ith each other. i'll be changing the way the world works. (interrupting) you can't pick it up, can you? go ahead. he can't lift the hammer. it's okay though! you're going to change the world. what a busy day. what an end to the week. stocks taking a big hit, triple digits. that's our big theme for "power lunch" today. right now there you see the dow down almost 300 points, 1.5%. the nasdaq down nearly 2%. 99 points. and the s&p 500 off 1.7%. russell 2000 down big, too. let's look at oil there. one of the reasons the market is tanking today. is oil, big story, down 20% in three months. right now down another $1.30, 3.5%. one of the reasons the market is

tanking today as was just spelled out seconds ago by carl icahn and scott wapner on "halftime" the high yield market. fear of junk, one firm, big one, third avenue, preventing predemptions in one of their signature funds. mandy drury is at the new york stock exchange because stocks are stormy. hi, mandy. >> they're very stormy today on this friday, the last day of the trading week, tyler. i have got bob here with me. a bill segoff this hour. you know, bob, we can get into the granularity of all the various reasons why the market is selling off in just a second but if you take an overall theme, how much of this is derisking ahead of the fed which could, therefore, mean that after wednesday's fomc decision we could see maybe a little relief return to the market? >> maybe, i'm hopeful that is the case but i think you're right. as much as oil is a factor, i think derisking and that's a good word ahead of the fed, is a major factor. i want to show you the s&p 500. what's been happening is what happened yesterday, as we moved to new lows on the day we saw

spikes, selling came in and dropped the market at several different points. as you can see we're just off the lows for the day. sectors, energy, materials, consumer discretionary. the theme today is derisking. these are all cyclical sectors. you will notice the less cyclical sectors, defensive names, consumer staples, utilities. that's been the way things have been all week. that's why the derisking idea is very sensible. it's 7 to 1 declining to advancing stocks. it's just ugly. moderate to heavy. a lot of etfs have heavy volume. the vix is encompassing the federal reserve meing next week and that's why it's elevated, started getting elevated a month ago when this encompasses 30 days in advance. you can see we're at an elevated level here, high nest two months. what's driving stock? three factors, oil weakness, risk reduction ahead of the fed, and the credit concerns i think

are feeding off of what the fed may be doing as well. we've been talking about that third avenue fund suspending redemptions. do bear in mind that particular fund they were talking about, third avenue fund, has a lot of what looks like distressed debt in it or various securities that have no ratings at all in it. it's a little bit of an unusual situation. the other thing about the knock on effects of the federal reserve potentially raising rates, look what's happening to emerging markets. >> absolutely. >> this is what i'm talking about when i talk about knock on effects. the market is concerned there could be collateral damage when the fed raises rates. we're seeing it in high yield and in emerging markets. this goes back to the whole theme of the federal reserve. >> you talk more specifically about what's going on in china especially with the currency later on in the show. i know it's down for the sixth straight day to a 4 1/2 year low. talk it me about the concerns for credit risk. we heard carl icahn just put it

out there and say maybe the meltdown in high yield is just beginning. when you say something like, that you can't just take that with a grain of salt. >> you can't. the one i want to point out with this fund that has the problems is they apparently have a lot of securities that are unrated and very difficult to sell. this is not typical, and even the higher -- the better quality high yield funds, and there are distinctions between these funds, people ought to understand that, have material and paper that is easier to sell. but i think mr. icahn is making a good point. we have been talking for a year about the lower levels of liquidity in bonds. these are -- and it makes sense if there's going to be some ripple effects, it will start in the most illiquid part of the market and this is the most illiquid part of the market, the hard to sell, rarely traded bonds. the question is can we get over this? >> we have a guest on that subject shortly. brian sullivan in the meantime back at hq, you have a news alert for us. >> it is the weekly rig count. it's the biggest decline in the number of oil rigs we have seen

in a long, long time. the number fell 21 last week. now, we're not seeing much of a bid come into oil here. we're still down at $35.68. we're at $35.70 right when the baker hughes numbers came out, so we're not seeing any kind of a lift. one wonders if we continue to drop and it's the biggest drop in a while, if that will put a bid or a floor under the price of oil which then, guys, could put a bid and a floor perhaps under the price of some of these distressed junk bonds that we have been talking about, by the way, for a number of months on this program, so oil rigs down 21. no change yet in oil, but the biggest drop we have seen in a long time for the number of future drilling rigs. guys, back to you. >> you see the numbers there, 35. not moving down on that news very much, the price. >> not seeing anything. i was hoping, tyler, it might be enough to put a floor under the price, maybe even see oil --

force some of those shorts. remember, shorts in oil contracts are either at or near record highs. if we get some kind of a bullish number like this or whatever it might be, an export ban, maybe a lift, maybe we're going to see the shorts have to cover. jackie deangelis, of course, knows a lot more about this than i do. >> let's go on that note to jackie at the nymex. hi, jackie. >> good afternoon to you. brian is absolutely right. losing 21 rigs is a substantial amount to come offline and in a week where we've seen straight declines of rig counts, but i will tell you this, traders on the floor are a little pessimistic about these numbers because they don't see actual production in the united states coming down. right now it's still over 9 million barrels a day and it's bouncing around. one week it's up, one week it comes down slightly but nothing meaningful is happening here. this could be the key that sort of gets us over the hurdle, but it's got to come out in the numbers. today a 3% drop in oil prices. back to you. >> thank you very much for that, jackie. talking of a 3% drop, the nasdaq is down by about that amount this week. kate rogers is following the big

movers there. >> it is a sea of red. the composite down nearly 2%. the nasdaq poised to close at one-lows snapping a three-week winning streak. the nasdaq though still the only of the three major averages up about 5% year-to-date but among the biggest losers in the nasdaq 100, wynn, down 6% after big gains yesterday. steve wynn announcing earlier in the week he was buying 1 million shares on the open market of the company's stock. that was up more than 13% yesterday. could not hang onto those gains for today. yahoo!, tech is a big story here, and yahoo! today down about 5%. seeing more talent out the door after news that its svp of products is leaving. it is one of the biggest losers in the nasdaq 100 today. sticking with tech, shares of gopro, they just went higher. they had been down 1% after krit can i group cut its rating to neutral from buy. also slashed the price target to $22 saying demand for its products is softening and

sticking with tech other names to the downside include facebook, apple, netflix, and amazon. >> let's go to steve liesman for a rapid update on the economy. >> tyler, we calculate this cnbc wrap-up with moody's.com. we have ten contractors to ibu on the street. pretty decent data this morning. the -- it could go higher. we began the quarter in october with the first data at 2.5, so we have come down. take a look here, jim o'sullivan towards the high side. goldman sachs good for 0.3% on the plus side. atlanta fed just updated, 1.9%, up 0.4% and morgan stanley up 0.2% but on the weak side at 0.9%. retail sales up just 0.2% but

that core number up 0.6% and when they get around to figuring inflation that number could be higher. we will talk about that in the next hour. business inventory is unchanged. consumer sentiment a touch higher from the end of november data that we had. some of the commentary we got from barclay's saying u.s. consumerpendg trends remain heth. d i ow wt yore goi to ask and here is action economics llinus wve psed one last hurdle before next week expeed ftightening. i suspect that is the case here, thatheseta numbers ee odugand e crent acks good enough for the fed to hike >> i w goi toskouow to pronounce ecommeary. >>ny wayou want. >> we have that and feess. we're inventing words left and right. >> we ve scksight w, the dowown about 0. the s& down 33.

near t lows of day. baxalta, the stock did spike as much as 4% earlier today and you can see they're up just a half a percent. the shares did move on a bloomberg report that cited sources saying that shire group, another health care company, was going to hold taukts with baxalta that may, again, may, lead to a deal. a formal proposal was made for the companies to merge back in august but a deal never came to fruition. again, one sliver, tyler, of green in today's sea of red. >> thanks very much, dominic. let's bring in ron insana. oil sliding yet again today. energy analysts though predicting, some of them even confidently, oil will rebound by 2016. but, ron, you wrote very persuasively on cnbc, i believe it was yesterday, that you don't see it that way in part because moves in the oil market are long cycle things that take a long time to unwind.

