good afternoon, everyone. and welcome to "power lunch." along with mandy drury, i'm tyler mathisen. more fallout in what could become a full-fledged high yield credit crisis. >> so will the fed flinch? we have both sides of the argument ahead of wednesday's big decision. and forget about oil for just a minute. check out natural gas down today, and down 20% in a month. let's take a look at how the markets are shaping up. we've recovered somewhat here. we're happening to manage to push higher at this hour. the dow is currently up by 76

points. the nasdaq gaining by one point and the s&p 500 is up by five. we've got materials, tech, and industrials the biggest drags. energy and telecom the biggest percentage gainers. so certainly the turnaround in energy helping to move the overall market higher as well. >> and, mandy, oil rebounding right now after crude fell below $35 for the first time since 2009. there you see west texas at $36.59 brent down a little bit. west texas is higher by 2.66%. let's go to jackie deaeangelis r the details. >> the action is certainly remarkable. that low not seen since february of 2009 but equally interesting what we're seeing this afternoon. we've got about $1 rally on our hands just off session highs here. close to $37 a barrel. so what happened here to create a situation for a turnaround? well, part of this is going to be technical buying. when you see drops in oil prices so far, so fast, of course

you're going to have short-term traders wanting to get in for the short term upside flip there. but at the same time, again, we have these questions that start to arise. have we hit a bottom in oil prices? some people are very nervous about getting more short here because we have come so far so fast, but the other group says, no, nothing has changed in terms of the fundamentals and this is a story that's going to see volatility like this. you do have expiration this week. that creates a little buying to the upside, but we will see more pressure on oil prices. having said that, you mentioned nat gas. this is also remarkable. a 13-year low in prices dropping well under that $2 mark. this has nothing to do with the fed or the dollar or the oil fundamentals, but this is a weather trade for sure. it's been very mild out. that pattern is expected to continue. so look for nat gas prices to see more pressure as well. >> mild is an understatement. over the weekend i saw people walking around in t-shirts and flip-flops. >> and shorts. >> crazy stuff. thank you very much for that, jackie. we'll be checking in with you later on. concerns growing over the

junk bond market as well. third avenue removing the ceo which comes after the embattled investment firm prevented investors from withdrawing funds from the high yield bond fund. seema mody is live from third avenue in new york. what are you hearing? >> reporter: it's a story that keeps on giving. first, a liquidation of their high yield fund and now the ousting of the chief executive who was ceo since 2003. in a statement third avenue says barse and the firm have mutually agreed to separate and a broad-based leadership team which includes president david resnick and vincent dugan will lead third avenue going forward. this comes as third avenue's focus credit fund closes down which did invest heavily in high yielding loans and securities specifically in the energy space. the fund is down 33% in the year of 2015. it's widely seen as the biggest mutual fund failure in the financial crisis. this news has also escalated

concerns around the broader high yield market. we're looking at some of the publicly traded firms, trading down by as much as 5% on the day. that's the latest. back to you. >> let's bring in senior market commentator because, mike, you wrote a piece on cnbc pro about these junk bond fears and the market moves ahead of the fed, and this is actually something that you've been warning about for about a year now. >> well, certainly warning about the fact that the junk bond market looks to have peaked along with oil and along with really corporate profit margins. and what we're seeing with this recent sell-off is not just credit fundamentals eroding a little bit which have been happening for some time but also some trading air pockets, and basically a lot of people want out of this market perhaps belatedly and really wall street is not able to accommodate that selling in any real smooth way. that's one of the reasons we're i guess asking the question as to whether the year-end effects of whether wall street's ability to kind of accommodate with

proper liquidity these types of demands for trading are perhaps maybe putting further stress on this sector. >> do you think it's going to get much worse before it gets better, mike? >> it's hard to say if the actual trading dynamics are going to get much worse. obviously there's a lot of people kind of seized up ahead of what the fed might do this week. maybe after there is a decision we get a little bit of a flush and maybe into january when the banks have larger balance sheets to work with and all the rest we can kind of get a little bit of a retrieve here, but i don't think anyone should really be under any illusions. there are going to be rising defaults in this sector. you're going to see bankruptcies or at least on a headline basis things are going to stay pretty ruff. the questi the question is whether the market has raced ahead and priced in a lot of that bad news already. >> mike, hang around. i'm going to bring in our special cnbc contributor ron insana. could 2016 as you write, ron, be the year of living dangerously?

they talk about stocks climbing the wall of worries. there may be too many worries or too much wall in 2016. >> i think, tyler, i'm shifting my theme for 2016 which is this is the year of living dangerously. there are too many things going on. you don't fight the fed. the fed is about to normalize interest rate policy. that's going to be a concern. some economists expect the fed to raise rates as many as four times. that's already helped to anticipate and create this commodity crash, the high yield problems that mike just talked about. don't fight the tape. we have the advanced decline line turn lower. the dow near ri sell signal is effectively in force. number of new lows expanding. there's all kinds of technical signs of deterioration that lead me to believe even though we're having a down year, the ingredients aren't right for a roaring bull market at this juncture. >> right. and this may well be the first down year -- >> since 2008. >> -- since 2008. what are you thinking -- i mean, a lot of the consensus is modest gains, if gains, in 2016 and

lots of turbulence. >> we should be bouncing back in the fourth year of a presidential cycle. this is the third year of the presidential cycle. so many reasons why we should have been up. there are other anecdotal signs that worry me as well, tyler, including we're getting very toppy in real estate both in residential and commercial. you have seen these microapartments in new york that represent for between $2,500 and $3,000 a month. there's geopolitical risk as the battle with isis includes russia, u.s., maisybe china, uk france. worries about italian bank runs. look, i think there's just too much stuff right now to get enthusiastic about equities here or around the world. >> mandy has stepped in. >> mike, i noted in the piece you wrote that you were quoting someone who was on cnbc on friday saying that the timing around a fed rate hike is sub-optimal. i love that word.

do you actually agree with that sentiment? >> i understand it, and i understand the idea that december was always going to be a less liquid environment in which the fed could make this first initial tightening move since 2004, okay? this is the first time we're starting a tightening sickle in 11 years. i do get that. on the other hand, once we didn't get that move in september and the fed officials said december is a live meeting, i think you have so many expectations built up that maybe we're front loading a lot of the fear of what the implications are. in other words, it's good that they reserve the right to move in december. you don't want wall street to have the confidence that somehow you can sideline the fed just because of some rule of thumb about december. so i'm not going to say that this volatility is through. and to ron's point about a lot of the underpinnings of this market not looking particularly healthy, i agree but they've been in place like this for quite a while. i think you could look back and say, hey, some kind of cyclical bear phase started in the middle of this year in which case the majority of stocks may have

already felt the majority of the pain they're going to feel and maybe the index hasn't quite realized it. >> that's the risk as the intentions catch down to the broader market. you're not getting the type of action that you would typically see, and, you know, 3% sell-off last week can't be described as capitulation. >> right. >> we're not in that phase yet where the baby has been thrown out of the bath water. we're just getting the first headlines in credit, getting continued collapse in commodities. that is not a healthy sign of a global economy. >> so is the fed rate hike assuming it happens going to exacerbate it or soothe the market by taking away at least one less piece of uncertainty? >> from what everybody has been saying, it all depends on the statement and the news conference. if it is a one and done type thing, maybe we get a reflex rally. if they say they're going to continue on a course of normalization, i think you're looking at real problems in the financial markets in 2016. it becomes a much rougher

propositi proposition. >> thanks for that really cheery news. >> anytime. merry christmas. >> mike, same to you. >> dominic chu, what's your market flash? >> guys, we're watching shares of hospitals standing out as one of the worst performing groups industrywise. if you look at hca, community health, trading down, but off of their worst levels. tenet health care is dragging the most, down by 7.5%. tracking for their worst day since last october. it's health care's worst performer down by 45% and again, mandy, a lot of investors have some concerns about whether some hospital operators, maybe some of them are exposed to rising interest rates especially on the high yield side. >> a big 7% drop for tenet. two more days until the fed decision and most are betting on a rate hike at this stage. how hawkish or dovish are fed

members right now and what rate hikes could we see next year. exclusive results of our cnbc fed survey coming your way. you have to stick around to find out with the answers are. you're watching cnbc, first in business worldwide. day, we're sw technologies make healthcare more personal with patient-centric, digital innovations; from self-monitoring devices that can interpret personal data and enable targeted care, to cloud platforms that invite providers to collaborate with the patients they serve. that's why over 90% of the top 25 global pharmaceutical companies are turning to cognizant. our domain experts, technologists, digital and data specialists, clinicians and scientists are transforming the way clinical research sites collaborate with pharmaceutical companies, and enhancing patient engagement with innovative platforms and solutions. our population's growing healthcare needs present growing opportunities for our clients:

