right now. just waiting until they get that confirmation and then we'll see what happens going into the weekend. but if they don't cut production, we probably will see more selling pressure. no one is going to be wanting to hold wti going into a weekend. >> yeah. and just to reiterate there, jackie and melissa, a lot of these stocks taking big hits, even smaller cap names. let's forget about those. exxonmobil is down 2.5%. conocophillips down 3.5%. they've had a pretty good quarter, melissa, most of these names are green on my screen here, but overall we're talking probably about a half a trillion dollars of market cap lost just among say the nine sisters, if you will, the six big u.s. companies and a toe tal or a bp and a shell thrown in there as well. >> that's where we're seeing the weakness in the markets. xle, the etf that tracks the energy sector, one of the worst

performing of the session. something to watch going into the close. >> breaking news with sue herera. >> we are reporting on a developing story out of san bernardino, california, which is just east of los angeles. the san bernardino fire department and sheriff's department tweeting out saying that they are responding to reports of a 20-victim shooting incident in the 1300 block of south waterman. the san bernardino police department is working to clear that particular area. they are closing down streets. once again, the report is they are responding to a report of a 20-victim shooting incident in the 1300 block of south waterman. you can see basically where san bernardino is from that map. for those of you who are familiar with california, it's basically sandwiched between the 10 freeway and the 210 freeway. it takes depending on the traffic about 45 minutes to an hour to get out to san

bernardino from los angeles, but the san bernardino sheriff's department says that basically four minutes ago they started a hard closure on many of the streets around the 1300 block of south waterman. they are responding to reports of a 20-victim shooting incident. we're trying to ascertain what sort of facilities would be in that area. we do know that there is a golf course and there are a number of businesses there as well. so we're efforting at this point to find out the exact location and what might be at that exact location. so, brian, i'll send it back to you and we will continue to follow this still developing story out of san bernardino, california. >> sue herera, thank you very much. we'll let you get back to work on that as well. also some talk about something in north carolina this morning, folks. thanks. we're going to take a short break here on "power lunch." we'll be back with more details on that developing story out of san bernardino, california. we're back right after this.

and if you are just joining us, there are reports in san bernardino, california, of an active shooter where 20 or more people may have been wounded or shot. let us listen in right now to our affiliate knbc in los angeles, california, with live

ongoing details. >> san bernardino police or fire, whether that situation is yet under control. but as you can see there are a number of casualties here, a number of people with different wounds who are being escorted by first responders to the different areas of triage for their treatment. >> to give you a better idea of this particular location, we have pulled up here a google map to kind of pinpoint the area for you. again, we mentioned there that there is a public golf course in that area as well as the inland regional center. again, a map here, and we don't know exactly where the shots originated but you saw all the activity out there on the streets there. we also have a hard closure at orange show road and waterman and park center circle in san bernardino. police are obviously telling people to avoid this particular area. >> now, the inland regional center right in this area is, as michael mentioned, a community-based organization. it's a nonprofit agency that helps deal with people or helps rather those with developmental disabilities find placement,

find services, and we do know that that facility is open from 8:00 in the morning until 5:00 monday through friday. so i would imagine that that facility is likely locked down right now because of what's going on, and, again, we don't know exactly where this shooter is operating from or where exactly the shooting began, but we do know this is south waterman avenue and this is the intersection at parks, the san bernardino public golf course is right in this area as well. >> and, again, we're looking at first pictures here on the scene. we have our own megan reyes en route to that particular scene. she'll be reporting from news chopper 4 in just a bit. but, again, new information trickling in here on an active shooter here at south waterman avenue. the 1300 block of south waterman avenue. we've gone over some of the specific spots within that location from a public golf course to what we know as the inland regional center. >> we're getting word from the