>> certainly on the downside they are, tyler. we see spikes and they last for relatively short periods of time and then the consolidation period tends to last for an extremely long period of time and i think the analog here is 1986 when prices crashed from $35 all the way down to $10. >> yeah. >> between '86 and 2000 prices averaged between $15 and $20. opec had overproduced in the years leading up to that to punish the cheaters among the cartel who were producing too much oil. they drove that price down, and then even though places like houston went out of business in the 1980s, we saw bankruptcies, consolidation in the oil industry like we're talking about now, priorses stayed depressed for 15 years and so to say that just because we're shuddering in capacity doesn't mean, particularly looking at the demand side, that you will get supply and demand back in balance. there are 3 billion barrels of excess oil in the world. supply exceeds demand right now about 1.5 million barrels per

day. i don't see where the bullishness comes from. >> do you see another slide? you look on that chart there. it's now 20% or so this year, whatever it was. we just cited the number. do you see another slide? >> it's not inconceivable that oil could go back to $20 a barrel. that is long-term serious support when you look at those charts, 1986 to 1993 really you had effectively that period in which oil prices, you know, bopped up every now and again but really held that level for quite some time. so it wouldn't shock me to see it as a prolonged affair. certainly not given the dynamics -- >> down 33% year-to-date. i think it was 20% in the past three months or something. >> high in 2008 was 147. we went from 147 to $35 a barrel. that's a 76% decline. >> we're going to leave it right there for now, but another big risk for the market causing a lot of fear today, and ron will be back to talk about that next. it is a big one. you're watching bc, first in business worldwide.

be back to talk about that next. be back to talk about that next. the only way to get better is to challenge yourself,

and that's what we're doing at xfinity. we are challenging ourselves to improve every aspect of your experience. and this includes our commitment to being on time. every time. that's why if we're ever late for an appointment, we'll credit your account $20. it's our promise to you. we're doing everything we can to give you the best experience possible. because we should fit into your life. not the other way around. welcome back to "power lunch." i'm mandy drury on the floor of the new york stock exchange. well, a day after chipotle's ceo apologized about the e. coli mess, health officials closing a chipotle restaurant in seattle for repeated food safety violations. elsewhere, gopro is moving lower. citigroup downgrading to neutral from a buy and slashing the price target to $22 from $75.

it's currently sitting at $19. citi saying it thinks demand for gopro products is softening. u.p.s. is under pressure. the parcel delivery giant is struggling to keep up with the volume this holiday season because of a surge in online sales. u.p.s. is down by 2.5% today. over to you, ty. >> fascinating conversation just moments ago. carl icahn speaking with scott wapner on "fast money" halftime saying the meltdown in high yield is just beginning. scott, he was vivid. he likened it to a keg of dynamite that's going to blow. >> whole reason we're even having this conversation today, tyler, is because if you look at what's happening in the high yield market, a couple of the etfs are trading near 52-week lows. then you had third avenue asset management liquidating a fund, not letting investors withdraw money. and then carl icahn put out a tweet saying that he thinks the

meltdown in high yield is just beginning. he referenced once again that video that he had put out some months back called danger ahead in which he warns of a high yield meltdown calling them illiquid. we got him to call into the show. talked a lot about the market, talked a lot about high yield. here is what carl icahn said just moments ago. >> high yield market is just a keg of dynamite that sooner or later will blow up. if you buy in these etfs, high yield etfs, well, you're going to have liquidity and it's just beginning. it's a major problem, and the government, the s.e.c. came out today, that's why i did the tweet. >> so the issue is, okay, third avenue by itself is not of systemic risk. we're talking about a $600 million to $700 million, maybe a touch more, fund. >> used to be a lot bigger. >> right. as a lot of things in high yield did. the question is as to whether

these are one -- this is one of those moments where you raise a red flag and you say, okay, if this is happening here, could it happen elsewhere? icahn has long been on the beat thinking that he's sort of the sheriff out there who needs to warn people in the ways that other people maybe didn't in 2008, and he has made high yield his rallying cry saying that it's illiquid, that if you have investors who are pushed into riskier assets because interest rates were so low like they were going into some of these high yield products, that they could eventually all come home to roost and it could have a dramatic impact on the market, maybe not as severe as 2008, and he would be first one to say and did he in the interview that he doesn't think it's like '08, but that doesn't mean that it couldn't have some significant pain for the investors who were involved in those types of products. >> as a group -- as a category, high yield mutual funds this year down 4% though that one, third avenue, credit -- di tr s

distressed credit or whatever it was was down 27% and had outflows from $2.7 billion down to that number you mentioned in the $700 million. >> at one other investor who i spoke with on the phone today who will remain nameless, it's emblematic these kinds of stories of in a low-yield environment people who are reaching for yield and maybe not doing so as carefully as they should to understand exactly the kinds of investments that they were making. this particular one in third avenue was maybe among the riskier of the risky and that's perhaps why we're seeing what we are today with news of the liquidation and investors being told -- >> practically every time you reach for yield, the mass reach for yield, there's a problem. auction rate securities back in the crisis. same thing, people thought they could get more on their cash. they went into those things. the market for arss locked, and they were done. scott, thank you very much. >> look forward to your next conversation. >> let's get it going and bring

in our cnbc contributor ron insana and also mike santoli. there you see some of the high yield or junk funds. i guess those are etfs. >> it's not systemic but when the fed is threatening to raise rates and then moves forward as warren buffett says, we find out who is swimmg naked when the tide goes out. we are now finding that out. and, you know, these things have been sold irrespective of concerns about default risk which typically go up at the end of the cycle -- >> and has this year. >> a little. >> but enough to send some tremors. mandy? >> ron, even if it's not systemic, it's clear that contagion is there. credit stress is certainly going beyond just the energy sector. if credit stress continues to worsen, is it something that might potentially effect the path of fed policy? >> oh, absolutely. if we start to see things -- and

we have seen this in different cycles whether it was '94-'95 or 1984 where the fed was in tightening mode. even during the asian crisis. this can ainge tchange the arc policy. >> as soon as next week though? >> no, i wouldn't say that. i think that's baked in the cake. >> mike, you have been doing a lot of work on this, and i want you to just sort of take me back to freshman bond class. >> sure. >> a lot of talk about the credit spread. >> yeah. >> for those who aren't familiar with that term of art, what is it and what has it done over the past year or so and what does it mean? >> well, corporate bonds -- bonds aside from government bonds like treasuries are always priced relative to the treasury yield. if you have a 10-year treasury yield at 2.2% and a corporate bond is yielding 3.2%, the spread is one percentage point. that's how you measure the strength or weakness of a market. for the high yield bond index,

that spread is now up to close to seven percentage points. that's up from under five. if you go back to mid-2014. that's important to keep in mind. this market has been repricing for the worst since mid-2014. it's accelerated recently and it's gotten to be at more panicky levels. >> this suggests the prices have come down so the yield on the existing securities has gone up. this is basically telling you that the market says, warning, warning, warning, there is risk here we didn't anticipate in 2014. >> right. and the markets are anticipating that late credit cycle activity, which is defaults go up, and, of course, the velocity, the energy bust, has really kept this market offsides for the better part of this year. >> it's not just energy. it's commodities of all stripes. may ultimately be commercial real estate where cap rates are near record lows. we could see risk there. and i think when you look at some of these instruments,

people have been told that the historic spread is 5% and so if you get to 7%, that might be a buying opportunity. that's not a distressed spread. that's a stressed spread and there's a big difference. >> we had a source on the other day, i think it was on with you, mike, who said a sector that has been hit very hard has been media, and i believe in third avenue they had a lot of clear channel bonds as well. that was a big holding of theirs. it's not just energy, but -- >> it's media, there's some consumer -- actually there's a lot of credits that were former leveraged buyout companies essentially and they're still knocking around in the portfolios. i will say the initial time that carl icahn sound the his warning, september 28th, 29th, spreads about peaked right then. the bond market had already been selling off at this point. you were about where we are right now. they rallied hard and that's how you allow the stock market to come back. >> at our delivering alpha conference, he was very, very strong in taking on, debating -- it was like ronda rousey and holm. >> it didn't end that quickly.