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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 to "power lunch." i'm mandy drury. it is official, newell rubber maid buying jarden for $15 billion in cash and stock. newell shares are down 10%. jarden is up by 1%.

coach getting an upgrade from overweight to neutral at piper jaffray. raising the price target to $37 saying the luxury brand is showing some signs of near-term improvement thanks to new products. currently sitting at $30.74. amazon is the latest company to say no to hover boards. the online retail giant will stop selling several models because the devices could pose a fire hazard. the rise in popularity has fueled a number of dangerous lower quality knockoffs. dominick include over to you for a market flash. >> we're watching shares in the dow transportation index. that index trading at lowest levels since april 2014. lagging the most you have avis budget, ryder systems, rails like csx all down between 1% and 3%. everybody wants to focus on what's happening with these transportation stocks because they have been notable underperformers this year and specifically in just the last

couple weeks or so, mandy. so, again, transportation stocks a focus for those who say it may be signaling some more market losses in the coming weeks, mandy. >> of course, the dow theorists out there have been saying that for an awfully long time. what are they down, 17%? >> 16%, 17% right now. if you look at the way that's performed, it's obviously a lot worse than what's happening in the overall large cap market but there are specific cracks in the system right now. if you look at some of the rail companies, they have been underperformers but airlines have been high flyers and now they are notably underperforming at least some of the major ones are, and all of this, of course, amid the backdrop of what we've seen, this decimation in crude oil prices. crude oil has been a real at least driver for the trade for airlines. oil prices come down, fuel costs go down. again, so the airlines, the rails, all showing some signs of weakness. it's going to be a big concern for what happens for a lot of these guys in the coming weeks as we approach the year end.

back over to you. >> you can bet your bottom dollar you'll be tracking them. thank you very much for that, dominic chu. counting down to the fed, policymakers widely expected to raise rates on wednesday. what happens after that? depends in part on the five new members who will join that deliberative body in 2016. so how hawkish for dovish are they, steve liesman? >> here is the deal. we knew they were going to be more hawkish but i was wondering how much more hawkish? >> because some rotate off at the end of the year. >> we asked our 42 respondents this time to give a grade, 0 to 10, zero being most dovish, ten being most hawkish, and we can average up the new fsmomc. i am pleased to present the cnbc fed survey hawk/dove index. take a look here. this is the existing board, and these are our fives here. right in the center, stan fisher, vice chair, atlanta fed president, dennis lockhart.

then governor powell and san francisco fed president john williams. here is the chair, janet yellen and bill dudley just to his right i guess in this context with dan tarullo right around where the chair is. charlie evans our most dovish member and brainard the most dovish fed governor. tyler, you're in the way. we have jeff lacker over here, our most hawkish -- >> there are ten voters now. >> ten voters. and he's from richmond. 's a 7.8 on scale. now i'll show you how it's going to change. jeff lacker goes away and look at this. three more hawkish members. loretta midwester, esser george, and jim bullard. on the dovish side we only get eric rosengren replacing charlie evans. he's a little bit less dovish but still very much. if you're in and around this dovish word you're pretty dovish. >> three pronounced hawks compared with one --

>> exactly. >> he was a 7.8 on the hawk scale on a scale of 10. >> 7.4. >> he's a 6. >> these are both 7s. >> these are both 7s. >> this would be the 6 area and your 5s are right here. >> so two doves leave, three doves leave to be replaced by -- >> but you don't have to do the math because i have done the math for you. >> you have. >> which is what i do for a living so you don't have to do the calculations. cue the next thing. here is the 2015 fomc, the average is 4.3. if you're on the other side of 5 you're more dovisdovish. i have shown you where the chair is, 3.7. now take a look at some other characteristics of this. your most dove ish member evans at 2.3. most hawkish lacquer atklacker . the governors are the permanent members. they create a stability around

which the board rotates and the presidents are more hawkish. >> is it the presidents who cycle in and out? >> the presidents. >> there you see some of the new -- some of the presidents on average are more hawkish than the governors are. that's interesting. >> cable history -- >> i like this. >> we don't do this every month but you can imagine somebody making a speech and their number changing and if enough of them make that speech we might poll our respondents again and get a feel have the numbers shifted? has the chair made a speech that makes her appear more hawkish or dovish. there's some argument we should weight the chair a little more heavily in this. >> yeah. >> in other words give her two or three different -- >> i see. >> that's one idea, but we just introduced it. >> i like it. >> it's a way to do it objectively. >> i'll see you in washington on wednesday. mandy. >> i like it. fears about the junk bond market

spreading. we're going to head live to the bond pits in chicago. plus, bond legend bill gross of janus weighing in on the high yield fears and the fed rate hike expected by many but not all in two days from now. that exclusive is still ahead on "power lunch." make sure you stay with us. surprise!!!!! we heard you got a job as a developer! its official, i work for ge!! what? wow... yeah! okay... guys, i'll be writing a new language for machines so planes, trains, even hospitals can work better. oh! sorry, i was trying to put it away... got it on the cake. so you're going to work on a train? not on a train...on "trains"! you're not gonna develop stuff anymore? no i am... do you know what ge is? some of these experimentse're notmay not work.il. but a few might shape the future. like turning algae into biofuel...

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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. you got this. i built my business with passion. but i keep it growing by making every dollar count. that's why i have the spark cash card from capital one. i earn unlimited 2% cash back on everything i buy for my studio. ♪ and that unlimited 2% cash back from spark means thousands of dollars each year going back into my business... that's huge for my bottom line. what's in your wallet? let's go to a wicked cool bond market right now. rick santelli tracking the action out at cme. hi, rick. >> hi, tyler. of course, everybody is

preoccupied and deservedly so with the junk space, so let's take a look. let's look at all these charts starting in early 2009. hyg, lowest level since july of '09. jnk, it's another junk etf, trades as a stock, and if you look at that, lowest level since may of '09. contrast that, of course, with what's going on on the actual securities side. these are spreads, thank you to barclays, that's a five-year chart of their high yield, and you can clearly see that it's been spiking up a bit. now, to that end i have porter bogus, pretty much a staple on the floor for many years. so, porter, you're dealing with some of these markets because the group you're with has some positions. can you give me some insight, if you had one word to describe what to pay most attention to in junk right now what would it snb. >> yield and maturity, the individual securities, and -- well, two words, credit quality, and so the problems we see in this space as we talked about is

some of the liquidity that everybody has talked about, the concentration. when people descide they don't want to own this stuff. >> when you say yield and maturity, all i could think of is if there's turbulence in the government market, one thing i know, if i have a five or ten-year security and i own it at a high price and it falls and the yield goes up, if i sell it, i take my loss but i can hold it to maturity, take my cash stream and i'm going to get my money back. >> yes. >> not maybe as true for a junk security. >> a specific example, for instance in the shale field. this is where everybody is concerned, oil falling, they're not going to see the money coming through the company books. they're going to pay their debts. now i have a risk whether i'm going to get any money back. people are selling that and that's what's driving a lot of this down. >> how many securities generically speaking, roughly speaking, are behind these fulds? >> hyg have over 1,000

individual securities. some of them off 11% coupon. when does it get interesting to somebody looking to buy it. >> if i see 11%, i think, wow, i'm going to get a good cash flow with this, maybe i will watch as the price falls further raising my stream to offset the notion of the credit risk of the company surviving. >> am i going to get paid more now for taking that risk all the way to maturity? so do i need 18%, do i need 21%? these are interesting questions. >> the catch-22 is in order to get that cash stream higher, i'm going to have to look at the face price of that bond going down. so it's not an environment that's inviting and saying, hey, come on in, the water is fine. >> no. the seesaw pricing effect. so as yields go up, prices go down. you still have capital risk there whether you're going to get a capital gain, capital loss, and how that's going to effect you going into the year end. cash is important in all this, and so who has got the cash -- >> versus who is leveraged. leveraged players make it much more dangerous. we're going to go back to mandy

and tyler. >> that was great. thank you very much for that, rick. we're going to talk more about how those fears about junk bonds are playing out in the market and we're going to be checking out two big etfs that investors have been trading, the spdr barclays high yield bond fund that's 13% to the downside in six months. the ishares ibox high yield corporate is down about 12%. so who is trading in and out of these funds? we'll look more deeply into that. also one four-star income fund manager who has exposure to junk bonds will be on the show telling us about how he's protecting his portfolio and, therefore, protecting his investors. that's all coming up.