san bernardino county sheriff, they are saying that san bernardino police have confirmed one to three possible suspects. so perhaps we are looking at more than one active shooter in this location. this tweet also references multiple victims and we're certainly seeing that from the first video we have in from the scene here. so we see a lot of armed officers here responding and tending to those who have been injured in this situation. >> so one to three possible suspects in this now being confirmed by san bernardino pd. again, that new information coming in, but, again, we have a multiagency response here to this scene. again, you see the pictures and, again, as carolyn mentioned, trying to determine who is more injured and putting them where they need to be taken care of, and, again, we don't know how many victims at this point but, again, one to three suspects being confirmed here moments ago. >> of course, this is one of those developing situations that we are getting the information

to you just as quickly as we can, but the pictures certainly tell a story of a very disturbing scene here on south waterman avenue where we are now learning at least one shooter, perhaps as many as three. that's from the san bernardino police department. >> again, as we've been mentioning, we don't know exactly where the gunmen or gunman originated from. we don't know whether they were in the regional center, the public golf course, we just don't know, but the pictures speak for themselves. we have a number of agencies out here tending to the injured. you see some of the walking wounded there again being placed in different parts of that intersection there of orange show road and waterman near park center. again, waiting for more information to trickle in. >> we're getting some first sound from witnesses at the scene. let's take a listen. >> ma'am, how are you doing?

what happened? can you just tell me what you saw? >> i really can't tell you. i only heard shots and i'm sorry. i can't really tell you. i didn't see anything. >> what did you hear? what did you hear? >> just gunfire. >> it's an active crime scene. back up. >> you're hearing from people on the scene saying they didn't see anything, they just heard gunfire. that woman obviously reacting to the situation. still very much in flux here. >> and the cameraman being ushered off there by local police officers. again, a very active scene and again, the witness said she didn't see anything but obviously heard those gunshots and that's exactly what we've been hearing here on social media, someone actually tweeting us not too long ago and we shared that with you. again, a woman identified herself or at least her twitter handle as marie christmas. she again says i saw the shooter shooting people in san bernardino, which is different from what that witness said. i'm scared for my life at the moment, in hiding. >> as we look at these pictures and we are showing you a loop of the images that we have in

house, but you can see there are multiple people down with injuries here, and we assume that these are all gunshot injuries that are being tended to by first responders here on the scene. but it's a situation that we are trying to get the latest on for you as to whether there are more than -- there is more than one active shooter, whether the shooting is still ongoing. we are still working at the scene there to get that information for you. >> a developing story here. we don't know anything about the one to three suspects. it's been confirmed at least one shooter possibly up to three. do we know whether they're in custody or not? we can't get a hard number yet on whether it was more than one gunman, but in terms of victims here, we see multiple people here being treated, being assisted from, you know, from trucks, from cars there. again -- >> we're going to pull out of this coverage briefly from knbc

and our affiliate in los angeles. just a reminder the dow losing steam on this news here, this tragic story that's developing in san bernardino, california. the dow is down 159 points right now to 17,728. i just got off the phone with sepulveda building materials. they answered the phone and said it was about a mile up the road. they couldn't see anything from where they were but they were staying inside their building. so just using google maps trying to find companies around the area. obviously a fluid scene and another terrible scene from california. what else do we know? >> what we know right now is what's being reported on some of the police scanners, both by san bernardino police and san bernardino firefighters, and from that scanner they were looking for and probably are still looking for at least two male suspects in ski masks wearing vests, camouflaged as well. the subject wearing camouflage tried to break in or out of the building. we don't know what building that is. there is a lot of speculation

that it is the inland regional center. i looked that up, and basically they offer various classes for people with disabilities, and right now we just know that the san bernardino police department is confirming up to three possible suspects and there are multiple victims cnbc.c. for those of you who are not familiar, san bernardino is east of los angeles, and it's in between the 10 and the 210 freeways. there are a number of larger public businesses in that area, brian. as you mentioned, the golf course across the street. they were called and they said right now that no one is going in or out. they're basically on a lockdown but no one as far as they know at their facility has been hurt but this is all very fluid and subject to change. right now let's see, multiple victims, no arrests have been made, and the police are working

