now those balance sheets accumulation are going down. so it is not surprising that the global stock market is going down and away from the u.s. this is not a good year for stocks at all. >> yeah. we'll leave it -- you predicted the presidential election. who is going to win the midterms and then i got to run. >> i think the republicans keep the senate and i think the republicans do better than what they're polling, but lose seats in the house. >> jeffrey, always good to catch up with you. thank you for your time. good amount of it today. >> thank you, judge. >> jeffrey gundlach joining us from los angeles thank you for watching that does it for us. "power lunch" begins now. >> in a couple of minutes, i'm melissa lee, out of control, we're not talking about the volatile market move that's president trump attacking the fed and the rate hike. is the fed moving too fast or is it behind the curve? stocks are down once again following one of the biggest drops, what is happening where do we go from here and where are the opportunitys full team coverage straight

ahead. tech getting wrecked one of the pillars of the record-breaking rally. are the high growth names still a good bet with rising rates plus, mortgage rates at seven year highs, material costs soaring. what do the head winds mean for housing? "power lunch" starts right now welcome to "power lunch. stocks lower again, but well off their worst levels of the day. the dow down more than 37 poin s -- 370 points earlier. the nasdaq on pace for its largest weekly declines since late march and on track for its biggest monthly losses november of 2008. small caps also under pressure the russell 2000 moving in and out of correction territory. crude oil hitting its lowest

level in two weeks energy, the worst performing sector today, the etf that tracks that group, the spider xle energy etf on pace for its fifth negative day out of the past six now for more action on that trading day that is playing out here, let's head to bob pisani on the floor of the new york stock exchange >> down today, but a very, very different day than yesterday i want to show you the s&p 500 unlike yesterday, we are not straight down. there have been attempts to buy the dip several times today and notable attempts and we even got almost a depositive territory. look at volume here. we see very heavy volume across the board. doesn't matter big cap etf, small cap eft like the russell, big cap all very heavy volume, people try to figure out what is going on this is not one directional trading, look at the sectors, all the stuff that has gotten the living daylights beaten out of it, bouncing back a little. semiconductors, that communication group, that would be google, that would be

twitter, that would be facebook all on the upside. emerging markets are flat. industrials still down a little bit. not participating much in the turn around. banks, we'll be reporting tomorrow, jpmorgan, the yield, down today, because the cpi was a little weaker than expected. generally people were happy about that you see the banks not doing much today. yield curve a little bit flatter. when is the bottom i don't know my favorite indicator, i watch the yield -- the curve on the vix. so what you want to see here is the front month contracts right now, the cash contract of the vix, 22, that's higher than all of the futures contracts in the forward months that very rarely happens it means that traders have been expecting a short-term volatility event that is freaking them out, but they're not as worried about stuff just over the horizon in a month, two months, three months down the road this is normally a sign that the market is going to turn around not necessarily a buy for today, but keep an eye on that. i'll watch for that to invert in the next few days. the vix hit 50, melissa, on

february 5th, that week really hit 23 yesterday so not quite the event we saw yesterday that we had in february back to you. >> bob, thanks president trump ramping up his criticism of the fed calling fed policy loco and out of control. eamon javers is at the white house for us with the latest >> reporter: that's right. yesterday, the president said that the fed is crazy and loco today, he has continued his criticism of the fed he's upset the fed is raising rates. he thinks that might take some of the steam out of the economy going into the midterm elections and the president said this earlier today. >> i think the fed is out of control. i think what they're doing is wrong. i think the fed is far too stringent and they're making a mistake. and it is not right. and it -- despite that, we're doing very well. but it is not necessary, in my opinion, and i think i know about it better than they do, believe me

>> reporter: the president saying he believes the fed is out of control earlier today on cnbc, larry kudlow, the national economic council director suggesting that there is a line here, the president, he said, is just rhetorically expressing his views on interest rates, and where they should go, but not directly pushing the federal reserve. here is what larry kudlow said >> president has, you know, his own views, he stated them many times. there is nothing new here as far as i can tell. we all know the fed is independent. the president is not dictating policy to the fed. he didn't say anything remotely like that. and as i say, they are independent, they're going to do what they're going to do >> so, melissa, the key point is larry kudlow saying the fed is independent, the president not dictating policy to the fed, but he sure is airing his views in a very loud way this week. several times on national television over the course of the past two or three days that the president has made it very clear that he does not think that the fed should be moving as

fast as it is. >> those views coincident or not at a time when the markets are selling off. interesting. thank you. jim cramer in his own way kind of agreeing with the president here is what he had to say about rising rates and fed chief jerome powell. >> even though we have amazing unemployment, and robust gdp growth, the forward indicator suggests to me that things are deteriorating. in some cases like in construction, as we learn from gigantic industrial builder floor, it is in rapid decline. the fed doesn't seem to know this that's why we're getting hit, we'll keep getting hit the economy is nowhere near as strong as fed chief jerome powell seems to believe. it can't withstand the mindless hammering that he's going to give us. >> cramer went on to say that chairman powell will probably continue to hike now because he's been backed into a corner by president trump let's break it all down with michael farr, the president and ceo of farr miller in washington and senior economics reporter