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i'm sharon epperson, and here is your cnbc news update. president obama is vowing to pick up the fight against isis. speaking from the pentagon earlier today, obama said u.s. forces are hitting the terrorist organization harder than ever. >> we're going after isil from their stronghold right in

downtown raqqah to libya where we took out abu nabil, the isil leader there. the point is isil leaders cannot hide and our next message to them is simple -- you are next. in chicago public school teachers voted today to strike if they don't get a new contract. the district is the country's third largest and faces a $1.1 billion deficit. teachers last walked off the job back in 2012. major league baseball commissioner rob manfred is upholding a three decades old ban on pete rose. the league's all-time hits leader requested to have the ban lifted earlier this year. and, baby, it is warm outside. much of the east coast and parts of the west are enjoying above-normal temperatures. cherry blossoms bloomed in d.c. and santa was seen water skiing in western new york. that's the news at this hour. back to you, mandy. >> okay. thank you very much for that,

sharon. let's get right to jackie deangelis at the nymex for the closing trades on gold and some other metals as well. >> mandy, what we're seeing is a little pressure in the metals market as we're watching for the fed decision on wednesday. gold seeing a $12 move to the downside around $1,063 here. remember last week we talked about $1,059 being a critical level of support. so this could be one of those situations where you're selling the news, maybe you buy the fact once it comes out. it all depends what the fed actually does and the next step will be how fast the fed will continue to hike if it does so on wednesday. so there are a lot of questions here when it comes to what we're seeing in the metals market, but, again, a $12 move to the downside today getting close to that $1,059 spot. back to you. >> thank you very much, jackie deangelis. let's go to dominic chu for another market flash. >> shares of square nearing their best levels up nearly a percent. that's on the heels of a number of initiations of coverage in the analyst community.

you have goldman, also rbc, barclays, jeffries, all giving the stock a buy or equivalent type rating. shares are trading above its november ipo price. it was 9 bucks a share. we're already 35% above that level. a lot of these analysts see even more upside. we'll see if that comes to fruition. >> thank you very much. talking of upside, take a look at the big rebound we've witnessed for stocks right now, and a lot of it, of course, is attributed to what's going on in the wti, up by 2%. the dow is marginally in positive territory. all three indices were firmly in negative territory earlier in trade today. oil is sitting at $36.39, but it did fall below that $35 a barrel mark earlier on in the day. ty, back over to you. >> mandy, as you were just saying, stocks are off the lows as crude recovers just a bit. the dow just off now its highs of the day, up 16 points. that's about 0.1 of 1%.

patrick shobacic and quince y, t me begin with you. ron insana said 2016 may be the year of living dangerously. do you see 2016 in that kind of prism? >> well, you know, it's going to be a year of ups and downs. it's going to be a year in which risk assets do well, but it's going to be a year that the treasuries also do well, and that tells you it's going to be a bumpy year. >> why are treasuries going to do well if rates are going to go up? >> because you're going to have periods in which the market is going to pull back and you're going to have money going into the treasury market as a safe haven, and i think that will be a year in which you'll have risk, you'll have risk off, but if you play it steady, you're nicely diversified, you will be able to, i think, eke out a nice return, not stellar, but just nice. >> patrick, do you see it the way quincy does, specifically

with respect to risk assets being rewarded? right now we're seeing a lot of risk assets particularly in high yield being pummeled rather roundly. >> yeah. i don't really look at it as a risk on/risk off scenario. i think you are going to have volatility but really the way we're looking at it is you have to look past the indices. the indices are averaging a lot of winners and losers together. a lot of the trends that we're seeing globally, including the price of oil, including the slowdown in china, are creating not just losers but also winners, and so there's a lot of disparity in this market that you don't see when you just look at the index. >> patrick, give me three places you think i can make money in 2016. >> well, the first is in -- i think there are industrials that are the baby being thrown out with the bath water. they're not as exposed to china as others. >> there's one. >> retail and consumer. actually there are some negative stories about chipotle or

macy's, companies that are struggling with their business models, but overall that industry is growing. we're seeing restaurants up 7% year on year in revenues. >> all right. >> and then the other is actually energy. again, here is an area where i think that if you have -- maybe not in 2016 but a two or three-year htime horizon, i dont think we will see a sharp rebound in energy. i actually think some of the expectations are too optimistic, but now is the time that investors who have a longer time frame should be looking at assets in that sector that are, again, the baby thrown out with the bath water. >> i want to come back to the question of energy, but quincy, let me ask you the same question, three places you think i could make money, very quickly, in 2016. >> well, i think you're going to see consumer discretionary names. albeit stock specific. they are going to do well with lower energy prices. also, i think small and midsized barnti banks if we see interest rates

rise and toward the latter half of 2016 i think emerging markets, which have just been terribly beaten up, i think you're going to see more money going into emerging markets as that provides a nice risk on. >> very interesting plays there by both of you. back to you, patrick, how do i do energy if i'm persuaded, as you have -- you certainly have given me something to think about, how do i do it? what kinds of companies within energy do i want to go after and do i really want to pay attention to the balance sheet? >> the thing here is that there's going to be a shake out, and, in fact, the story of oil has been the shakeout that hasn't happened. and i think that what we saw in the high yield bond market just over the past week is a sign that that shakeout is coming. so you want to look at companies that have weak balance sheets that are overleveraged and overexposed. that's what you want to stay away from, and you want to look at, for instance in mlps,

everybody has run away from mlps but there are assets within mlms that are not exposed to price, not even exposed to volume where we see the shakeout taking place that have been thrown out and people have sold them off not realizing that actually they're very good assets. >> interesting conversation. quincy, thank you so much. nice to be with you. and patrick, we appreciate your time as well. go to powerlunch.cnbc.com to see a little bit more on those plays for 2016. let's go to dominic chu for a marketplace. >> i want to pick up the conversation on energy. we have seen this turnaround. oil prices showing some signs of stabilization. of course, we're very much in a down trend still. if you look at some of the best performers within the overall oil complex, you look at exxon, also chevron, conocophillips, some of the larger integrated type names are doing well in today's trade. as we have seen this at least rebound in oil prices, short term as it may be for right now, large integrated oil companies

like chevron, exxon, and conocophillips are starting to hit session highs so far in the trade. >> it does feel like the oil and the oil companies are the dog that's wagging the tail here. >> it's interesting you say that only because energy we know has been such a dog all year long. i mean, it has been, and we know that exxon and chevron are two of the worst performers within the dow jones industrial average. however, if you take a look at some of the things patrick was talking about, where people are finding weakness, if they're going to dip their toes in energy, many are looking at some of the names that are viewed as being more stable in having the balance sheets perhaps being stronger. that's the reason why if there are opportunities, they may not be the ones that yield the most upside but they could be the ones that have people nibbling because they're such brand names in their business. >> thank you very much. mandy? >> coming up, ty, we're all over the troubles with high yield bonds. we're going to be speaking to one fund manager who has a lot of exposure to those bonds. we'll talk to him about how he

manages that liquidity. we'll get bill gross' view on the impact of liquidity. do stay with us.