>> gentlemen, thank you very much. appreciate it. ron insana and mike santoli. our cnbc experts. >> what we're seeing here is another rough ride for stocks. i am noticing that we are off the lows of the day, but if we take a look at the individual stocks, you've got dupont leading the dow lower, energy stocks also dragging the s&p 500 down head by southwest energy and wynn resorts is the biggest nasdaq 100 loser. and the other interesting thing here is we're really seeing volatility soar. wall street so-called fear index is up about 50% this week alone hitting its highest level since early october. will this wild ride continue into next week's big fed meeting? that is the question. we'll try to get some answers when we come back. don't go away. "power quption is back in two. l? is back in two. l? and why stop what you're doing to find a bathroom? " is back in two. cialis for daily use, is the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right.

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welcome back to "power lunch." the dow jones transportation index is a notable underperformer in recent trading as well as today as the overall market continues to fall here. the index is being dragged down today by a drop in jetblue shares following disappointing guidance in the november report, it's underdate. the stock is leading rival airlines lower as well. if you look at southwest, also united, american, delta, all of the majors, they're all trading lower down anywhere from 2% to 5%. one of the big divergences catching a lot of attention for traders is the transportation index and its underperformance over large cap stocks with the

dow transportation stocks notably underperforming as you can see. the dow industrial average by about 5% or so. it may be signaling more trouble or turbulence ahead for some traders out there. back over to you guys. >> no worries, dom. thank you very much. we have a sell-off on the street. let's check in on the bond trading action as well this hour. rick santelli, what are the highlights? >> well, mandy, despite the pretty decent data points this morning, we are now down eight basis points on 10s on the day. down 12 on the week and should they close around this 215 yield, it will be the lowest yield close since december 1st. you see the two-day chart. it's been compelling, the motivation has been equities and emerging markets and the motivation is getting ready for fed tightening. everybody is looking at the junk etfs. that's fine, but in actuality, they're securities. so let's look at the real market, not the derivative market. barclay's, thank you, here is

the barclay's spreads and they are widening. you can see it on a one month on a five year back to 2012. more importantly get perspective, you can see it on a 20 year. yes, it's elevated, it's been worse. will it get worse? certainly seems as though that's the case and one chart that you saw there i missed and i apologize is atlanta gdp now. looked at the data today, fourth quarter business inventories and retail sales and upgraded what they believe fourth quarter gdp is currently tracking, moved from 1.5 to 1.9. tyler, mandy, back to you. >> i'll pick it up, rick. thank you very much. check out this guy, they call him the warren buffett of china. i promise you, there he is. he's reportedly been missing, causing his companies to halt share trading. apparently he has been found, quote, assisting, unque, chinese authorities with a corruption investigation. this comes as the chinese currency hits a four-year low.

it's been weakening recently bringing back fears of further moves by the chinese to devalue the yuan. seema mody is here with more. this is a fascinating story. he is not the only one of china's billionaires who has been assisting. >> reportedly other cases that have also been similar to this, but imagine if a billionaire tycoon in the u.s. just went missing, poof, for overnight. >> donald trump? no, i didn't say that. >> reportedly that's what happened in china. he's worth $6.9 billion. executive chairman of fosun international. he was initially said to be missing. we have now learned that he has been detained by police and is assisting chinese authorities in an investigation. this comes as chinese regulators have been cracking down on corruption, a campaign led by president xi jinping. it's sparking concern among the investor base seen as one of the reasons that china's stock market sold off hitting a five-week low.

this as beijing continues to allow its currency to fall against the dollar following a series of disappointing data releases this week. not good news for those exporters that do business in china and just to put into perspective the move that we've been seeing in the yuan, the biggest drop this week in a decade that we saw in the chinese yuan. >> within just a couple days of the imf labelling it a reserve currency. >> absolutely. and, of course, coming ahead of the fed meeting next week. >> seema, thanks. gold trading closed just moments ago. jackie deangelis, she covers oil, she covers gold. she's the hard metal and liquid woman. >> we cover it all, tyler. good afternoon. gold closing getting a slight bid, about a $4 pop. $1,076 is the level we closed. interesting to see though on the week still 1% loss. that's because traders are looking ahead to the fed decision next week. they are anticipating the first rate hike in almost a decade, and, of course, that will be bearish for gold. it's going to keep gold in its place. gold could probably test the

$1,055 to $1,057 level. that's something search to watch for but it's been a rough year for gold on the whole. back to you. >> i'll pick it up from there. thank you very much. let's keep with the commodities theme. we'll get back to you in an hour for the oil close. ahead of that oil is currently sitting at $35.66, so it's pushed below that $36 mark and is down by about 3% there to seven-year lows. natural gas is also moving lower today, below $2 and it is down more than 40% over the past year as well. the oih and xle, two popular etfs for investing in oil and energy, both of those down by over 3%. let's get out to kate rogers at the nasdaq now and find out what's happening in the tech space. hi, kate. >> hi. that's right, mandy. the composite is down 2%, around 100 points. the nasdaq poised to close at one-month lows snapping a three-week winning streak. still the only of the three major averages up about 5% year-to-date. some of the biggest losers, staples down 4.2% after an ftc

filing complaint to block its proposed acquisition of home depot. one of the biggest losers in the nasdaq 100. also keurig green mountain down a half a percent. despite being acquired for $14 billion in cash but it's a sell-off, not all bad news at the nasdaq. whole foods hiring nearly 7%. the biggest winner the nasdaq 100 after itg said it expects numbers to not be so bad as expected for the supermarket chain and also adobe systems, higher by 3% today after posting profit that beat for the ninth straight quarter in a row. back over to you guys. >> all right. thank you very much, kate rogers. let's take a look at the sectors driving the sell-off this hour. materials and consumer discretionary the biggest losers. there's materials and there's discretionary and energy has just eclipsed it down almost 3%. the best of a bad lot today, utilities down just 0.25%.

it is a big sell-off.

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i'm sharon epperson and here is your cnbc news update for this hour. the house passing and sending to president obama a bill funding the government through wednesday giving congressional negotiators more time to work on a $1.15 trillion bill for paying for federal programs. the senate approved the extension yesterday. syrian president bashar al assad says the u.s. and saudi arabia want terrorist groups to join peace talks proposed by world powers and that nobody in syria would accept it. he made the comment in an interview with the country's state media. the united states and cuba say they have struck a deal to re-establish direct mail service, which was cut in 1963 at the height of cold war tensions. they will launch a pilot program to test direct service but gave no date when it would be resumed. activists dressed as yoda and stormtroopers demonstrating at the paris climate conference in one of the many authorized

protest stunts around the talk. they're part of a push by an activist group to force governments to abandon oil, gas, and coal in favor of renewable energy. that's the cnbc news update at this hour. back to you, mandy. >> protest, i do, yeah. protesting in yoda-speak. thank you for the headlines. let's get back to what's happening in the markets. bob pisani, we have a 280-point loss on the dow. traditionally this is the tax loss selling week, the big week we see a lot of that happening and you start to see the repositioning ahead of the new year, but to what degree has the big fed event of next week thrown that a little bit in disarray. >> it's blown up everything. it's very difficult to make predictions about what's going on because the fed is such a wildcard. normally you get a tough time this week, selling for tax losses and then people start to position themselves and buy some of the losers. that's happening a little bit today. the s&p 500, we've gotten no bounce. we have had a series of lower lows that have been going on. you can see here and every time we hit a new low, a bit of a spike up in volume.