steve liesman. i want to start off with you, steve. the notion that the president doubles down on his comments about the fed and fed policy and jerome powell will have to raise the bar when it comes to reasons not to act >> i think it is possible that there are unexpected outcomes from the president doing this. there is, you know, a real conservative would sort of say why are things done the way they are in the past. and sort of have a reason to stick to that. well, there is a reason why other presidents didn't comment on the fed and that's because you have potential for unpredictable outcomes like the idea of leaning against the political wind like they do if the bar is higher, the fed looks like it is buckling under to the political pressure funny to hear what was said earlier, by kudlow, that the president is not dictating policy well, what exactly would that sound like if yo dictating policy how would it be different from what he was saying i want to make one important point. which is you made a point about where jim cramer and the

president agree on the fed it is very important for fed policy to look at where they disagree the president is out there predicting 3, 4, 5, 6, double digits, 10% gdp growth from his policies jimmy is saying it is slowing down if jimmy is right, then, yes, the fed is either on its way to going too far or maybe going too fast but if the president is right, then the fed is probably not gone far enough. >> let's talk about this we just heard double line capitalist jeffrey gundlach talking about the policies that president trump has espoused and the style with which he delivers this is this a situation where even he has some idiosyncratic personality things, crazy like a fox comes to mind, maybe, michael we throw it to you, is the president -- is jay powell, are they all a little bit crazy in their own way, and in any way, shape or form is jay powell the guy to blame for this or does the president have a case

here in terms of the overall scheme of fed policy >> you know, dom, i want to start by saying it is washington you know, you have to consider where we are everybody is a little bit crazy. i've known jay powell for years. he's patient he's thoughtful. he's deliberate. the one thing he's not is crazy. promise, hands down, nothing crazy about jay powell very thoughtful. look, if you look at the fed's predictions they use this dot plot going back to the end of 2016, rates are pretty much where they were forecasted to be when janet yellen was still chair, before president trump was the president of the united states the fed is on course i think that's probably going to continue if i'm going to -- i don't think -- i got to tell you, i can't imagine why a president of the united states is going to actually insert himself and comment on the federal reserve the independence of the fed is hugely important to our economy. and the president, in my opinion, should not be making the comments at all and should

stay out of the business. >> when he's picked, what, three of the four, and eventually four of the five or six of the seven fed governors, you didn't know this -- i don't know if you have a screen in front of you, i have a chart that shows how little the fed moved, relative to what has happened to the economy. what you have is you have an -- you put the bar chart up there, a full percentage point extra of gdp growth and was forecast by the fed two years ago. almost a full percentage point less than unemployment and the fed has moved its 2018 outlook by, drum roll, please, for all the drama, about a quarter point higher one extra basis point for a full percentage point of gdp. i don't think that's crazy i think that's prudent. >> could the truth lie between what president trump is saying and what cramer is saying in that the economy could be on decent footing, on strong footing, but we don't know -- we have not yet seen the full impact of the latest round of tariffs. we haven't seen that in the data, correct? we haven't seen that in

corporate earnings we don't know what the impact is what we have seen are drips and drabs of evidence that there is inflationary pressure on price those inflationary pressures, one could argue, are not organic to the strength of the economy they're self-inflicted inflationary pressures and should the fed be hiking into self-inflicted inflationary pressures by -- >> what is the difference, though what is the difference between organic and man made, so to speak. >> organic would imply -- no, but organic would imply that there is a healthy end market that the companies can pass on the costs to the consumer. if it is self-inflicted, like a shock, it is not the normal byproduct of a strong economy, there is a reluctance to pass that on. >> still have to lean against it. >> but the consumer here, michael, i want to speak to this, the consumer is right now paying higher prices for oil and

for gasoline by a product -- because of interest rates. by the way, because of some of the policies of the administration, sanctions on iran, that sort of thing, are we seeing this play out in a way that ultimately will have a real impact on consumer wallets >> you're talking about a lot of unknowns i think melissa's point is really important here. organic can continue on its own. the stimulus in these various points of stimulus are episodic. they happen and we see the result and we hope it is going to continue. i think we have to give greater gravitas to the organic. splitting the line between where jay powell may be and cramer may be and the president may be typically when we see monetary policy intervention, we look to see the results of the monetary policy intervention some 12 to 18 months down the road in the data the fed are making judgments looking at rear view data and have a 2% gdp forecast for 2019. so somewhere in here i do worry

that they may be getting ahead of themselves. the old line, bull markets don't die of old age somebody kills them and a lot of the time it is the fed the fed is trying to watch -- walk a very narrow line. i don't think they need to be buffetted by remarks from the president. >> the person who is least on a set course of any person who has run the fed before is jay powell the man is going to listen to the data, listen to the markets, he's a guy who hates these forecasts, but owe bide abidesm because they were already in existence. i think they do help but i think this guy is going to dance on his toes when it comes to monetary policy. >> great discussion. thank you. michael farr and our own steve liesman. and we will hear from a member of the fed, chicago fed president charles evans will be on "squawk box" tomorrow what does he think of the president's criticism? that interview is at 8:30 a.m. eastern time you have to watch that one melissa, a news aalert in the bond market right now. 30 year bonds up for auction