to secure the scene, and we will keep you posted on this developing story, brian. i'm just trying to locate some of the other businesses as you have been in the area. >> listen, again, and you're going on some of the maps here and i have made a bunch of calls. as you might imagine, few are picking up. they did at the building materials company, but there's also a gold dealer, a coin dealer called the golden nugget which apparently is an open business. you want to make sure these are not businesses that are closed, but, again, a small business region here in san bernardino, california. you mentioned the inland regional center which does help people with developmental disabilities, but you also do have a coin dealer nearby. the golden nugget. obviously don't want to speculate about anything, but when you hear masks and camouflage and perhaps automatic weapons and a group of one or two or three people, as you have and as knbc has reported -- >> yes. >> we are now defaulting as a society to think it's some sort of social outrage. one does wonder if this was

perhaps simply a robbery of a coin dealer gone horribly wrong. we don't know. >> no, we don't know, and we continue to follow the situation in terms of possible victims. you can see some of those being transported. again, this is from knbc which is the local nbc news affiliate in los angeles. this is -- some of this is tape that's being turned around. much of it is coming in the newsroom as we speak and we will take a look at it and turn it around for you as soon as we can right now. >> sue -- >> i'm just -- >> yes? >> is there any word about what is happening around this area that we're seeing right now? i mean, obviously there's a hunt on, so is there a closure? is there -- >> yes -- >> shelter in place order or anything like that? >> all the streets are closed in that particular area, melissa, and right now they have instructed all businesses in the area to go on lockdown, shelter in place. i think many of them did that

automatically when they started hearing the shots fired, but the police have put out on the scanner that they basically do not want people obviously coming to that area, out in that area in any way, shape, or in that area. it also looks as though -- because i see them takie ining of the victims out of pickup trucks. those victims may have been transported, perhaps, and i'm speculating on this now, from somewhere slightly different from where they seem to be locating -- >> maybe to a staging place where it's deemed safe. >> while we're watching these pictures, i want to bring people's attention to the markets here. we're watching them very closely. the s&p is down 1.1%. we are close to session lows right now on the back of this shooting. again, if you're just joining us, an active shooting situation in san bernardino, which is approximately 45 minutes east of

los angeles and the shooters are still -- the police are still looking for them. >> possibly as many as three shooters. none of them have been apprehended. they were masked. they were wearing camouflage. some reports that they were wearing vests, but that cannot independently be confirmed. that's from the scanner traffic from the san bernardino police department. so it's obviously a fluid and active situation with a number of victims at this point. brian, melissa? >> i'm on the fire with a tire shop right across the way. they said they are on lockdown. they see a lot of cop cars outside the region. i know you can't hear the guy that i'm speaking with. from what you understand, this was at the inland regional center down the street from where you are, correct, sir?

what did you hear? >> we didn't hear anything in this area. the street was literally blocked off. but just cop cars. i mean, it's like -- they were trying to, you know, get to it. >> i'm on my cell phone right now. you are being heard on cnbc. we're glad that you're safe. this is going out to the country. so can you just walk us through when it started, what did you hear, sir? >> we didn't hear any shooting or anything. we did see a lot of smoke around

11:00. you can see so much commotion in that area. >> has anybody come in and talked to you and said get down? are you locked down? are you shelter in place? >> the shell gas station, they actually told them to shut it off and let the people back up. >> are you currently in a situation where if you wanted to leave, you could? >> no, we're in a situation we can't leave. >> we can hear sirens through your phone and our microphones here. do you see still a lot of active police presence around your building? does it look like there is an active search for the assailants? >> yes. >> well, sir, we really