so energy, materials, consumer discretionary, i have been emphasizing that the cyclical names have been weak. this is the part of the problem of essentially trying to position yourself ahead of the fed and going into more defensive groups like the utilities, for example. so if you look today, look what's up here. you might think it's fairly typil, defsinames, some of the food stos like hehey, hormel, procter & gamble yo seeost of the are flat to slightly on the upde, t wee haa triblear with railroads here. 52-week lows inost the mesere. guess what's u today? it's a litelyo y 'rin to position themselves pic t bean up names for 2016 but this is tycallwhatappe inhe seco halof december. another group, utilities, wve be talng52-week lows day after day after day. ll, re, look. modest moves up. these guysre all nr52-wk lows but this is the game you playt th time of the year. without the fed, this would have been much more noticeabl i think. you would have seen people

picking at this now. the fed just sits there like this giant event everybody is waiting to get over. >> the giant event we need to get out of the way before we can move on. you were mentioning volatility, i have a great stat, and thank you to the cnbc crack data team. over the past seven trading days we have seen the dow traveling over 200 points up and down every -- intraday every single one of those trading sessions. a big pickup in volatility. >> 22 on the vix right now. >> thank you so much, bob. let's bring in chris wolf and jeff nye. to both of you, thank you very much for your time. chris, let's talk about the credit stress situation here. you know, we've been talking a lot about what's been going on in the high-yield market over the past few months but it's often been in the context of energy and now it seems to be spreading beyond that and it's very much on the front burner today. to what degree is this something you think could become quite a serious situation that affects the entire market? >> well, high yield to us looks a little bit like a tale of two

markets. there are parts of the high yield market, say the double b rated or even single b rated parts that seem to be doing okay. nshth, there's a reasonable good bid in that part of the market. the triple c, the close to default, things that are very stretch 23in terms of financial doing much worse. the worse your credit rating watts, the more likely you are to have some of the challenges around that. there are other things going on in kraed markets. i think it was mentioned earlier the fed is a classic flight to safety going on here in front of uncertainty about what the fed may do and the key there is how much liquidity they need to take out of mashtof markets to sustaa small rate hike. some estimates as much as $800 billion. our analysts think it could be a pretty big number. for perspective qe2 was $600 billion announced. it could mean a lot of liquidity coming out for a small move. it's affecting high yield and other markets. >> certainly is, jeff. how does it play out in your mind? what does an investor do in this situation? >> well, we've been positioned

fairly conservatively for some time. i think it's maybe too simple to just look at the high yield market and blame all of the travails on energy and ignore the rest for a couple of reasons. one that i think the high yield market is often an important leading indicator because it's often where the growth engines of the economy are financed and not so long ago we were talking about growth in this country coming from fracking and coming from energy exploration and so forth and so i think there is a sort of marginal growth lens that high yield does show. and the second is from the liquidity dimension, i think part of what's happening this week is investors are recalibrating the compensation that they demand to own investments in an asset class that might not be so easy to get out of. >> so then, chris, what does it do to the entire stock market? i mean obviously today it's causing quite a lot of derisking. is this something that keeps on

going, what, for the next few days, the next few months? does it have the capability of ending up in a major credit crisis? >> we think the central bank will be sensitive to that, meaning the volatility in markets. we expect it to remain through the remainder of this year. part of the reason we didn't get to but is important is you're in a guidance vacuum. not a lot of new news from companies. most of the news is around mergers because growth is very slow. there's a lot of things that may come down the road next year that could improve that fundamental guidance situation right now. right now fundamentals a little stretched but still positive. margins good. macro story changing and the technicals aren't great. that sounds like a recipe for volatility through the end of the year. we're telling clients to reposition, take away leverage, go upgrade in quality, and stay close to your benchmarks. if you're 60% equities, get to that number. >> thank you very much for joining us today, chris wolfe

and ted knight. you can get more at powerlunch.cnbc.c powerlunch.cnbc.com. >> there's the dow, 30 out of 30. 30 for 30. that would make a tight tv show. all of them in the red. 270 points or thereabouts. goldman sachs and dupont the biggest drags on the index. "power lunch" continues after this.

a brawl breaks out in ukraine's parliament. the prime minister was speaking when an opposition lawmaker approached him with a bouquet of flowers and he tried to pick him up and carry the prime minister away from the podium. you can't get enough of this, can you? members tried to get him off the prime minister. who got the roses, man? that's what i want to know. someone jumped in. they started throwing punches. it was a huge mess. more than a dozen people involved. there he goes. let's watch it again.

oh, look at that. i don't know what they call that hold. that's like an old pro wrestling, right between the picket wickets. >> this kind of thing happens like all the time, like taiwan. every now and then just have a parliamentary drawl. >> passions running high. >> yeah. i think we need a little more passion. >> you want to see mitch mcconnell and harry reid go at it. >> with a bouquet of flowers. >> all right, mandy. not everyone is getting slammed today. if you put money in these inverse etfs, you're up. the sh i short the sapp. d.o.g. is short the dow. ddg is double short the dow and d.u.g. is short oil and gas. d.u.g. is up by 5.5%. joining me now, a couple traders on the floor, tim anderson managing director at m & d partners and peter costa, president of empire executions. interesting day, boys, interesting day. bob was telling us we're seeing

these lower lows and every time we break through one of the levels, you see the sell orders kicking in, right? >> it's also -- i think there's a little bit of a liquidity issue here as we see stocks trade down. >> what do you think, tim? >> it's certainly support levels are being tested. the transport index has traded four days in a row now before the september lows, and the s&p 500 is right around that 2020 level which was both the mid-september highs and the november lows. there was a lot of technical things to look at. >> there sure are. we've been talking a lot about the themes that have been causing today's sell-off but going into next week, what does it look like do you think, pete? >> well, you know, we're very ba tha data dependent. a lot of people focuses on the fed -- >> isn't that a foregone conclusion? >> i think some of the portfolios are trying to aust

to the potential interest rate hike. >> but why haven't they already adjusted? we've been talking about it for months. >> they're still doing it. it takes time. you're not talking about a super liquid environment where you can get in and out of positions in two or three days. some of these positions takes weeks to adjust them. so i think there's a little bit of that. and i think, you know, we're in the middle of the month. once youet towards -- we have the santa claus rally which should start next week sometime supposedly. i'm not a buyer of that at all. >> why not? >> because i think -- >> not a typical year? >> it's not a typical year and i think we're starting to break a lot of molds of the past, and i think you're seeing that this month -- i don't think this month is going to be a good month. i'm actually very bearish. >> so you're today's grinch. what about you, tim, santa claus or grin? what side are you sitting for the end of the year? >> it is an atypical year but i think the data is something like -- the last 20 days of december have been up 12 years

in a row. we could very likely break that. a good chunk of the santa claus rally typically comes the second half of the month because, as pete just mentioned, the tax loss selling usually stops right around midmonth, people can't risk waiting until the last minute on that like you could risk waiting shopping. but oil is still going to be the big theme. >> it's not going away. it's going to be next year's big theme. >> it's a lot of collateral damage, and i think we'll be talking about it again even more than the fed next week. >> ripple effects are being wave effects, aren't they? thanks, guys. thank you for joining us. let's take a look at the numbers here. we're down 266 points right now on the dow. and we're also substantially lower for the year for that index. the s&p today also dropped back into the negative year-to-date. as we're talking about oil is a drag on stocks and oil is sitting seven-year lows today, it has fallen below that $36 a

barrel mark. we're sitting at $35.69 with a drop of 3% and, of course, brian, we've got the oil close coming up with the next hour of "power." you and i are going to be doing that show. what else have we got coming up? >> well, there's a guy coming on who has probably forgotten more about valuing bonds than we ever knew and that's martin fridsen. he will talk more about what's going on. obviously much more on stocks, much more on oil and if you are surprised by this high yield hurts the stock market theme, you have not been watching "power lunch" for the last 12 months or so. we're back right after this.

welcome back to "power lunch." looking for some shares of green or slivers of green here. check out electronic arts off of their highest levels today but still in the green by about 2%. this as the retail data for november show "star wars" battlefront was the third best selling game. npd saying it had the best first month sales for any "star wars" game. ea is one of the top performers.

at least one sliver of green in a sea of red. >> thank you very much, dom. here are this hour's power points. another massive sell-off on wall street. the dow is down 260 points approximately with energy, materials, consumer discretionary the biggest sector losers right now. moving on, oil is also sinking. wt sismt do wti is down 3%. "power" is back in two. do not change the channel.