rick santelli tracking the action at the cme group in chicago. what is the demand pick, rick? >> well, i'll tell you what, dom, the stock market had a lot of volatility, interest rates are stubbornly sticky and finally i get to give an auction in a this auction demand, straight up 1:00 eastern an a. 3.344 is the dutch auction yield. that is the highest yield at an auction since july of 2014 and it was 15, 15 billion completing 74 billion in supply. everything about this auction was good below the offer side of the one issue market, lower yield, higher price, 2.42 bid to cover, best since january this year 64.4 indirect, best since january this year. 12.8 on indirect best since april of this year dealers only take 22.8 this is what an auction should look like. and i am sure that the concession built in wasn't enough for some people, they

didn't break that much in yield, they didn't see a big price increase bringing yield down i think maybe the stickiness is why some of these investors stepped in dom, back to you. >> thank you, rick santelli in chicago. one area of the market is getting hit extremely hard, recently, technology, the tech spider etf ticker xlk turning positive today after seeing its biggest one day decline yesterday in around seven years. 80% of tech stocks are already in correction territory at 10% pullback or more that's what some traders call it is the tech rwreck going to continue or time to buy? jana barden manages two funds. jana, did you buy the dip yesterday? >> you're making so much of this

tech wreck i think it is important to define technology and ubiquitous computing, long time cyclical trends, none of those things have changed overnight we believe in the secular growth story as many of them reside within the tech space and some within the new communications services space many have growth rates in excess of the market. melissa's point about organic growth i think is extremely important. as we are entering the earnings season, we will see companies that have growth and end markets that support organic growth and can withstand the increase input costs and can deliver on the earnings and profitability line more than others that are debt driven that don't have cash flow generation and don't have end market or geographic footprint to support it. >> you made the point about computing versus the communications services, what was once including technology, but the two of your funds have a large wading toward half of the f.a.n.g. if not more than that and yesterday may not have been the dip, but we have lost

leadership in this group this group has not made a high since june we lost this group back in june. how have you been viewing technology as that area of the market has been slumping >> that's a valid point, melissa. i will say that in our focus growth strategy, we own about 30 positions, we're underweight information technology space which is important majority of that underweight actually comes from the hardware equipment and service companies but we're overweight other areas of the market which showcases the fact that they're over ten different industries populating the two sectors that you talked about. information technology has struggled over the past couple of months, to your point it remains in the lead it is still one of only three sectors that is doing well i think it is important to, again, kind of drawback to the long term secular growth story

we received a report that showcased what the cio is expecting to spend in the information technology space in 2019 and so far the predictions are to have budgets increase midsingle digits the areas that they're particularly in tune with is, again, cloud computing, security, infrastructure all of those things are not going away i recognize that volatility is uncomfortable. but it is par for the course, particularly in the higher growth and higher beta areas of the market because they have done so well. >> jana, okay, you are bullish there is a price that every one of these transactions happens that going forward and rising interest rates plays into the valuation discussion you're a portfolio manager, you have to look at the valuations, are rising rates a big threat to technology in the valuations they are currently at? >> rising rates are an expense it is a tax. and one should consider a tipping point, which rates could have pressure on multiples

i am bullish on the stocks we own. we own 30 fantastic companies. so we're bullish on the companies we own because we believe in those stories, we believe those stories are now going to end with us talking about rising rates we have been talking about rising rates for months if not years. and perhaps now investors really believe that those that can't withstand the financing costs and higher interest rate inputs into the model will obviously not do as well but, again, information technology sector as a whole, as right now expecting a top line growth of 10%, which is in excess of the market, but which is also expecting a growth of 7%, and subsequent to that, earnings growth is close to 20%. we're looking at earnings. earnings ultimately are the leading indicator to price and that's what we're watching as earnings continue to unfold. >> jana barton, thank you for

your insights. always helpful the yield on the ten year note is soaring as of late taking mortgage rates with it. the average rate for a 30 year fixed rate mortgage hitting levels not seen in eight years costs for home builders, they are headed higher. the home builders etf is down around 12% in a month. up next, we'll ask lennar's chairman about it. why bother mastering something?

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welcome back esther george speaking right now about rate hikes steve leiesman with the details. >> esther george saying further hikes might be required. there is a debate about the extent and speed of the hikes. she says the u.s. economy is, quote, performing well, adds that tariffs, strong dollar may hurt exports, but unemployment is well below the sustainable level. that's the kind of hawk talking right there. she calls the expansion mature, says inflation is remarkably stable she takes the remark the idea

that while unemployment is down, inflation has not risen as much as might otherwise be expected. >> thank you what kind of impact are higher rates and higher costs having on the home builders? diana olick joins us from miami's headquarters with lenard executive chairman stewart miller. >> it is a one-two punch for the builders and who better to talk about that than stewart miller you reported positive earnings last week, but weaker guidance why the weaker guidance? >> we have a very solid program that backs up wherever we are in the economy. at the end of the day, as we highlighted, it is the combination of both higher prices as you've been reporting on for quite some time and together with the acceleration with adjustment of interest rates that's a one-two punch higher prices mean higher down payments and high monthly