welcome back to "power lunch." i'm mandy drury. let's take a look at the headlines with shares of go pro taking another big hit. morgan stanley the latest brokerage to cut its rating and price target on the stock. now looking for 12 bucks a share. the stock, by the way, is down 75% year-to-date. bed, bath, and beyond hitting new multiyear lows. this year alone the stock has lost more than 30% of its value. today it is down by 1.5%. and atara biotherapeutics taking another hit. down 30%. disappointing trial results for its drug to treat kidney disease. renewed concerns about the health of the high yield market continue to unnerve the markets more broadly. gershon distanfeld is director

of high yield for the ab high income fund. good to have you with us. ab is alliance bernstein, not anheuser-busch, right? >> that's correct. >> we're very glad that you're here because often at times of market distress, and i don't care whose market it is, portfolio managers run the other way. they don't want to come in and explain what's actually going on, so we appreciate your being here. you argue -- and your fund has a 15% level self-reported of so-called level three securities, which has to do with the price transparency, not exactly the same as liquidity, but price transparency. that is a high number, higher, in fact, than the one at third avenue that basically seized up last week. you say your shareholders don't need to worry. why? >> well, one of the reasons that we've had the performance we've had, best fund over the past ten years, we pay extra addition to

liquidity. we wrote a white paper called playing with fire that outlined that. you have to ask your fund manager what they have. the level three reporting is totally subjective. we take a very conservative approach to it, and i guess we're getting tainted a little bit because of that. >> so what you would call a level three, which means less transparency than another fund which categorizes a percentage of their assets as level two, they may actually -- it's self reported. >> there's no question about it. in fact, we took -- if we applied our methodology to some of the big funds out there, they'd have 50 or 60% in level three assets. if we used the methodology that most other mangers used, we'd have 2%. >> so you try to proactively manage your liquidity. you decided to take advantage of the turmoil and weakness we've had recently. for example, you took on more risk during the taper tantrum. you bought some risk on friday as well, right? >> you mentioned at the outset about going against the grain. the way to succeed in these

markets is to have the liquidity available to take advantage of things that others are forced to do. we're getting outflows like everybody else. most people have to sell bonds, we don't. we can be on the other side of that. >> you know, this is a very complex market obviously. >> right. >> the bond market is really complicated stuff. there's junk and then there's junk, you know what i mean? >> the junkiest junk. >> if i'm an owner of a high yield income fund, what do i need to know about what's in there or what's in an etf that owns these bonds? >> well, the number one thing you want to make sure is there's diversification. the best protection from -- or the best way to deal with liquidity is to make sure that you're overly diversified. we have over 1,000 holdings in our fund in almost 60 different countries. the reality is that some of those level three securities you mentioned yesterday on friday in the marketplace were more liquid than the core u.s. high yield market because that's where the distress was. so the odds are much higher --

>> the distress was in the u.s. market. >> so the odds are much, much higher that if you have a lot of different types of securities and a lot of different markets, a lot of different regions, the probability is much higher -- >> and in the same way you're here on cnbc trying to get ahead of things and proactively getting out there and talking about high yield, to what degree would you encourage everybody out there if they are concerned to call up their manager, their fund manager, and say, hey, you know, what's in the fund? should i be involved in that amount of risk and can you explain it to me? >> we've been preaching this for years. again, we wrote this paper playing with fire that no one was paying attention to at the time. it outlines exactly this. ask your manager. if a manager is managing their fund the exact same way they did five years ago, that's a problem. if a manager is loading up in specific concentrated areas, that's a problem. you have to ask these questions. >> we're going to come back and have you back because there's so much to cover here. you said miake sure your fund i diversified widely, diversified

enough. if i saw exposure above what percent to oil and gas properties or above what percent to media properties, whatever it is, what would be the bell that should go off in the investor's head and say that's not diversified enough? >> it's hard to make an ironclad rule, but everyone is talking about oil now so let's use that as an example. what's the reason that the average fund has a lot more oil exposure today than they had ten years ago? one very simple reason. >> because they issued i guess. >> because they issued. exactly. in a sense when you follow indices, you turn over the keys of your portfolio to the issuers. one of the advantages of taking an approach like we do in oura b high income fund is i couldn't care less that there's more issuance there, right? we can buy anything to generate income. the fact it went from 5% to 20% in some index is irrelevant to me. i'm going to look at the merits of the investment and that's one of the reasons we have much lower exposure. >> gershon, thank you very much for being with us. you helped me here a little bit.

given your etf an mri. that's what you're doing. gershon distinfeld of the ab high income fund. oil is bouncing back today. up a couple percent on the west texas variety. briefly fell though below $35. there's the number. $36.14. up about 1.5%. stocks bouncing back as well, but the dow is down about 400 points over the past week. so will that cause the fed to pause? maybe change its mind on interest rates. we'll talk about that. but first to brian sullivan for a look at what's coming up in the next hour. >> tyler, thank you very much. we're staying on the brewer bond story you just hit with two big guests including bill gross. we're going to ask him if he's a buyer of certain bonds right now and what all this means for your money and then guggenheim's scott meinert on why he thinks some of the mutual fund pain may just be starting. don't miss knows interviews.

plus a list of the three hardest hit funds right now. is one that you own on it? and something happened in energy today that hasn't happened since the movie "casino" was in theaters, and bill clinton was only halfway through his first term. it's not oil. we'll tell what you that 20-year high is coming up. stick around.

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take a look at this. a parliament member using tear gas to clear the room in kosovo today. the opposition party has been protesting recent deals with serbia and montenegro. they've said no session is going to be held in parliament until the government renounces those deals, so they set off this tear gas canister. they had to leave the room there, put on those gas masks. there is apparently no such thing as a filibuster in kosovo. mandy? >> it's weird they would just happen to have gas masks there. anyway, here are this hour's power points on "power lunch." stocks are steady. energy the big winner this hour. a big turnaround, guys. and chevron and exxon are now leading the dow, both up more than 2.5%. some of the other movers, first solar and public storage leading the s&p 500.

mattel and electronic arts leading the nasdaq 100. well, oil is still at multiyear lows, the dow is negative for the year, and there are fears about high yield bonds. is now the time for the fed to raise the rates? we will bring that you debate coming up next. should be a hot one. 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!

all right. the fed meeting is nearly upon us and you know what that means. dom chu is here with the second to last, the pin ultimate, the 11th day of fedness. >> i love the vocabulary that we're using. it's the 11th day of fedness and janet yellen said to me this time around 11 stanley black and deckers. here is the reason why. as we have been doing, we've been taking a look along with our data partners at kensho, our team at cnbc pro took a look at what types of trades work well in periods of rising interest rates going back to 2005. and in this case here, black & decker is one of those particular types of stocks. if you go all the way back to what's happening in 2005, we have seen positive trades with healthy returns anywhere from

6%, 8%, 9% for the likes of a stanley black & decker, a whirlpool, snap on tools. all of this capitalizing on what could be characterized as a rising or at least improving domestic u.s. economy. so as we talk about some of these trades, remember, historical performance not necessarily indicative of future performance. if history holds true and these patterns hold true, these could be some of those winning trades. that's just part of the story. we have the full story along with every other fed-mas day we have had so far. go to cnbc.com/pro. and tomorrow we'll have the 12th day, the ultimate, the 12th day of fed-mas. >> thank you very much for that. we'll check it out on cnbc.com/pro. stick around because we've a great debate coming up. we have cnbc jim iuorio and

steve liesman. jimbo, you are saying there's a chance the fed will not hike on wednesday but how big is that chance? >> i actually think they will hike on wednesday but here is what could easily happen. remember what we saw back in august when the stock market started gapping lower. we saw fear in their eyes. we saw i believe it was bill dudley come out and say the case for tightening is less compelling. that to me was a very, very clear message and that when a stock market starts heading lower faster, they get worried. then the fun game to play is there an absolute level of the stock market in the next two days where the fed backs off and i think there is. i think if we gapped another hundred handles lower, i believe there would be no fed tightening and they would cite problems in high yield, they may acknowledge deflation is probably a bigger worry when you consider oil prices have imploded, so have many, many other commodities. i still think they're going to do it but i think they're doing

it for pride and for the psychological aspect of it. i don't think they're doing it for the right reasons. >> first of all, there's a price at which anything could be possible and, of course, if the markets do go down, that could play into the fed's decision. but remember on a relative basis as we head towards the next couple days here, the last time we saw this kind of market volatility really give a stay to perhaps interest rate rises, the volatility index was far higher than what it is right now. we're elevated but we're nowhere near where we were during the august turmoil lows. we saw vixs going up towards the 50 level at that point. so jim probably does have a point here, but it would take a massive move to the downside at this point to really take those bets off the table. >> jim argues, steve, there would need to be some kind of major predicating event that would cause this. do you see that? >> i think that's right. i don't see it. >> you don't see it happening? >> i think that's the same way of saying they're almost certainly going to raise unless something happens that would ultimately derail it. if the dow fell by 1,000 points