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folks, we are now counting down the days until the next fed meeting next week. that means that fedness, our ersatz holiday is almost over. what trade does janet yellen have for us today? dominic chu knows. >> here we go with the first interest rate hikes that could happen. while the bigger picture market backdrop is getting murkier, we are on the tenth day of fedness and here are the trades that could do well knowing markets are prove deuproducing a rate

rising environment. we found that over the last decade or so when we do see a one-month period of rising rates, certain trades have performed well on a historical basis. may not predict the future but still it's history. we're looking at another exchange traded fund that tracks treasury movements. the pro shares, tbt. it goes up in value when rates rise but uses leverage to amplify returns. it only tracks daily movements so it's not meant for the buy and hold investor but rather for more sophisticated active day trader. this is if, and a big if, it longer term rates do end. rising. it hasn't been the case in recent weeks. that's part of our story for the tenth day of fedness. for more and all the prior trades, subscribers can go to cnbc.com/pro. >> i can't even imagine what the 11th and 12th days of fedness will bring us. i don't know. >> we don't know and we only

have to wait until next week, of course, ty. you know -- >> 12 rates arising. >> 11 yields -- what else do we have? >> 11 maids a milking, i don't know. >> how many board of governors members are there? 12 governors chatting. >> yeah, yeah, exactly. >> we will know on monday and tuesday, day 11 and 12 of fedness comes along. >> i think what's really interesting and i was just thinking this a moment ago as i was looking at the big board and it says the dxy is at 9758, you know, after regaining that 100 mark, regaining the crown of 100, the dxy has really lost steam and it feels as if maybe the currency market has factored in already, has digested we're going to get a rate hike next week because a lot of people feel it's a foregone conclusion. after that it feels like the currency market is saying if the fed is going to be particularly dovish with its further path of rate hike, maybe the so-called

strong dollar, maybe it's not going to be the case next year, right, brian? >> yeah, i'm still trying to go through like the 12 days of christmas with like market specific stuff -- >> you're stuck on the milking maids. >> i have all that stuff in my head. i think you might be right. the dollar has been a big theme. what hasn't about a big theme. mandy is sticking around. welcome back, everybody. now we have two hours of trading to go this week and we are headed for one of the worst days of the -- weeks of the year for the dow. we are down about 270 points on the dow jones industrial average. we lost 3% just this week and with that, folks, you are facing the very real possibility that we could end the year with our first annual loss for the dow since 2008. wow. it would be the only third down year in the past decade. i know we have a couple wekuoupo go, we are down for the year and it's harder to come back. fear of oil, fear of the bond

market, maybe even fear of the fed driving nervousness right now and our team is in place to cover it all for you. we have jackie d. at the nymex, rick santelli in the bond pits of chicago. bob pisani will join news a second. rick santelli, sir, if i can go to you because, you know, we don't want to toot the old horn on "power lunch" but as i tweeted out, if anybody had been watching at least this hour and they're surprised by oil, junk bonds, and everything going on, they have not been paying attention. you have been talking about it. it feels like 9 pathe partridge the pear tree has finally come home to roost. >> i agree. when it comes to issues like junk bonds and energy, as much as there's a major correlation there, at least when the company is behind the junk and energy disappear or are bought for pennies on the dollar, the technology still lives on. there's a lot of junk where after it explodes, society really isn't any better. in a way that's a plus. but etfs in particular, i think we should talk about those,

sully? do you want to talk about those a bit? >> i want to talk about anything you would like to talk about, sir, since you have been in the bond market since you were 14 years old. what is the most important thing going on right now? >> well, i think that people need to understand that etfs aren't the actual securities, okay? so there's issues there, and one of the issues is when you play the etfs, it's like a stock. three-day settlement. so one of the things we've noticed is these crazy moves. down here we all know what they are. margin call. what happens when you can't get your hands on cash for three days? that's a big deal. the one exception to that, thank god, and it's through their own rules, are pension funds. we know in 2009 blackrock bought ishares from barclays bank. blackrock has a big inventory of junk, and that's important in this example because when somebody goes and makes a trade in the high yield hyg etf,

there's a ladle of a security that has to be put in or needs to be purchased in the market, but they can use two ladles. they have a special purpose vehicle where they can use their inventory or they could actually go to the marketplace if there really was a marketplace. in a perfect world where computer trading was liquid, they could find those securities, but the issue is when things dry up because much of the high yield sector is buy and hold to get that extra return which is what the fed did by design, what we all worry about is if you're nervous about the liquidity or how many 32nds in treasury it is takes to satisfy an order, you have to go to multiple levels beyond that when you start getting in the high yield and junk. remember, when you trade futures, it's generic. it's like milk, like white paint. but in the junk market, it's kind of like real estate. every security is kind of unique. >> important information and a great lesson, as always.

rick santelli, thank you, sir. appreciate it. certainly much of what rick just talked about and the problems in the bond market, not all, but much, are related to the price in oil because the amount of high yield debt that's been sold off by energy and gas-related companies, and guess what oil continues to fall as well, which is exacerbating the problem. west texas intermediate now falling to a new seven-year low. a ten-year low if you factor in inflation and natural gas also a story, folks. nat gas is at $1.98. we're back below $2. 14 bucks a btu seems so five years ago but it was. let's get now to jackie deangelis at the nymex. jackie? >> hi, brian. oil prices are lower today and i don't want to be a fearmonger because they are having an impact on the other markets as well but it appears oil probably will continue to go down. we haven't heard anything that is lifting our spirits here. as a matter of fact, the iea was out with a reportoday saying the oil glut is going to continue to the end of 2016 and that it's scaling back its

demand forecast. so you and i talk supply and demand all the time. this equation still isn't balanced. intraday we hit 3535. that was a seven-year low and traders expect this pressure to continue. the theme has been lower for longer. certainly we have been lower for longer. we could move substantially lower from here and not necessarily stay there, but people need to get used to the fact that these prices are going to remain depressed unless something materially changes. you reported on the rig counts before. 21 rigs came offline, but until that starts impacting production in the united states, until it falls below 9 million barrels a day, people aren't necessarily going to be convinced. now, you also mentioned natural gas. a three-year low dropping under $2. that's because look at your iphone, look at the weather forecast. it's going to be 66 degrees this weekend. a lot of people haven't even used heat yet and we're already at december 11th. so that's what's happening here for nat gas. people will see a savings in their bill not just because the prices have come down but because they don't need as much

heat. let's hope for our sakes mother nature continues to be mild. if that's the case, nat gas could go down as well. >> a lot of people will tweet you, they'll tweet me, they'll tweet us together and they will say you guys are so negative. clearly they're long oil contracts but that aside -- how about this, i'll balance it. you're lower for longer. lower for longer doesn't necessarily need to be lower for forever. >> exactly, exactly. >> thank you, jackie. we'll see you at the close. few people know more about distressed bonds in this kind of things than your next guest. martin fridson is a long time veteran of the junk bond market, one of the world's leaders in valuing investments. it's a complicated situation. in plain english for our nonwall street audience, what is going on right now? >> well, right now you're facing a lot of distress because of energy and metals and mining in particular.

they're dragging it down. the rest of the market is at just about average valuations, but when you add in those commodity sectors, it pushes the yield up quite a bit. the other big thing going on is it's very difficult to trade bonds and what's often overlooked as a big part of the risk premium or the additional yield you get over the risk-free treasury rates is related to how easily you can buy and sell in the market and right now it's extremely difficult to sell bonds in particular, so that risk premium is very elevated. >> but here is the weird thing. yes, yields are going up. yes, risk premiums are going up. do you know what's going up, martin? actually defaults. has the bond market gotten ahead of itself a little bit? >> well, the defaults are still at well below average level. the long-run average of moody's

speculative default is 6.4%. moody's is projecting 3.7% over the next 12 months. but the market is priced by my estimation to expect about a 6% default rate. but, again, a lot of that extra yield is related to the difficulty. portfolio manager said to me the other day that if i like a bond, i have to like it ten points higher because by the time i accumulate a position, that's how much i'm going to drive the price. and, of course, it's the same on the way down. investors reasonably expect to be paid for that difficulty of transacting in the market. >> so you've just explained very succinctly that we have a dislocation. so really one of two things has to happen. either the bond market needs to calm down, yields need to come back down a little bit to

reflect that default rate, or the default rate is grossly underestimated and will rise to meet the bond market. which of those two things is more likely? >> well, the default rate will rise eventually. we're past the low point in the default rate cycle -- >> but will it rise to 6%? >> no, that's not going to happen anytime soon. i think it's possible that in 2016 you will get to that average of around 4.5%, but even that might be a little bit of a stretch. i think we're talking more like 2017 before we see that kind of a rise. >> we look at what has happened with third avenue, a fund company for our viewers who aren't aware, it's basically ceased redemptions because of a junk bond fun. it's scaring everybody that a smart firm could make such a mistake, or such a perceived mistake, martin. do you believe we will see more funds with this kind of trouble or do you believe things will settle down and the bond market and the funds out there do have the experience to manage through this? >> yeah, i don't think we're going to see other funds