payments and high trer raer int rates accelerate that payment as well. >> do you believe what the fed is doing is right, continuing to increase interest rates the rate they are >> the fed has a tight rope to watch. we respect like many independents of the fed. would we like them to slow down the pace of course we would they have more data than we have but the economy has been strong. we know that the labor market is very tight and at the same time, the impact of interest rates rising, and especially at a very quick pace, is having a palpable impact on our customers and customers across the country. >> at the same time that you're having to pay more for materials because of tariffs, we know the price of lumber is coming down, we had recent chinese tariffs on items like granite, all the things that go into the homes, how is that increasing the costs and passing on to buyers as

well >> the cost side is a really complicating factor. you're right material costs have been going up lumber is coming down. at the same time labor costs are going up dramatically. there is a labor shortage across the country. and that, of course, exacerbates the price increases that in some part we have to pass on to our customer and it exacerbates what is the affordable housing crisis that we feel across the country right now. very hard to deliver affordable housing with costs going up. >> with all the costs, though, do you expect prices will have to fullback, srbl especially in major markets are people are paying higher taxs do you expect to see weakness in those markets that you're in >> you're seeing costs come down a little bit we have been preparing for some time, anticipating interest rates going up we have been figuring that the prices that will be able to charge for homes and the amount that we'll be able to pass on those costs would moderate

that's why we have been so focused on innovating within our business, getting our cost structure down, moderating sgna, moderating production costs and focusing on the land component. >> all the data that you're seeing behind you. now, your stock down 33% year to date the builders in general down 25%. is that an overreaction in the markets? >> we certainly believe it is on overreaction not one that we didn't anticipate as well because the stock market does react to the home builders when interest rates start going up. but at the same time, it is unhinged from the fundamentals that drive our business. number one we're well situated with size and scale and local markets. but number two, don't forget the production deficit that has defined the housing market we have been underproducing normalized levels of housing for the past ten years that means a lot of pent up demand that will come to market, even while prices are going up and interest rates are finding their way to normalization.

>> what about buyers hitting that wall, that affordability wall, you're not on the entry level. do you expect to pullback prices at all given everything you just said you have to pass on to buyers >> that's why there is an active discourse right now. the fact of the matter is you have a cerealing wiiling with affordability and prices and costs going up and that's going to have to reconcile itself. with labor shortage comes wage increases. what we're seeing is number one, people are getting paid more number two, at our welcome home centers, sales centers, we're seeing more and more dual income families come back to the market that means more people are participating in getting back into the labor force and that enables them to buy homes. >> stewart, executive chairman of lennar, thank you for joining us >> double line capital founder jeffrey gundlach with me, just minutes ago, weighing in on the market sell-off, saying rising rates are a big part of this week's drop, adding it is hard for u.s. stocks to rise as

global stocks fall finally, he said he did not believe the fed was being too hawkish. the question is, is he right bring in mike labela for hughes investors and karen cavanagh at voya what about that, karen is this all fed related? are there fed fears hitting stocks >> well, sure. there are some fed fears with that because of the pace of the rise in rates. but it is a good economy so therefore we are going to have higher rates and investors are going to have to get used to that i think investors are just -- right now they're trying to digest how this is going to affect earnings. at the end of the day, it is always earnings that drive the markets. and so we're right in between earnings season, we're starting earnings season for quarter three. and we're going to take the investors want to see what the companies are going to be saying about how these higher rates impact the earnings. that's why we see this part of the market where we see

unsettled, investor panic, selling out, but it is really -- once we start to see earnings, i think investors will settle down a bit. >> want to weigh in on that? what they're seeing, they don't really like, right ppg, flor, fastenall >> this feels very different than the sell-off in february did. this is not a panic. this is more of a rotation and the reason you see that, if you look at the dispersion between the best and worst sectors in february, it was really narrow between things like technology, utilities you look at it now, it is much wider. that makes it seem like investors are starting to re-evaluate. investors are becoming overconfident. that's led them to take bigger risks than they should have. look at ipos this year, we have seen 83% of them come out with

negative eps, the highest rate of negative ipos since the late 1990s. the idea is people are starting to re-evaluate that growth trade and looking elsewhere. >> one of the things that we don't have this time around that we did back then as well is all of the volatility related shenanigans, all of the short etfs, long etfs, ultra levered ones maybe that's the reason why you're seeing these isolated, more fundamentally valuation driven arguments about technology in consumer services as well. >> why don't you weigh in on that this is more fundamentally driven than that, the vix product blowup we had at the beginning of the year. you could make the argument that this is more concerning because it is happening for all of the reasons that investors wouldn't want it to >> right bur that i think the investors are not confident enough i think that they think that the tax cuts are one and done or a sugar high, and they're not really seeing the fundamental