and there was some kind of major attack, the fed might be given pause. what they're saying is the economy can withstand a quarter point. it's appropriate to raise interest rates a quarter point relative to what's going on economically. the broader question is whether or not the market can withstand a full normalization or being on the path to normalization. i think the fed has a sense it can withstand a shallow and gradual path there. >> yeah, jim? >> i was going to say, we're talking about eight-year period of near zero rates and all we can eke out is 2% gdp. clearly when they say normalization, nothing is going to be normal about this rate rise. i mean, i think that we'll be in the old folks home before we see a 2% short end level in treasuries. you don't agree with that, steve? >> it's a lot sooner for me than it is for you, the old folks home. we'll have to wait on that because we have to wrap it up here. jim, thank you very much. steve, great to be with you. let's bring in brian and melissa

to carry forward here. you've got some great guests this next hour on bonds, including the most interesting man in the world of fixed income, bill gross. >> listen, there's a lot going on, and who knows where this is going to end up. >> yeah. >> whether it's going to be the start of something big or maybe -- we'll find out in a couple seconds. >> exclusive interview. good luck. >> mandy, tyler, thank you. welcome. we have a huge hour ahead for your money including big fears in bond land as the commodity market continues to collapse and a a day away from the last fed meeting of the year. me melissa lee is no new york city. let's not waste another moment of time because in just a matter of the past few days what was at first just an oil story has transformed into a big-time bond and credit story. two junk bond funds shutting down, high yield starting to in some corners seize up.

what better guest to help you navigate and understand what is going on and what it means for your money than janus capital's bill gross in another cnbc "power lunch" exclusive. bill, thank you. good to see you again, buddy. >> good to see you, brian. >> we saw the third avenue fund last week, we saw another high yield firm announce this morning it's going to wind down, is this just a one or two-off contained event because of bad management or the start of something bigger, a broader contagion? >> well, i think it's the start of something, not necessarily something bigger. you know, as kane said long ago, financial markets are a voting machine. the economy is a weighing machine. and i think we're seeing in high yield has a little bit of voting that is human fear of losing money and a little bit of weighing, that being factors related to future profits and potential deflation, and so, you know, high yield credit doesn't do well as highly levered companies find it difficult to

cover interest expenses and when you have factors such as the depreciation of the chinese yuan and the drop in oil prices, then companies find it hard to begin to cover interest expense and that constitutes what i call the current weighing machine. >> i don't want to necessarily talk about the companies but rather the management. i know you're probably loathe to go after people in your own industry but when we look at highly respected firms like third avenue, they're not some fly by night thing, they're a value oriented firm and they're caught off guard by the magnitude and rapidity by the drop in some of these junk bonds, not just oil and energy, by the way. do you believe there are other managers sitting out there right now who are sweating a bit? >> well, the market is more illiquid than some had assumed. you know, i have been talking for 6 to 12 to 18 months about the potential illiquidity in

bond markets and equity markets and we're seeing a moment over the past week or so and there's no doubt that mutual funds and etfs are in some cases strained for liquidity. that's due to a number of factors. one, it's due to the closing the doors of third avenue. that scares investors in terms of, you know, either getting into something else or getting out quick on what they own now. there's been regulatory changes and proposed changes on on the part of the s.e.c. that would impact highly levered funds and junk-related types of funds. and so the momentum and the flow, you know, is definitely against it, but i would say as i tweeted today that everything has a price, and, you know, high yield bonds at this level, at 6% to 7% to 8% and with a price volatility of a third or a quarter of what the equity market has, they've become very competitive if not more than competitive relative to stocks,

and so there's a point where fundamental value takes over. there's also a point where continued illiquidity has a momentum we're going to see perhaps for the next few days. >> and we hear this term liquidity or illiquidity all the time. for thors wse who are passive investors, take us under the hood a little bit. if you owne ed ed a bb minus an wanted to sell it to somebody today, would you be able to sell it? >> well, of course you'd be able to sell it but the price spread between the bid and the ask would move. typically it's a half a point. today it's probably a point or a point and a half. i would point out holders of the third avenue fund, you know, are realizing that there's a price for illiquidity. they have no liquidity and what would they pay to get out of their fund today? who knows but it would be more than a point in the term of the

bid and the ask spread. that's being reflected in all high yield funds and closed in funds and markets everywhere. actually, brian, just to bring out an interesting point, everything is down today in price, and i use the term everything sort of to the extreme, but oil is about the only asset that's gone up in price. government bonds are up by 10 basis points. german bunds, spanish and italian bonds are up by eight or nine basis points. it's a general illiquidity moment where mutual funds and etfs are looking forward to the next 7 to 14 days as we approach year end and building liquidity even in high quality assets. >> so sellers aren't getting the prices they want, buyers are waiting for sellers to come down. listen, even our viewers if they just own a home and try to sell it, they understand the process. do you see any sign, bill, this illiquidity issue is easing? do you think the market will

become more liquid or more rational in the next couple of days and weeks? >> well, i think it's dependent on central bank policies and we're going to see that this week, right, from the fed itself, and we've seen that from mario draghi and the ecb suggesting that whatever it takes. up until this point over the past several years it's been the central banks that have provided liquidity and the market is beginning to sense that that liquidity provision perhaps will be drawn back a little bit. certainly on the part of the fed as they raise interest rates. so i would look to wednesday in terms of a very dovish statement with a capital "d" as i tweeted this morning from the fed that basically speaks to raising interest rates very, very gradually, and so that would, should comfort the market in terms of liquidity, but there's no doubt going forward that, you know, it's a changed world in terms of liquidity and that a buyer and a seller, you know, must realize that what was a normal spread before, you know,

is certainly extended now and into the future. >> you're supposed to buy low, right? that's the object, bill. you're sfosed to identify, wait out, keep capital handy, and when things get really bad, when there's forced selling, that's when you come in and buy. it's how guys like yourself and warren buffett have made fortunes for yourself and your investor over the last 20 or 30 years. so you wrote -- you tweeted out, bill, who will buy? is bill gross a buyer of high yield debt right now? >> well, certain aspects of it. i would point an individual investor and for the most part those are your listeners, you know, if they have a stake of $50,000 to $100,000 this is the perfect time in terms of an illiquidity discount for what are known as closed end funds. it's like the pelicans on newport beach. they're driving down and picking out the fish. it's just loaded with bargains and the reason i say that is because closed end funds, illiquidii

illiquid are trading at 10% discounts to their net asset values. you can find some relatively high quality assets in certain of these closed in funds, certainly municipal types of etfs or even corporate etfs, some being utility related. i would point out a few, utg, which is a utility fund. i would point out duff and phelps global which is a utility fund, dbg, and i would point out pimco. pimco has a corporate income fund, pci, that trades at a 1% to 18% discount, and so if you're looking to put $50,000 to $100,000 to work over the next 7 to 10 days as tax loss selling takes place in addition to this liquidity crisis, then these are the places to go because they trade at a 20% discount and they trade with yields of 8%, 9%, 10%. >> wow, last question -- and

you're recommending a pimco fund there, bill. last question, do you believe for those of our viewers and listeners -- they buy the s.p.y. they're just invested indirectly in the u.s. stock market. does what's going on in the high yield bond market right now ultimately infect to a greater degree, some say it already has, the u.s. stock market? >> oh, it has to. for instance, and i pointed out that the high yield market trades at about a third of the volatility of the stock market. you know, if you can just suppose lever three times your high yield portfolio to equal the volatility of the stock market, you know, you produce a 17%, 18%, 19% type of yield so to speak, and so, you know, there's no doubt that the two are related. jeremy stein, ex governor of the fed basically pointed out two or three years ago that the high yield market is the key basically to financial conditions, and so i think the fed will be looking at that on wednesday. janet yellen should be if she isn't and knowing that it's not

just the stock market that's important, but it's the high yield market and the two are correlated. >> so stocks go down from here you think? do you think stocks go down from here then? >> oh, yeah. i would prefer to buy high yield bonds at 6% to 7% to 8% relative to stocks yielding 12% to 2.5%. i don't think we have a crash coming but i don't see much upside in terms of stocks. i see a relatively attractive yield in high yield bonds. >> i guess we're going to see you in about 48 hours for the fed meeting. >> i will be here. thank you for the invitation. >> bill gross of janus, we appreciate your insight. >> crude oil dipping below 35 bucks a barrel before rebounding. crude hasn't fallen below $35 in nearly 7 years. huge losses in nat gas. down more than 5% at this hour. let's get to jackie deangelis at