appreciate your time. i'm sorry to call you up out of the blue like this. >> okay. >> by the way, just one more question, sir. has anybody come to you and said stay in place? or are you doing it on your own? or did somebody tell you to do it? >> we're trying to be safe for now. >> that is the smart way to go. be safe, please. thank you very much for your time. take care. god bless. thank you so much. >> we are looking at stunning photos of people in a parking lot hands up. we don't exactly know what the situation is. it looks like they're getting cleared and moved out in some form. as we're taking a look at this, we're joined by a former fbi investigator. thanks a lot for filling in. we appreciate it. this is a very fluid situation. what is the first thing that happens in this sort of investigation as we are on the hunt for these shooters? >> well, i have to tell you, it's so fast-moving, it's and i tell you i've been there, done that. so what happens, the first thing

i say i'd have to do, they're going to have to do is all these people that are being evacuated have got to be taken to another spot. separated, interviewed. important. what they see or have seen and could somebody be in that group. second thing, every vehicle in that area that has got to be examined, and you have to i.d. who it belongs to, compare it back to the individuals who came out with their hands up. and then you've got to bring in bomb teams. >> this is brian sullivan. thank you for joining us on short notice. >> sure. >> the reports are that these shooters were in camouflage, perhaps. we don't know body armor. they were apparently wearing masks. they have not tried to disguise themselves. they are obviously trying to make a point.

is there anything that we can glean from the fact that these shooters were masked up, were apparently in camouflage, were obviously trying to disguise their identity? >> well, i think the first thing that you can take from this is that they really did not plan to be captured, therefore they didn't want to be identified. if they pull out their mask, they could be just like me or you. >> take us through in term of how you change the investigation. the more minutes that pass by, they could have hopped on a freeway before it got shut down, etc. >> oh, yes. and therefore you can't bring in enough people at this stage.

the information i have is a public golf course across from this facility. it's just massive the number of people you have to bring in to shut the place down. we don't know where they could be hiding. second of all, you don't want to get into a gun battle that you're not going to win. >> yeah, and again, according to reports, and according to the gentleman that we just spoke with at the tire shop about a block and a half away, this was at the inland regional center, or at least outside of that. according to reports, their website is down. according to reports, this is a center where they do train developmentally disabled people to be more independent. it's obviously if that is the case, if the shooting was here, we're looking at a situation where this was obviously not a robbery of money, this was not something that was done for material gain. because this is a place that is an outreach type center.

but yet you've got these assailants allegedly in masks. how would you describe these assailants? what words would you describe for these shooters? >> my first reaction is very dangerous. and i suspect you're looking at the tip of the sphere here, because we don't know any details. so you have to assume the worst. if there's three, you have to assume more. that's the reason i said tip of the spear. you're just working with no information. so therefore if you're going to paint a picture, it's an empty canvas and you're trying to fill it in. second thing, try finding these guys. you've got a huge amount of territory to do it. and then you have to be worried about maybe bombs or something of this nature.

anybody that shows up in camis probably has a vest underneath it. they're more prepared than most folks would think. >> harold, how can you start to develop a profile of these people based on -- i mean, you mentioned the camis and the vest underneath. based on what people might observe about them, the type of weapon. does that give you any clues as to how connected or how well funded, how organized these people might be? >> if you use the weapons, you might be able to infer something from it. but because -- let me say this to you. weapons are so easily obtained. it almost makes no difference. i will assume they're automatic weapons, which says to me that they probably have had some training. doesn't take much to go out into a rural area, even there in san bernardino, and learn how to pull that trigger and load it back up and start again. so i can't make a profile.

none of us have enough information. >> and having grown up in los angeles, my grandparents lived out near san bernardino when i was a kid. i know the area very well. this is the edge of really los angeles county. i know san bernardino is its own county. it's the edge of the ex-burbs. if that camera shot that our viewers are looking at were to pan further out, there is a lot of room to roam out further east of san bernardino. pretty much desert almost all the way until you get out to the nevada line. when we look at what the first responders are doing right now, if you're the police, if you are the u.s. marshals, the fbi, what are your one or two first main courses of action in an area this large? >> i would be putting the choppers up. i would be starting roadblocks. i would be deploying -- because you're right. the desert is -- i know a little bit about