growth in the economy. so i think they're going to be pleasantly surprised when they hear what is going on in earnings sure, we have had some companies say that they're going to be impacted by rising rates and by the tariffs in what is going on with china but i think overall, companies are still making a lot of money and even though the rise in the earnings growth rate may slow down somewhat, still see something very healthy earnings. i would say investors are not confident enough, but when we see earnings season play out, i bet you they will have that confidence and realize that the economy is good, and earnings are good, so this sell-off here is just a normal correction and higher rates, higher growth and that's just par for the course. >> you're talking about the rotation with the uncertainties, because as much as i want to believe karen and thinking the economy is actually much better, we'll get through earnings season, feel a lot better, we don't know how the tariffs will impact. we still don't have an idea because the latest round of tariffs haven't fully hit the companies yet. there is uncertainty is this a rotation you want to

continue to buy into do you want to go into the more value oriented names >> this is something that will take time to fully play out. there was a sharp reaction yesterday, this is-like likely o play out in the coming months. you think about the underlying assumptions with the tariffs now, people are focused too much on, we can't inflict as much damage on china as they could on us we have that underlying current account deficit. they're not thinking about the impact of global growth. this year, china was over 30% of global gdp that will slow down u.s. growth. >> getting back to the question of rotation, is this a rotation you want to buy into, do you rotate away from growth, away from technology, and go into things like utilities and staples? >> that's right. now is the time to start buying, stay in equities, start building up positions in the things under this year, like value. >> thank you coming up, the latest on the massive damage from hurricane michael. live reports coming up from

florida. and we are all over the markets as you might expect. the dow falling almost 400 points and recovering into positive territory a volatile day dow is right now down 150. coming up, mark yusko, ceo morgan creek capital he'll join us after the break. don't awhe.gonyer at fidelity, our online u.s. equity trades are just $4.95. so no matter what you trade, or where you trade, you'll only pay $4.95.

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the dow coming back from a 400 point drop we're down by 161 points or .6%. the s&p 500 pairing its losses in half. it is now down by almost 20 or .75%. communications and technology are the leading sectors. let's head to sue her eera for cnbc news update. >> the senate judiciary committee unanimously passing a bill to make lynching a federal crime. about 200 attempts by congress since reconstruction to pass anti-lynching legislation have failed california's senator kamala harris is one of the bill's lead

sponsors. >> with this bill, we have a chance to speak the truth about our past, by acknowledging that these lynchings were crimes, these were crimes that were committed against innocent people, these are crimes that should have been prosecuted, there are victims and their families that should have received justice and did not >> washington state supreme court ruling that the death penalty violates its constitution eight people now on death row will have their sentences converted to life in prison. singapore airlines launching the world's longest commercial flight, a 19-hour, nonstop route from singapore to new jersey the plane will carry passengers on the 10,400 mile journey the plane is scheduled to land at newark liberty international airport tomorrow morning with a bunch of jet lagged passengers back to you. >> you got to hope the food is good on the flight that long. >> one would think so. one would think so

i hear good things about singapore airlines, so there you go. >> i'll have to try it out >> routinely rated one of the best if not the best. >> scott is a connoisseur. thank you very much, sue. hurricane michael is hitting florida as the third most powerful hurricane to ever hit the continental united states. rick scott saying it did, quote, unimaginable destruction as you're seeing there. courtney reagan joining us live from panama city in florida with the latest >> reporter: communications might be your leading sector here today, wow is it lagging down here. look at what used to be a t-mobile store check it out just completely demolished insulation hanging, no roof. you can see the billboard of what is left of it through the roof of the t-mobile ironically, t-mobile is one of the services that is kind of working down here. at&t as well verizon is not working at all. this destruction is really just a microcosm of what is happening here this is not rare up and down 23rd street, we're

seeing this. and panama city. right behind me there is a bank with blownout windows. it is going to take a long time for businesses to get up, running normally in this area. back over to you guys. >> thank you, courtney reagan with the latest on the florida situation down there. the dow is falling again this afternoon as you know, following yesterday's big sell-off but we have cut the losses our next guest says the hoards of money in passive investments could reverse this correction into a true bear market. joining us now is mark yusko, chief investment officer morgan creek capital management good to see you. been a while you think more selling is ahead? >> i do. i think the challenge you have with passive strategies is they're dumb i don't mean unintelligent they're rule-based they don't get to think. when the markets are going up, they buy when they start going down, they sell. >> i give you that

maybe that's why we had, you know, a stronger sell-off than i think many expected yesterday and the days before that but things are pretty good once we get over the little tantrum we're having over the fed raising rates, won't we get back to normal >> well, i think we are going to go back to normal. i think the problem is normal is a long way down from here. we have been overvalued for a very long time we're at double normal valuations that means about a 550% drop you take margin debt, you look at the levered etfs, the speculative positions in futures, you know, the average investor is 103% invested long that's not a good place to be when things turn down. so i think there is a lot of downside to come i think people should get prepared for it. >> what is going to cause the -- i guess the scenario to not