the nymex with the latest. jackie, why this big bounce. >> good afternoon to you, melissa. when you slide so far so fast and you hit a low like we hit today, $34.53, you're bound to have people get back into the market buying on short-term, you know, dips here, trying to make a little bit of money, and also, of course, we're going to have expiration in the january contract. that creates a little volatility as well. a frequent guest and contributor on our air, john kilduff, he is calling the bottom in oil prices for 2015. and there's a lot of chatter out there, have we seen the bottom? it's tough to say. in terms of supply and demand, nothing has change. we're still awash with oil. it's possible to see moves like this intraday and then see more selling pressure come in the next couple of days or even potentially in the next few weeks. you mentioned nat gas. this has been an incredible trade, well under $2 because of the temperatures outside. me melissa, i was on my block

seeing people buying christmas trees wearing shorts because it's so unseasonably mild. people are just not cranking up that thermostat as well. >> and they're probably not buying puffers or boots. ba bad ne bad news for the retailers. how worried should investors be? joining me is "fast money" trader tim seymour. always good to see you. we're looking at the action on friday in the hyg and jnk which are the etfs that track the high yield bond markets. >> record volumes. >> they were crushed to below net asset value. >> right. >> does that signal that they are buys at this point? >> i'm not sure. i think ultimately we're in a place where high yield is continuing to trade lower and the next tick is probably going to be lower. you're in a place as everyone has been saying on the network which is first of all you can't stop yourself out on something you can't sell. what a lot of big funds are doing and a real premium is being paid by those in the market who have the bid, and so we're in a situation where i think that's really what's happening and it's not just

contained to the energy high yield. this is a liquidity issue that i think is throughout -- it's a multisector process. >> i think what's interesting is if you look at the holdings for the hyg, the biggest sector, issuer sector, is communications. >> right. >> two of the top five holdings in hyg are hospital stocks or hca and thc and they are getting crushed in today's session. >> that led the downdraft. media, health care, these are places where we saw this in the high yield market. over the summer where a lot of it started. if you look at the hyg though, you can argue that the beginning of this pullback started in july of 2014 exactly when energy prices started to unwind. energy is about 12% of the high yield index. so put it in perspective. it's not everything, and i think that's why the broader liquidity concerns are things that really concern people. >> so you think that hyg or high yield in general is leading or is it a lagging indicator of the markets at this point? >> i think it's a leader. there's an argument we're trying to put it in the context of equities. equities almost seem like

they're whistling through the graveyard which means a lot of people want to point out to 2007. let's not do that right now. for now you can also see a very healthy corporate bond sector. corporate america in a very different place in terms of the balance sheets than we were in 2008. but there's some eerie parallels. >> tim, see you tonight at 5:00. >> see you. >> tim seymour. brian, over to you. >> thank you very much. we have much more ahead on "power lunch," including guggenheim partners scott min d minerd. he's putting a number on how many junk bond funds might be forced to lick inquire date. plus looking for a floor in natural gas prices. is there some clue in the charts to help you figure it out? we'll figure into that. and a $13 billion deal creating a new consumer powerhouse that nearly nobody is talking about. "power lunch" will be right back on a busy monday. stick around. zapped it right to our house.es and that's how they got it here. cool. the magic of the season is here at the lexus december to remember sales event.

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welcome back to "power lunch." i'm melissa lee. newell rubber maid agreeing to buy jarden for $13.2 billion. it will be known as newell brands. coach getting a nice pop following an upgrade from piper jaffray. that stock up more than a percent. and a handful of stocks are hitting new 52-week lows including time warner, qualcomm, and legg mason. >> pay attention, folks, because if you own one of the following mutual funds, things have been very tough for you lately. morning star tracking the fallout for the junk bond rout

and highlighting the worst performing funds. coming in dead last is the third avenue focus credit fund that just shut down. let's take a look at some of the others. the catalyst high income fund, the second wornst over 90 days down 11.6%. and the avenue credit strategies investor fund down about 9.5% along with the nuveen symphony credit opportunities down 8%. there are a few classes of these abr, whatever they are, they're all doing poorly. there are also closed in funds that have done well. look at the acp. that's the avenue credit strategies closed in fund, that is down 17% in just 90 days. third avenue is the only fund that has been forced to close aside from a big fund firm elsewhere today. one big time fund manager says another round of liquidations might be coming. joining us is scott minerd. thank you for taking time out of

your busy schedule. >> great to be on, brian. >> so when i read this morning that scott minerd says that 15% to 20% of high yield funds may be forced to shut down, i said why? do you think that many fund managers are really being blindsided by this? >> well, i think what it is, brian, is we're coming into a time of the year where we could have the perfect storm, and that is that liquidity is drying up in the secondary bond market. investors are reading these headlines about third avenue and other situations where funds are getting liquidated, and you think about it, and you think, hey, you know, i have got a small loss in my high yield fund. maybe i could just take a loss for tax purposes and not have to think about this over the christmas holiday and come back in january once the storm passes. and so my concern is that, you know, the number of funds here who are down more than 10% for

the year represent something in the neighborhood of 15% or so of all mutual funds, and, you know, clients who -- or investors who see headlines might say, you know what? maybe i don't want to risk any more money and it's time to head for the exits. >> but under your theory then, it's almost more of a self-caused sort of mini crisis. everybody runs over to one side of the boat, it rolls over. eventually they get out, they flip it back over, they get back on and go on their way. or do you think it's like bill gross just told us, that it's, quote, the start of something else? >> no, i think that we're closer to the end of this than its beginning, and, you know, as the comment was made earlier on the show that, you know, this bear market and high yield got going back in the middle of last year, and, you know, i think we're coming close to the end. and the problem here is that we've divorced market price from

the fundamentals, and when you look at the economy, you look what's going on, you know, credit markets are just fine. you get away from the energy sector. you get away from metals and mining, and, you know, defaults are not going up meaningfully. but at the same time we've had this huge decline in prices, which is causing yields to rise dramatically, and, you know, just like we got back in 1987 when the stock market crash happened, there was no fundamental reason for the stock market to crash in '87. the economy was doing just, you know, fine, but the bottom line was that everybody, as you said, got on one side of the boat at one time and there was no liquidity on the other side. and i think, brian, what we're seeing right now is the consequence of the dodd/frank legislation and all the macro prudential policy which is restricting the ability of the banks and the brokers to take on these positions, and so when you

go to try to sell something, you know, it's hard to find a bid. >> scott, when you're talking about the funds that will also be forced to shut down follow basically third avenue's lead, i'm wondering how can we understand the credit profile of their portfolio? i mean, is it ccc minus they're dabbling in? which is a very different profile than, say, what the retail investor might have in their portfolio through the hyg or the jnk. i'm trying to understand where you think the most pain will be, whether it be by sector, energy, materials, by credit profile, or even by country. >> well, i think the first place is obviously to look at the credit profile. you know, we saw in third avenue a disproportionate holding in ccc and b rated credits relative to the market, and so, you know, funds that are concentrating in these very low credit tiers are the ones that are experiencing

the most significant price declines. but, you know, the other effect is, you know, as you point to sectors, funds that have had large exposures to energy have really taken it on the chin, and, you know, i remember last november and last december people were saying, you know, when oil gets to $60 a barrel, that's going to be the bottom and we need to run in and increase our energy exposures, and we see that, you know, we actually might end up having oil at $25 a barrel, and so i think a lot of people have gotten themselves caught offside on the energy trade, and because of that, that's why we're seeing such large declines in some of the navs of these mutual funds. >> and, you know, again, i'm not asking you, scott, to pick on a competitor of sorts, if you will, but guys can we bring up the acp again. this is the closed in fund of avenue capital. avenue capital, very widely respected firm. in fact, the founder owns the milwaukee bucks, huge firm. when i look at this acp closed

in fund, their income opportunities fund, it's down 17% in 90 days and when i dug into their holdings, none of the top ten were oil or gas. it was i heart media which is formally clear channel, et cetera. we always talk about oil and gas. how concerned are you about nonoil and gas parts of this market? >> well, look, brian, there's no doubt that this asset becomes more of a contagion effect that other creditors or borrowers are getting -- you know, they're getting rationed out of credit in the market. and so the longer this goes on and the higher the illiquidity is, the increased likelihood we're going to see defaults spill over into other sectors of the market, and so companies that are operating on extremely high leverage ratios and don't have good cash flow coverage are going to be very vulnerable to either, you know, running out of

cash or potentially facing a refinancing risk. and that's why, you know, wednesday's meeting of the fed is going to be a very important meet meeting. >> that's why we're having you back on as well. >> we're looking forward to it. >> and you're going to be on set. we don't have to do this phone crap? >> no, i'm going to be there in person. >> scott minerd, we'll see you then. appreciate it. >> thank you. >> as he said, big day on wednesday. big interview next hour because you'll hear from that guy, blackrock global head of i-shares, mark wi edman. >> headed live to the nymex ahead. but a big upbreak for kleenex and paper towels. we have street talk when we return. rated #1 trading app in the app store.