doing -- this is unprecedented. liquidating the fund without even going to get s.e.c. authorization before hand to do it. the fund's promise daily liquidity and generally they have enough in tradeable securities to do it. third avenue fund highly unusual among high yield funds, almost entirely concentrated in triple c, the lowest rated paper or even double c paper or nonrated whereas typically that's a fairly small part of the total, and over 10% of their portfolio by the end was in securities that were subject to restrictions on trading. they couldn't even sell them if they wanted to. so they got themselves into a position where it really became impossible after long period of redemptions going from $3 billion to under $800 million. having those redemptions and probably having sold what was

tradeable to meet those earlier redemptions. this is extremely unusual. really should not be taken as indicative of what's going to happen with other funds. >> really two ways to look at what's going on not just in the bond market but with oil and kind of the way it feels right now, martin, which is this. this is the start of something bigger, right? maybe not 2008, but something bigger than that. maybe the drapes are on fire. it's either going to engulf the whole house, the market, or this is a big deal but the drapes will be put out and everything will be okay, which one is it? >> well, you're not going to see big escalation in default rates anytime soon based on anything that we can see now, so you're not looking at being on the verge of a 2008. of course, not even clear this cycle is going to be as severe. i don't think it's likely to be since that was a once in 75-year event. but the liquidation of the third

avenue fund doesn't have any impact on default rates. they owned a lot of very risky securities, but they're still risky. they will be held by -- well, continue there for a while, eventually be out in other hands, but the default rate peaks coincide with recessions. the timing is a little bit earli earlier, a little later depending on the cycle, but there are really no signs of the u.s. about to go into recession and without that -- and by the way, recessions have consistently been preceded by negatively sloped yield curve. in other words, the two-year yield being higher than the ten-year treasury yield. we're not anywhere close to that. so you just don't have any indications out there that we're about to get up to 10% type default rates, which you see during the recession and at the high point at default rate cycle. >> a soothing way, that's good news there. last question then to you, martin. we know oil, we talked about oil

ad nauseam, is there any other sector of the economy, the market, or industry that does particularly worry from you a bond perspective aside from energy? >> well, the market is clearly showing tremendous concern about the whole metals sector, that would include steel, but the copper and other base metals. they are trading at even more depressed prices than the energy bonds at this point. you've seen some upsets in telecom and the retailing sector. it's not as widespread as in those two, so you can't say that there's no other trouble among individual companies outside of the commodities areas, but there remains -- continues to be a strong concentration of the distress in those commodity areas. >> okay. a little bit of soothing words there. no sign of recession. martin fridson, we really appreciate you coming on. thank you very much. >> my pleasure.

>> all right. monday on "power lunch," we are going to speak with a fund manager from alliance bernstein's high-income fund. they are number one on a percentage basis this year among all junk bond funds, so if you want to know what is likely to happen, this is really the top performing junk bond fund manager of the year will be here exclusively on monday. you will notant to miss that. let's get another check on stocks because what's happening in oil, what's happening in bonds is trickling through to the stock market. red means down. if you're on the radio, there's a lot of red on the screen. the s&p is down 1.5%. the dow is down nearly 300 points. we are down more than 3% this week. on that happy note, we're back after this short break. stick around. 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

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welcome back to "power lunch." i'm mandy drury on the floor of the stock exchange. let's look at shares of puma biotech. they're down 10% on disappointing data on their breast cancer drug. as we can see, a big drop for that stock. the problems continue for chipotle. health officials in seattle closing a chipotle location citing repeated food safety violations. cmg shares are also lower today by about 1%. and a handful of stocks are hitting new 52-week lows in today's session, including staples, ryder, mosaic, and westrock. all of them down by 1% or more. why don't we also check out the ten s&p sectors, brian.

are you over there? >> i am here, mandy. thank you very much. as you can see behind me, there's not a lot of green on the screen. to your point, really we've got utilities the only sector that's higher. when i say higher, it's higher by 0.07% so take that for what it's worth. it's a down day in a big way. almost every sector is going to be down. you have the energy stocks, they are down the most yet again. in fact, there's two names, i'm going to call an audible. southwestern energy and williams. these two are the worst performers in the s&p 500. both of them are down more than 10%. kind of the verbal kent and fenster of the markets, if you will. energy definitely the usual suspects. those stocks down 10% and 14% respectively. mandy, back to you. >> absolutely. well, the emerging markets are really feeling pain in today's move lower. the emerging markets etf, the eem, and it's currently near a new 52-week.

this is as the chinese yuan falls to a fresh 4 1/2-year low against the dollar. it's longest weekly losing streak in a decade. let's get more on what is happening in the currency market. sara eisen, our currency princess is here with a look at what's going on here. >> china, it's like deja vu all over again. remember the end of summer when china made a big move to let the currency weaken and the whole world felt the reverberations. big sell-off globally. that's sort of how it feels again. here we go again. you mentioned china guiding its currency down to a 4 1/2 year low against the u.s. dollar. it raises questions about how far they're going to let it go down, why, how worried are they about their own economy, and why now? how worried are they about the federal reserve potentially raising rates for the first time in a decade? emerging markets are hurting right now across the board. money pouring out into the u.s. dollar ahead of the fed. others could follow suit here because china is such a big trading engine in this part of the world that other currencies

could also fall and it could be very disruptive for corporates that borrow in these currencies, borrow in dollars. the ripple effects can be far and wide. >> it certainly looks like china is once again, and i say again because this is something we've looked at periodically over the past few years, they're again looking at maybe instead of just having a u.s. dollar peg, maybe linking to a basket of currencies because obviously as the dollar has been surging it causes all kinds of problems, right? having a basket of currencies as their link maybe not so much, but they abandoned that idea when the dollar was weakening but now they're re-examining it as its getting too painful for them. >> friday night a surprise editorial hit the people's bank of china, the central bank website, saying they are going to move and change the way they manage their currency. instead of just pegging it to the u.s. dollar, to your point, to a basket of currencies. we don't know which currencies or when it will happen. we don't know the impact of it. strategists say it's not as worrisome. it's just a reminder this is a highly managed and evolving

currency and right now it's being managed sharply lower. that move is happening fast. that stokes all sorts of concerns about the timing ahead of the big fed meeting and just another big trade and disrub tiff currency move unwinding. >> tell me what's going on with the south africian rand. i think your words were it's been creamed and people are starting to make parallels with zimbabwe. >> this was one of the charts of the week. the rand collapsed to a record low against the u.s. dollar. the trigger came from politics where the president abruptly and inexplicably fired the finance minister who had a great reputation. that caused some credibility issues for president zuma in south africa, but also keep in mind south africa is a big exporter of commodities like platinum, like coal, like other metals which have also been hurt very hard in this commodity saleoff. their economy is hurting. it's another surprise move in the currency world ahead of the fed which has traders in all

markets of the globe worried. >> very, very quickly, i know i have a little natural bias with the australian dollar, but i find it amazing the way the australian dollar has managed very recently to delink from the commodities. the australian dollar is gaining in strength because we've had some strong data at home and even the commodities continue to fall. the australian dollar is turning a blind eye to that. what do you make of that? >> there have been a lot of surprise currency moves. i will say one thing and that is the u.s. dollar actually weakened this week. remember, there's a big surprise from mario draghi so the euro actually strengthened. the australian dollar has been resilient as with the industraun economy. people say -- >> great to talk to you as always, sara eisen. >> thank you very much. let's go now to courtney reagan who has a news alert for you. >> hi there, brian. well, we have some new opinions here from noted investor prince

bin talal. he's tweeting to donald trump, you're a disgrace, not only to the gop but to all of america. withdraw from the u.s. presidential race as you will never win. we bring this to you because the prince is a noted investor, someone that wall street pays attention to. he also in turn pays attention to wall street. so some pretty strong words from the saudi prince about donald trump and his role in the potential u.s. presidential election. brian, back to you. >> thank you very much, courtney reagan. folks, once again if you're just joining us, the markets are in a bit of a slide and we're all over it. most active names, bank of america, kinder morgan continues to get hit, ge down a half a percent, and freeport-mcmoran which you heard carl icahn talk about, he's a big investor, that stock is down nearly 7%. the dow jones industrial average is losing a lot today. in fact, we are down big into triple digits. a lot more to do but we are going to break out your

protection playbook. even if you're not a professional investor, is there something you can buy to help minimize losses if you don't want to sell stocks for tax reasons or something else? that playbook real life strategy session coming up next for you. stick around. aflaaac. aaaa-flaaaac. someone's sandbagging. i'd be tired too. he paid my claim in one day when i got hurt. one day? serious hustle. serious duck. in just one day, we process, approve and pay. one day pay, only from aflac. ah!