reverse itself there is still, you have earnings season, i get that we have had, you know, some preannouncements that have been pretty negative. but i think people are pretty decent with the fact that rates are going up for the right reason, that's the argument. >> well, i think -- i think you have a couple of problems. one is 76% of earnings forecasts have been negative so far by people who have announced earnings that's not very good i think we have seen the earnings peak for this cycle with the tax reform basically just a windfall for companies back in q2 we had this coming for a while the economy had one shot of adrenaline but we're still, you know, slowing again, rising rates will restrict liquidity, lower lid w liquidity leads to lower growth. there never has been a time when

global trade declined that global profits didn't decline and global stocks didn't decline. if you lock arouok around the wi is time for the u.s. to catch down >> so, mark, dominic here, what are the big causes for concern now is the upcoming earnings season as we look at what you're focused on, is there anything that would give you more optimism or bit more pessimism about how corporate earnings are structured and move going forward? >> i think the biggest challenge with earnings is the -- i call it the mind the gap syndrome earnings before bad stuff, pro forma earnings people say we had nonreoccurring things that seemed to occur every quarter and don't count it well, it counts. cash is what counts. and so we need to keep an eye on cash flow businesses and that's getting tight.

we have had a long economic expansion, second longest in history, 110 months, that's going to come to an end at some point. maybe next year. so it is just a normal natural cycle and a progression and we got very highly overvalued stocks, we have seen a lot of those go down abruptly yesterday. and the real problem comes when people are forced to sell because of margin debt or leverage that's when things could get really ugly. >> mark, i think the last time we spoke, you're opening up your new crypto fund in august, i wanted to ask you about the action, bitcoin, we saw overnight. we saw a sell-off in response to the u.s. equity sell-off of about 8% if this wasn't the perfect use case for bitcoin, what is? isn't bitcoin supposed to be digital gold we saw rise in gold to the highest levels that we have seen in months, and yet nothing for bitcoin. >> the bitcoin is an interesting thing. i'm wearing my bitcoin gold equivalence tie today.

the funny thing is, people look at the short-term price of bitcoin and they're focused, i think, on the wrong thing. the value of bitcoin as either digital gold, and ultimately as a global currency, is really measured by the network value. the network very quickly but, look, people do get nervous about liquidity panics and if you look at the holders of bitcoin, there is a whole bunch of people that bought it at the wrong time last december, when prices were much higher than the network value. and those weak hands are folding. we think this is a great time to buy it, well below the network value. my mantra is buy what's on sale. buy things under priced, like bitcoin, and other cryptocurrencies, 11 or 12 cryptocurrencies and then i made a joke with some stuff i said to you guys, that, you keto diet is stuff i'm trying to get ready for a

half marathon, someone challenged me to, and i think it is all about carbs >> bitcoin or u.s. stocks right now? >> i think over the next couple of years bitcoin will dramatically outperform u.s. stocks >> in the near term, mark, i know you certainly are negative, how far -- how much further do stocks have to go down, do you think? >> fair value is down about 40 or 50% that doesn't mean we have to go to fair value. but if interest rates keep normalizing, if liquidity keeps falling, if earnings don't -- if earnings go to write think they're going to go, lower, i think we're going to have a meaningful correction. >> that is one hell of a correction 40 to 50%. that's crisis stuff. you're a highly respected stock picker i know you have won some stock picking contests over the years that i've followed but 40% to 50% nowhere near a recession, are we

>> i'm going to argue that, right? i think recession will happen kind of first quarter, second quarter next year. i think the market always anticipates that i think things are playing out now just like they did in 2000, 2001, 2002 look at 2000, it was really the last quarter where stock markets started to go down, fell 9%. the recession hit first quarter 2001 we fell 12% in 2001. the big down year was 2002 i think that will play out again this way a three-year cycle, just going to be painful for a while to adjust this overvaluation. >> are you short in your portfolio? it sounds like that could be the easiest trade in the world to be short the u.s. equity market here, into a recession, first half of next year. >> we love things like hdge, a net short etf. our long short fund is up 10% this year and flat over the last couple of days because the shorts are really working. we really like hedge strategies and, look, people buy what they

wish they would have bought and sell what they are about to need people have been selling hedge funds, you know, last couple of years. hedge funds will outperform dramatically people should get hedged >> i'm still struggling. 40% to 50% downside as fair value, let's say it even moves in that way. what is the kind of -- i guess how does it play out i don't understand how the play by play happens where you can get a pullback of that kind of variety in this kind of a market with what scott said, a strong or fairly strong economic backdrop >> well, is the economy really strong, right? we had one good quarter. we have been sub 2% for six years. forecasts are that gdp is going to be lower than expectations in q 3, even lower in q 4 if you look at future economic growth, it always approximates working age population growth and productivity both of those are sub 1%

demographics are bad debt is bad. we're on the border back of deflation and disinflation so all of those things line up to just a slow and steady movement back down the only thing keeping stock prices high was low interest rates. you could discount future cash flow of the growth stocks at the low interest rates, well, now that changes and that's why i think you've seen the growth stocks get hammered harder and you were talking earlier, great time to rotate into value. value is underperform growth more than anytime since 2000 so interesting time to buy value. the next decade stocks were minus 1.9%, compounded per year for 10 years value stocks were actually up over that decade >> provocative thoughts to say the least. >> thanks, guys. >> we'll talk to you soon. >> got to go back to his bunker now. >> yeah. something along those lines. let's talk about the huge market sell-off over the past week. maybe has more room to go

according to mark yusko but earnings season hasn't started yet. we're looking ahead here and the russell 2000 really getting hit hard during this latest down leg. closer look at that slide in small caps next coming up on "power lunch."