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i'm sharon epperson and here is your cnbc news update at this hour. the u.s. army says the case against sergeant bowe bergdahl will move to trial by a general hart martial. he's facing charges of desertion

and misbehavior before the enemy. he was captured after walking off his post and was held captive for five years. in a new nbc news/"wall street journal" poll that shows hillary clinton would defeat the current gop front-runners ted cruz and donald trump in a general election. in a hypothetical general election, the poll shows clinton leads cruz with 48% of the vote. a new study finds women who take a certain type of anti-depressant later in pregnancy may be more likely to have a child with us a autism. and an arkansas family was po woken up by a deer in their living room. it broke a window to get it. it eventually made its way back outside. >> my grandmother is from ft. smith, arkansas, they don't call that outside. they call that dinner.

that goes on the plate, baby. >> i don't think so, but maybe. >> it's delicious. venison cooked right. >> oh, my gosh. >> what? this is the trillion dollar question, has oil finally bottomed out? some suggesting maybe because of what happened today. jackie deangelis, every day we could say has oil finally bottomed out, somebody will say yes and tomorrow they will be wrong. >> you and i love having that conversation. i'm going to ignore the fact you were going to talk about eating bambi so we'll put that over there for a second. but session low today, brian, $34.53. session high $36.70. looks like we're going to close in positive territory over $36. so a lot of people are saying maybe we have finally bottomed and we do talk about this every time we see a big drop like this and then we get buyers back into the marketplace, but some traders on the other side of the coin are saying this is just the typical action. you get people in for a short-term trade and then nothing has changed with the

supply/demand fundamentals and we see more selling pressure. so that's one piece of it. the second piece is the fed. what will the fed do on wednesday, how will it impact the dollar and how will it impact the crude trade. this is one of those situations that is fluid and it needs to be monitored carefully. brian? >> and i didn't say me, i said grandma in ft. smith, arkansas. a long time ago. they were happy to have it, too. time now for "street talk" where we dig through every day wall street research to find you the big call that you need to know about and we start in diapers. melissa, isn't that where we all start ultimately anyway? >> everybody did. >> and sometimes go out that way, too. stock one is kimberly clark. goldman sachs upgrading it to a buy. add it to the conviction buy list. they expect, quote, relatively resilient organic sales growth and that costs will also get some help. they see the commodity crash actually helping because pulp prices pulling back as well. that could help margins and they add management may be willing to pursue strategic alternatives. 25% upside. >> what i thought was interesting about this note,

brian, was the analyst talking about a sum of the parts analysis and singling out the personal care business which the analyst says could be attractive to a buyer. so maybe sort of pushing that idea of selling off parts of kimberly clark. next up fort net getting an upgrade from cowan to market perform. since july shares have been a loser down 36%. palo alto networks is up 6%. the analyst made a good call, downgraded ftnt in july. he says there's still concerns about the stock. competition is pretty fierce. a lack of margin expansion but it's all reflected in the stock. valuation is now inexpensive. >> you know, and i listened to "mad money" and jim says it all the time. he says buy best in breed. he's always talking about palo alto. and fortinet has not. stock three, trinity industries. cowan and company starting

coverage with an outperform. the channel checks, demand study, and dlab ration with five our cowan research teams leads them to believe the trinity sell-off is overblown compared to last psypast cycles. about 30% upside. they said their price target while bullish even throws in a 10% discount for what they call macro unicertain macro uncertainty. >> it's an interesting call. whether you start with the pressure on leasing rates to the ongoing rail car legislation, there are a lot of uncertainties and clouds hanging over this stock. stock four, fed ex, gown doppler radar -- downgraded to a market perform. lower volumes and downward revisions to gdp. thet nt acquisition could be challenging. fed ex reports earnings after the close on wednesday. and the thesis is that because everybody is buying

stuff at amazon and online really it's going to be a fed ex and u.p.s. world. i want to give -- >> it's not helped in years past. >> the men and women who really, really don't get any good shout out as well. the u.s. post office. true story, 7:30 this morning my dogs go nuts, i look outside, the post man is bringing a box up. they're shipping amazon stuff through the post office. he was out early in the morning. fed ex is not going to get all the business. the post office is getting -- i have seen them on sundays, too. today's under the radar game, dycom. d.a. davidson upgrading it to a buy. 20% upside. it's really a telecom call because they say dy com works with all the major companies and the rush to build out one gig bit internet should benefit them. this federal connection plan which is going to subsidize getting internet in rural areas, that should help. they have an average target of

100 bucks even. >> if the u.s. highway spending bill gets passed dycom is seen as a potential beneficiary. >> up next, the one chart that says nat gas could go even lower from here. "power lunch" will be right back.

welcome back here to "power lunch." got a news alert. don't have a lot on it right now. pretty much just a headline, but according to some headlines, you have the secretary of the commonwealth of massachusetts, frank galvin, who has opened an investigation into the third point focused credit fund. that is the fund that was forced to close down last week because of customer redemption requests. thank you very much, guys. appreciate that. it's all happening on the fly. opening an investigation into that third avenue focused credit fund. just a headline right now but apparently the state of massachusetts has some requests to third avenue about what happened with that fund. the ceo who had been there, folks, since 1991 was also forced out because of this. so, melissa, not only was this sort of a surprise, it cost a

long-time ceo his job, and now the state of massachusetts wants to know what the heck happened. >> yeah, and you got to wonder whether or not this is going to be the first of many investigations and what kind of pressure this could put on a lot of the other credit funds out there, brian. and what exactly, what exactly are they after? are they looking for information on the illiquidity. bonds they were holding or how they were sold? still a lot of questions to be answered around this potential investigation. >> bill gross said it best at the top of the show when he talked about what could you sell something for? and the idea he sort of said in his own way was it's better to get something than nothing. if you're an investor in that fund and you're locked out, in other words redemption is a fancy word for i want my money, give me my money and they say, no, you can't have it, unless they give you something, you get zero. so the idea is, isn't something better than zero? >> isn't something better than zero? >> that's deep stuff right there on a monday. i'm not trying to offend funds

that are ending redemptions for a certain period of time but in some ways sometimes they need more time in order to have an orderly liquidation of assets especially when the marnlkets a so illiquid. it may be in the investors best interests for the gates to be closed if the redemptions are so overwhelming for them to in an orderly fashion exit some of their positions. >> it hasn't gotten a lot of news but we talked about it on the morning call. lucidis, $900 million firm -- >> that's what they're doing. >> this is a fund our viewers are like who the heck is that? started by some ex-hedge fund guys. they announced they're going to shut down but in an orderly fashion. they're going to go to market, sell what they've got, if they haven't already, take the proceeds, and give it to investors. the problem i think to your point, melissa, an excellent one as always, if you invest in the sullivan family funds and we just blow it and everyone knows that we're forced sellers, they're just going to sit back and wait for us to lower and lower the price until eventually basically we might get nothing

for it and one wonders, did third avenue screw up not only obviously with their investment portfolio, they clearly did, but in terms of how they handled the redemption, how they handled the sale, how they handled the cash raise. >> that's true. and you got to wonder what the regulators are after at this point. what sort of information are they after? what did third avenue do that other funds have not done in the history of funds to spark that sort of scrutiny? >> well, we know what they didn't do, invest well in that fund anyway. all right. it's time now for "trading nation." let's look at natural gas. h wow. we talk a lot about oil, but nat gas plunging to a 13-year low. and on an inflation adjusted basis, steven shoshrk, we're ba to 1995. we have chris varrone. we're at a 20-year constant dollar low for natural gas. is there any way to know where