on a sell-off day like this or a sell-off week or sell-off month, whatever it is, what is the best way to buy some protection for your stock investments, especially if you don't want to sell anything? let's bring in jack bouroudjian. thanks for coming on because the idea is this, if you're a mom and pop and you've got a 401(k) or a 529, you're not selling that stuff because you're going to get whacked in taxes. it's tied up. maybe you don't want to sell. you want to protect your portfolio, hedge it a bit. what's an easy thing that nonprofessionals can do here to give themselves a little protection? >> i think, brian, this is when people really have to start looking at the derivatives markets for their intended purpose, whether it's the options market, the futures market. they have to learn how to use these products or find somebody that can get them into positions that can hedge out their exposure. the one thing to keep in mind, especially when the market moves

down, is that you have a whole different psychology, you have panic and fear, which drives volatility higher. so you want to be in those types of positions where volatility explodes. what happens at times like that is you end up making more on that hedge than you do losing in your underlying position. so look at the s&p, for example. look at the vix contract. look at crude oil. crude oil has been driving this market. you have been talking about it now for a couple years almost as far as i can tell, but crude oil, ever since we took out $40 has been making this market sick, and the reason is because 15 of the 20 largest sovereign wealth funds in the world, which equal anywhere 5 trltz $5 trill6 trillion are heavily invested. under $40 they cannot bet their budgets. we already see it with the saudis. all of that is a correlating. the other thing you want to pay attention to are noncorrelated asset classes, managed futures for example. managed futures are something

people are always scared of but you have managed futures in mutual fund type of structures. so you can actually go out there and start to protect yourself. but this is the time to do it. brian, you have been interviewing me for a couple decades through a couple different networks. i don't get cautious often but we're entering that period. '92, '88, these were bad years for the market. this market could get hit 20% to 30% next year. >> wow, 20% to 30%, jack? not will, could. >> we are in the last leg of the first stage of the bull market that started in '08, which means we can correct. that correction can take you down 20% or 30% and what's going to happen then, unfortunately, is it's going to scare a lot of people. it's 500 or 600 s&p points. you get the cassandras, the

soothsayers of doom that talk about how everything is going to go to zero. we have to step in and monetize our hedges and put money to work. >> in tv industry parlance we have a deco, the graphic beneath you and it says gold moves higher. the only thing i hate more than gold is kale, maybe quinoa. do you think buying gold is a smart hedge here? >> i don't. i'm not a big buyer of the gold. i would be a little worried especially with the fed moving. this could be the first of many golds. you could see gold down $800. gold is no longer the big hedge. that's not where people go for the flight to quality any longer. >> people don't realize about gold, there's a great book ti e titled "gold," gold is a currency hedge, not really an inflation hedge. >> a great book. if anybody wants to do anything, listen to what warren buffett says. you can't eat gold. go buy farmland if you want to

do something. >> try selling gold in the financial apocalypse. do you know who you're going to sell your gold to? a guy with a shotgun who is going to take it for you and maybe offer a nickel an ounce. >> that's exactly right. >> if gold is not a financial hedge and you think the market could be in for a rough year next year, what is a financial hedge? >> there are alternative investments out there. believe it or not, people talk about the bond market not being a good place to be. i think bonds are where we want to be next year for protection. it's the kind of asset class that you want to be in when everything else is going down, and, unfortunately, next year could be one of those years. >> jack bouroudjian, it was a great discussion. learned a lot. and you made me feel old in the process. we've been talking forever. jack bouroudjian, thank you very much. speaking of oil, oil closing, capping off one of the worst weeks for crude in nearly seven years. i'm not -- i don't have anything left to say about oil other than it just stinks.

>> no, not a great day. we closed at $35.62. more than a dollar loss heading into the weekend. hitting that intraday low as well. $35.35, a seven-year low for oil prices. this is not really setting us up well for momentum. the iea saying the glut is only going to get worse next year and taking its demand forecast back, not leaving people really encouraged. u.s. production still over 9 million barrels a day. a lot of people think there could be more downside ahead, more pain to come, and they're bracing for that. they're not necessarily ready to get into this market and buy the dip just yet. back to you. >> thank you. as the chevron ceo told us, we have to remember that -- this is the bull case. fracked wells do draw down faster than nonfracked wells. if we don't put up any new rigs and new production, eventually faster than in history all these frac wells will drain and production should drop. when that's going to happen -- >> well, that's the big question, right?

>> some point i'll win an oscar, i don't know when that will be. have a great weekend. stocks are down. the dow is off about 264 appointments right now. volatility is up. oil, as jackie just told you, is down. there's a lot going on. we have about 90 minutes left in your trading week. we're going to come back with the key levels that you need to watch right now. stick around. sure, tv has evolved over the years.

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x1 from xfinity will change the way you experience tv. miami shai'm sharon epperso. vladimir putin ordering his military to act tough against any targets threatening russia's military fight against isis. he made the comment in a televised meeting of russia's defense ministry board. pakistan's military says it has test fired a surface-to-surface ballistic missile that can reach all corners of india and the middle east. it comes two days after it hosted a regional peace conference. developers finalizing a $5 billion in debt and equity financing for hudson yards, a sprawling complex of office buildings, apartments, and retail space being planned in new york city. it's one of the largest deals

for retail project since the 2008 downturn. and sotheby's auctions off several vintage cars last night. a 1963 pontiac joined by roy rogers and dale evans went for $308,0 $308,000. a porsche owned by janis joplin brought in $1.76 million. back to you. >> you couldn't easily drive down the street in one of those. thanks a lot, sharon. stocks are currently sinking. volatility soaring. oil is tanking. how are traders positioning themselves? what are the key levels to watch? joining us is steven guilfoyle and mike santoli, cnbc senior market commentator. you probably heard jack bouroudjian a second ago being very negative about the market particularly next year saying we could see a 20% to 30% drop and you could hide out in the bond market. agree or disagree? >> i don't think the market has told you enough to predict that

is what's going to happen. we're in the later part of a bull market, you don't know how much longer it's going to last and the stock market is catching down to the deteriorating credit backdrop. i don't know what that says about the next year and that kind of a downturn. >> what do you think, steve? >> i think you want to stay between 15% to 20% bonds. i think you also want to stay about 40% to 45% equity and you want to have some in cash because in scary times it makes me feel better to have some cash. the s&p 500 just hit 2021. that's an important figure. it was support all morning and it's been resistance all afternoon. >> where do you think we'll close? >> if you give me 2021, i'll give you 2026. >> and 2020 is also that level where it was the november low and a lot of people watching that. >> yeah. well, you know, 20% to 30% in the markets, is that like feasible at the end of the bull market run? >> it's feasible. would probably qualify as a cyclical bear market. it's not a meltdown like 2008, but, again, i don't know if

there's anything magic about 30% or what's told you that's going to happen. >> that could be one of those things that corrects within a month. >> exactly. >> thanks very much, guys. good to talk to you. brak over to you, brian. time now for "trading nation" because traders do trade better together and on a week like this one, let's not get all fancy. the best thing to talk about for your money right now is the overall stock market. the dow may be headed for what could be its first losing year since 2008. got boris schlossberg and katy stockton. when you look at the overall market, one day doth not a trend make but certainly things seem a little shaky. how do you view the overall stock market? >> i'm seeing a lot of hand wringing but when you look underneath the fundamentals, the economy is doing relatively well, so i think whatever turbulence we have now is kind of a mini temper tantrum you're having because of the fed as much as anything else, and i think next week, ironically enough when the fed comes out and yellen comes out and hikes

rates but says it's one and done and sort of pacifies the market by saying they are well aware of the turbulence in the credit markets, that actually is probably going to provide the market with relief and we will probably have a relief rally next week. >> do you think we could -- we're 3% below on the dow for the year. do you think we could end the year higher? >> we could eke out a tiny little gain but we're due for a negative year. there's nothing wrong with us ending negative. i just don't see us going 20%, 30% off of what is happening right now because the data economically doesn't justify it. >> katy stockton, do the technicals link up? >> i agree with him. i think the removal of the uncertainty surrounding the fed meeting would be a positive catalyst for the market. certainly a day like today appeals to contrarians which i would consider myself to be where we get these extremes in our market internal measures, things like breadth, leadership, sent am, and volume. i have heard the word scary in the last couple minutes, hand wringing, shaky. this shakiness is actually the stuff of market lows.