i don't know what's going on. i've done all sorts of research, read earnings reports, looked at chart patterns. i've even built my own historic trading model. and you're still not sure if you want to make the trade?

exactly. sounds like a case of analysis paralysis. is there a cure? td ameritrade's trade desk. they can help gut check your strategies and answer all your toughest questions. sounds perfect. see, your stress level was here and i got you down to here, i've done my job. call for a strategy gut check with td ameritrade. ♪ the big bank's kick off earnings seasons tomorrow. joining us now is the ceo of galop capital with $25 billion in capital under management, important to note that the altman index is showing a high correlation with the s&p 500 and gdp. lawrence, great to have you with us great to see you. >> nice to see you, melissa. >> overall i would imagine it looks like a strong earnings season is shaping up, lawrence, but are you hearing from companies any sort of commentary of what they're expecting from the impact of tariffs?

>>. >> our data is the opposite of the negative tone that mark and some of the other guests have had. the economy, our portfolio companies are doing really, really well. this is the best quarter for revenue growth in the whole seven years we've had the index, second best quarter in terms of earnings keep in mind that's pretax earnings, so we don't look at any effect from the changes in the tax law, and the momentum seems strong the u.s. domestic economy is strong despite tariffs, despite interest rates. >> are you seeing any differentiations between sectors? are there perhaps some sectors that might be more impacted or trying to keep a tighter rein on cost control >> absolutely. we continue to see margin expansion in the technology area, primarily business services, mission critical software businesses, the industrial sectors had margin compression this month health care, when health care services have had margin

compression and a lot of cost problems for years this quarter, health care services are continuing their gradual improvement off their bottoms. the most striking information, i think, is on the consumer side despite gasoline preices being u 18%, the consumer is staying very, very strong. >> lawrence, i just want to call our viewers attention to the fact we are down about 230, 240 points in the dow jones industrial average, a leg lower in the last five minutes or so as we kind of put that into context, this has to be an opportunistic time for people out there who have money on the sidelines. talk about some of the trends you're seeing perhaps in the technology communications services because they are among some of the hardest hit and perhaps they could be some of those value-oriented picks giving what we've seen over the last couple of days? >> let's separate valuation from earnings growth. the earnings growth is coming from productivity enhancing businesses, productivity enhancing software and

technologies as we see continuing wage pressures -- and it's not just wages. it's fringe costs, too, and the tight labor market there's really increasing payback for improving productivity, and i think that the growth in productivity enhancing businesses and investments, particularly with favorable treatment of capital extendtures under current tax laws is a place we'll continue to see earnings growth. >> thank you so much for your time nice to see you as always. >> nice to see you, too. >> lawrence golub. we've got a market flash. >> nbc news reporting that the white house has reached a deal with turkey to release pastor andrew brunson who has been under house arrest since 2016 on terror allegations brunson had become a major point of contention between the united states and turkey and is one of the main reasons relations have broken down between the two countries in recent months the lira jumping against the

u.s. dollar and the turkish etf gaining about 4% seema thank you. the nasdaq the best performing index today we have seen a huge tech -- recently is tech not thbe pcee stla to be as interest rates rise "power lunch" is all over the markets. stay with us

i'm melissa lee. a very big second hour of "power lunch. out of control and the cause for the correction that's what the president's saying about the fed is he right? are they the root cause of all this volatility we've been seeing the faang stocks falling into correction territory as investors flee growth names. is it a buying opportunity we'll ask one analyst who upgraded facebook to buy is a debt bomb about to explode in the energy sector, that could send those stocks into a major tail spin we'll answer that. "power lunch" starts right now welcome to "power lunch," i'm dom chu. stocks in the red once again after yesterday's massive 800 point plus drop in the dow if we close lower, it would be the fifth time in six sessions the s&p would be down for a sixth straight day right now as you can see here the dow industrial is up by 165

points and the s&p down by about 20 tech has seen a bit of a comeback, the sector etf that tracks it on base for its best day since late september you have amd, adobe and micron among the leaders. energy is the worst performing sector as oil falls more than 2% pioneer natural resources and marathon are lagging in today's trade, and a down day for the financials as well that index is on pace to close lower into correction levels for more on today's moves let's bring in bob pisani, also rick santelli at the cme group in chicago. bob, we'll start with you. >> not clear how this is going to end, but it's very different than yesterday there have been attempts to buy the market several times today let's just take a look at the sector that's had the worst showing so far technology certainly nothing like it was yet, so look at the semiconductors, your advanced micros, your microns, intel,