the bottom is. >> at this point absolutely not. from the fundamental standpoint there are only two cost drivers for natural gas, industrial demand and weather. as far as industrial demand goes, well, i'll maintain the u.s. industrial sector is in recession. we know the canadian industrial sector is in recession. the only driver is weather. if you watched the green bay game yesterday, the packer game looked like they were playing a late august preseason game. so 60 degrees in minneapolis. 60 degrees in chicago. and we're a week away from the official start of winter. it cannot get any more bearish for gas. hence it could still go lower. >> is there any fundamental reason why nat gas can stay at least where it is, stephen, or is there simply way too much of the stuff running out of storage and nobody wants to buy it? >> and that's it. you have no demand for it right now, and without the weather and with what we're seeing in the weather patterns, the polar jet stream, all that cold arctic air is going to remain in the

northern latitudes so it's going to remain extremely warm here through the remainder of the month. we're already two months into the heating season and we haven't had any significant demand. hence now the market is giving up on the winter. so you have natural gas delivered in the winter that's trading at a steep discount for gas delivered in the spring in a shoulder month. again, you have open interest rising. the fundamentals are extremely ugly. we broke the post-great recession low today at 19020. your next target are those lows from when enron hijacked the market in the early 2000s. that 175 to 165 range is the target now. >> it was 72 degrees in new jersey yesterday. insane. chris, apparently el nino is an ancient spanish phrase meaning short natural gas. >> talk about the epicness of bear markets. this has been an epic bear

market down close to 90% from the highs. we have 150 circled on our chart. we don't think it's out of the question. i think tactically could you see a bounce? absolutely. sentiment is bearish. i would be a seller of that rally. 2 bucks is now resistance. we fade a bounce up there. despite the seasonal, december and january are often two of the weakest months for natural gas returns, so we don't think the set up is good. any short-term bounce is one we want to sell. $1.50 is the number we have circled. >> we could go to $1.50 on natural gas? >> i think when you consider the context of this bear market, it's been ongoing for a decade. when we get declines of this magnitude it takes many years to repair. even if we're in the vicinity or the neighborhood of a low, i think we're talking about years before a major turn or a new bull market starts to take shape. >> we're watching $1.50 which is about $1 for nat gas 20 years ago in today's dollars.

chris, stephen, great discussion, important topic. thank you. >> great to be here. >> thank you. >> for more "trading nation" go to tradingnation.cnbc.com. melissa? >> it doesn't open nationwide until friday but the new "star wars" film is already a force to be reckoned with. four full blocks of hollywood boulevard is being shut down for a premiere being called bigger than the oscars. we'll bring you story straight ahead on "power lunch." >> now the latest from tradingnation.cnbc.com and a word from our sponsors.

all right. just to recap some news that broke a few minutes ago. do you remember that third avenue focus credit fund that was forced to liquidate, shut down last week and cost the ceo his job ? the massachusetts state secretary of the commonwealth has decided to investigate third avenue and find out what happened. frank galvin, just have

headlines, don't have a lot of other information. working hard to get it for our viewers and listeners, but still, massachusetts wants to know what happened. we talked a lot about high yield or junk bonds on this program. if you're an individual investors you may be thinking what does this have to do with me? i don't invest in risky assets? how does it impact my investments? we'll tell you when "power lunch" returns in two minutes.

if you haven't figured it out pretty much all the eyes of the investment community are on the high yield bond market today. >> i don't think in my relatively short journalism career i have ever seen as much attention being paid to junk bonds. >> again, let's talk about some of the reasons why it's important because the hyg, this is the etf, the high yield etf, the ticker is hyg. the reason why we're focusing on it so much is because it is the biggest of the high yield etfs, it's got $15 billion in trading volume.

we've been showing this chart about investment grade, the higher quality stuff in orange versus the high yield in white, the divergence that's been happening. the reason why we're bringing it up we are on pace for our second biggest volume day trading volume wise ever for this particular fund, the biggest was back on friday. here is the reason why it's important. $4.3 billion worth, that's how much we traded in this particular etf just on friday. almost $10 billion of which all last week. so these are all record numbers of trading volumes for this etf. the interesting part about this is black rock says there was a victory in some ways, right, because of the trading action. because -- >> because it traded fine. >> it traded fine and there was no mass liquidations of the underlying assets. in fact, what they said, they told us this morning, that out of the $10 billion worth of trading volume last week, net redemption wise there was only about $560 million. $560 million is a lot but in the grand scope of things they

didn't have to sell bonds, that many of them to finance all of the activity that was going on. when an etf seller came to market a buyer emerged albeit at a lower price so they didn't have to liquidate assets in order to do this. and they say the ratio, they only had to trade $1 worth of bonds for every $17 worth of volume that happened. >> the concern about the etf market is that, correct me if i'm wrong, is that it's not that the etf market has a problem, it's that if you buy an etf you're buying a stake in something else. etf is a way to get a bunch of stuff that you can -- >> it's a -- >> it's a pain in the butt to buy a bunch of stuff separately. the concern is do we have the assets that the etf represents, are they there, can we be sold. >> correct. >> does that etf have the stuff to back it up? >> what's already interesting, too, i was speaking to a fixed income hedge fund manager this morning and he said we are not seeing any kind of panic situation. when he says panic he means

forced selling, liquidations, margin calls, that sort of activity. when you do start to see that, if you do start to see that, that's when things can get really bad, but for right now when the biggest high yield credit etf, that particular type of fund, hasn't had to go through that kind of liquidation process you weren't seeing that kind of real stress. that's one of the things that the etf business will hang their hat on at least for right now. >> i'm just curious because some of the lower credit quality issues within the hyg, you sell the hyg and you're selling everything across the board, whether a higher liquidity or lower liquidity issue. once a certain volume has been exceeded. >> correct. here is the thing, when you are an index product like this is right now, you're going to sell to try to match the index as best you can. the only thing that i would point out that if you take a look at these speculative grades, the ccc, the ccc or below type, they make up around 10% of the overall portfolio. >> 14% of j & k.

>> right, but again if you talk about, yes, liquidationwise if they were to happen in that way, it could provide some stress in the market, but right now we haven't seen that -- >> and we still need to say that defaults are near an all time low. >> correct. >> defaults are near an all time low. so the bond market may be ablngting i wish rationally to something that has not happened yet and may not. >> it is usually a leading indicator, though. >> light right. the bears out there would point to what you're saying. yes, maybe default rates aren't screaming higher, but they may be ticking higher and this may be the early signs the canary in the coal mine aspect. >> or not. the can aer might live to be a ripe old age. all right. the dow is up nearly 50 points, a little more than an hour left in the trading session, there is a lot more to do on cnbc on a busy day. "power lunch" will be right back. n. n. that's right. i have read it is the hardest job in the world.

that's why i'm here. can you... i can offer advice from the accumulated knowledge of other educators... that's wonderful but... i can tailor a curriculum for each student by cross-referencing aptitude, development, geography... sorry to interrupt. but i just have one question: how do i keep them quiet? (pause) watson? there is no known solution.

healthcare and hca under pressure on today's session on the equity side. these are two of the top five issuer holdings in the hyg. is the credit market signaling distress on the equity side for these two stocks? we will dive deeper tonight on "fast money." >> how often will the phrase high yield bond market be mentioned? i have three and a half on the over/under. >> in my show or within that segment? >> five to six. >> i think within that segment,

yeah. >> okay. i'm hoping it's eight and a half. thank you very much. also no doubt we will hit in news, massachusetts will investigate the third avenue fund that closed down, those headlines just starting to creep out. look forward to the show tonight, melissa. >> thanks. "closing bell" starts right now. hi, everybody, happy monday and welcome to the "closing bell." i'm kelly evans at the new york stock exchange. >> we're itching to get going here. i'm bill griffeth. this week is expected to be one of the most important for investors for congress, for, you know, everybody out there. the fed as we know could be raising rates on wednesday, but the first time in nine years since december of 2006. >> we're bringing in some of the biggest names on the street to break down the potential impact on your investments. marco catta, jeremy kingless. david rosenberg, jim booeng cold all joining us over the