when you see that volatility spike and volume very high, it's an emotionally charged trading day, and that more often than not tends to be an inflection point. the s&p 500 is, indeed, testing some support around 2020. that's based in part on the november low. support is important more on a closing basis, however, not as much on an intraday basis. if we saw the s&p 500 close back up above 2020 that would be a short-term positive in my view and regardless i like for a rally next week. >> i want to say because i had a bunch of stuff going on in my head. 2020 is the key number? >> for today. >> but really it's round numbers next week. 2,000 and $35 in oil. those are big numbers. if we can weather the storm on both sides, i think we can go up next week. >> 2,000 and $35 in oil. we like round numbers here in the media. we're very simple people. we appreciate it, boris and katie, have a great weekend. thank you very much. for more "trading nation," go to

our website, tradingnation.cnbc.com. we're back right after this.

both sides, i think we can go up tradingnation.cnbc.com.

this next segment is going to hurt the feelings of people in hawaii, california, and a couple other states. the average price of a gallon of gas across america is now just $2.01. wow. about $3.50 a gallon in california. we have talked a lot on this program about the disappointing retail numbers we've seen recently in consumer spending. let's bring in steve liesman who believes the demise of the consumer may have been greatly exaggerated. >> there's been a lot of what i'm calling, brian, misinformed doom and gloom about the consumer. i will offer three exhibits to show the consumer has been strong and suggests lower gasoline prices may have had an

important effect. exhibit 1 in five of the six quarters consumer spending growth has been above 3%. that's 0.8 of a point about the average level since the expansion began. even stronger than the last expansion from '02 to '07. exhibit 2, the spending gains look weak because prices are falling, but when you adjust for inflation, folks, this is how you measure growth. real spending is up nearly 5 ll percent year-over-year. don't have november data yet. it is the best two had be-monthe since 2003. and exhibit 3, hard to find a direct correlation but this chart offers a decent suggestion americans are spending less to fill up their tanks and more to fill up their stomachs with food and drink. that could produce some gas. it is true one might expect stronger numbers, but it's just flat out wrong to say consumer

spending is weak. >> which i have not said, by the way. i think they're buying cars and homes and we said about a year ago, we said about a year ago that the number one beneficiary of this should be restaurants. that people are going to say, order another dessert -- >> call up the chart. that's what they're doing. >> you're right. i even got your gas pun and they're also -- >> it wasn't that subtle. >> it wasn't subtle at all. >> there it is. >> that was fracking not subtle. here is the other thing, aaa shows when gas prices go down, people simply drive more. >> look, you have a consumer who went into this -- came out of the recession financially stressed, so you have debt being paid down, savings increasing. all of that is ultimately good news, not good for the very moment we're living in, but this 3% number, inflation adjusted, they're pretty strong. it's the best of the economy, business investment and government spending and some other areas. the drag on trade that is keeping us back. it abt the consumer.

>> right now this is a weird economy because there's all this -- whatever size you're on, you could say we're doomed or we're fine and you could make a strong argument either way, i think, if you look at metals and mining and oil and gas. >> can i point out for the investor -- >> why am i doing this? >> yosi don't know. let me point out the better bet has been somewhere in between this euphoria and doom and gloom. that's been the reality and an investable proposition. those folks who have taken all their money and putting it in tuna fish cans and hunkered down in the bunker, they ain't doing too good. >> they know who they are. you ain't one of those guys. restaurants may have a benefit. so let's take another short break here on "power lunch," if we can. the dow industrial average not on its lows of the session but a very weak day for the dow, down more than 1%. how will we wrap up today? not much time left in the trading session. short break, back with more on cnbc, number one in business worldwide. it's hard to find time to keep up on my shows.

that's why i switched from u-verse to xfinity. now i can download my dvr recordings and take them anywhere. ready or not, here i come! (whispers) now hide-and-seek time can also be catch-up-on-my-shows time. here i come! can't find you anywhere! don't settle for u-verse. x1 from xfinity will change the way you experience tv. welcome back. if you are just joining us we have a pretty big sell off right

now, the dow jones industrial average between 270 points. there artwo dow stocks that are up, that is procter & gamble and united health, the worst dow component is dupont, down 5.5%. matt maily joining us now. a lot to be concerned about right now, what is your number one and number two concerns? >> well, obviously what's going on in the oil markets is a major concern because it's something we've talked about before, it's something people are just finally becoming to realize, lower oil prices have much more implications than just the economy overall. it's spilled over into the bond market, people can't service their debt -- sorry, the high yield bond markets, it is not a very liquid market, things people have to sell it tends to spread to other markets. i do think we are getting to a point where the market -- where the stock market could see a nice bounce, i think oil is

getting oversold, over hated and getting ripe for the kind of a bounce that could lead to a multi-week rally, kind of like we saw on the euro and dollar a couple weeks ago. >> are we sitting oversold levels technically as well. bowlinger, whatever it might be? >> we are also on those but also the sentiment area. we have the daily sentiment index which is a poll that polls traders in the futures pits. they're down to bullishness in the single digits, it was 6% the other day, after today it's probably lower than that. when you get down to those kind of levels everybody is on one side of the boat, we saw the same thing on the euro a week and a half ago and saw a snap back rally. i think we could see the same thing in the oil sector. even though we are seeing a significant lower low in crude oil we are not seeing the xle trading to a lower low. xle tends to be a good leading indicator at that point. >> good way to hear -- we will

take it on a friday like today. matt, have a great weekend, buddy. >> mandy. >> in a week we have wti crude fell over 10%. take a look at how the dow has nearly completely and utterly mirrored that decline of oil, very tight correlation. we will talk with a couple of traders, i have my friends matt and kenny on the floor of the stock exchange. "power lunch" is back in two.

a tough week to own stocks and it may not settle down next week, either, because of course we've got the fed meeting and all kinds of other things to take into account. let's find out what is key for your money. we will joined by kenny coal carry and matt cheslock. kenny, i'm wondering how much of today's trade is being driven by technicalities. how are lower could we go to break that? >> i think it goes somewhere between 1950 and 1975 is where this seems to be an area where it should find support. 2000 is a great number but there's zero support there. it may stop for a minute and test it out. i think it's got to go down to the 1975 level before it's going to find any stability. >> how interesting is it, matt, despite the fact we are down big there doesn't seem to be much panic, dump everything for the sake of it feeling going on.

>> the volume doesn't show that, either. if it does break 1975 and hits 1950 you will see some panic, you could see a nice flush, that's when you want to be buying with both hands, now you probably want to nibble, especially in the oil sector. a lot of people talking about five year highs as far as bear sentiment in oil, that leads me to believe there is going to be a sharp snap back rally. >> even if you get a rally at the end of the year, even if overall is this year pretty much shot, kenny? >> this year is shot. no one is making the year in the next two and a half weeks. there's not a lot of volume or panic right now so therefore you have a lot of the long-term asset managers being much more patient. if it breaks down they are going to be there because they are going to take advantage of that move. >> that's goingo be for next year, next year's trade. nothing to do with this year. >> i guess if you say that that mediocre volume is suggesting a lot of sitting on the sidelines. thanks, guys, good to talk to you. brian, back to you at the mothership.

>> thanks for sticking around, have a fantastic weekend. >> you, too. dow down 270, the dollar is down, you've got oil down. the only two things that are up right now are nerves and gold. we've got one hour to go on a big friday. how will we end the week? let's find out. "closing bell" starts right now. welcome to the "closing bell," i'm sara eisen in today for kelly evans here at the new york stock exchange. >> welcome aboard. i'm bill griffeth. selloff on wall street today, you've been hearing about oil falling below $36 a barrel today and that energy weakness has weighed on stocks yet again. >> junk bonds coming to an end as one high profile mutual fund freezes withdraws. we will break down the concerns over high yield and what the credit market panic could mean for the rest of the markets. >> stocks that have been leading the market pulling back on the session and the week. is it time to cash out on s