texas instruments, horrible month overall. same with other groups, social media for example. there's this whole communications sector in the s&p now, google and facebook, and snap and twitter are all horrible the last few weeks. they're up on the day here stable tech means a little less stable defensive sectors here. consumer staples are a little weaker, your classic groups your kimberly-clarks, your clorox and procter & gamble there are two sectors, independent of this craziness with rates in the markets in general, you heard earlier and that's of course on banks. the cpi, excuse me, a little weaker than expected yields are down. banks generally are to the downside then of course we had that very strong 30 year auction rick gave it an a, kbe barnks moved down later on that news. the weekly inventory numbers on oil, buildup, bigger build than expected all the oil stocks dropped

around 11:00 eastern time. there's chevron leading to the downside about 2%. a lot of cross currents and honestly it's not clear how this is going to end up don't go away for that final hour. >> not going to. bob, thank you stock exchange. now to chicago and rick santelli who's at the cme. >> we're hovering near the lows of today in terms of yields, but those yields still aren't far from the high yield closes here we're sitting at 314, 315, down about 8 basis points from the high 323 close, only down a basis point or two on the day. it is starting to melt if you look at a chart from the 14th of september, what's really interesting here is many traders on the floor are playing their cards close to the vest with regard to yield. they say anything below 310 yield will get them potentially to lighten up, maybe start buying some. and the auction did go rather well on the long end that's an area they call the

pivot. on the hyg, the high yield barclays, now this is securities you can see the year-to-date chart that the spreads have widened. that's normal, but on the year-to-date chart there's nothing threatening there, and even the entire year is well below some of our nervous trade over the last several years, unlike some of the etfs that have gotten a little more excited than the actual securities markets themselves. and finally, the dollar index, yes, it's been flirting with down a half a cent, but it's still above 95 even here it would be a two-week low on a closing basis, and as you see on this chart, it's still holding up rather well, but below 95 traders do get nervous. dom, it's all yours. >> rick santelli in chicago, thanks so much for that. stocks down again, but we are off the worst levels of the day right now, but should investors be preparing for a correction here or will the earnings season fuel the bull market let's bring in brian belski,

barry james, president and portfolio manager at james investment research. we're going to take a bit of a top down approach here start with you brian does this market and economy support the bull market? >> yes here's why what happened yesterday and what really started last week was what we like to call textbook, small caps which had been leading started to roll over the big stocks that had been leading performance started to see performance dusbursion you had a bunch of quote unquote stocks that have been junkunion. then you saw traditional defensive areas like staples, utilities outperform now they're paying the piper again today. those stocks, special staples are in decline still from a fundamental because. did we get an opportunity to buy stocks i hate saying by the dip, but

from a fundamental perspective we've been in a news vacuum, and i think earnings, can and will save the day and i think people are too bearish with respect to earnings for the fourth quarter. >> barry, did yesterday present an opportunity for people to buy the dip? brian won't say it would you have bought the dip or did you buy the dip? >> did not did not. what we see is a long, long bull market, and actually two bull markets: one the fed created and the other was on the backs of the tax cuts, and we've had this mania in the tech sector, specifically the faangs, and we'll likely see what will be a transition, a rotation out of that particular area if we look at that, the internet type stock did 28% in the first nine months. the value stock did 4% there's this whole world that's just been left behind. this is part and parcel of that tech era into perhaps a transition into cheaper stocks. >> you say in your notes that bear markets do not happen when

everyone's looking out i would make the counter to that, nobody was looking for what's happening now we were in the cusp of dow 20,000 everything seemed great until rates popped between the move in rates and the profit warnings from the ppgs and other earnings from big dirty industrial companies that are selling into all sorts of different industries, there has been a surprising wake-up call perhaps. >> may i retort? >> please. >> everyone? no. >> you know what i meant. >> consensus view. >> no one was looking for a bear market. >> oh, no, no. if you read the majority of the pundit stuff, the majority of my competitors have doubted this bull market since march of '09 this year, if you scroll the news headlines, nine out of ten negative on the market we've got so many prognostications of an earnings peak in the first quarter, stock market peak in the first quarter. most of the strategists have been talking about bear market's coming >> the price targets have been across the street up to like

3,000, 3,100. >> we actually last time i was on with you in february, if you remember february '09 on "squawk box" we were having the same discussion on a day like this. >> how do you remember it? >> i remember it the network was negative the show was negative and i came out and said this is not the end of the bull market calmer heads will prevail. earnings remain positive let's not guilty be a bullet point type of an analyst or investor things look very good. >> all the things you cited were happening long before the past week or two weeks. i mean, small caps we lost small caps back in august, correct we lost faang stocks back in june it felt like the selloff was longer in coming. >> we didn't lose faang stocks back in june. >> it was at least four weeks. >> google, apple. >> at least four weeks from 52. >> netflix, all have been outperforming until the last two or three weeks facebook was the biggest issue from a balance sheet and

earnings perspective, these are still some of the strongest companies in the world yesterday, by the way, netflix was the poster child for the big pullback in tech, but amd was one of the worst performing stocks tiffany was the worst performing -- >> if i can interject, some of the other side of the story is insiders have been selling: that's a big difference than say earlier this year, they have been big selling we have a hiatus in buybacks because of the earnings season that has been a trillion dollars worth of supply being removed and the fed is actually tightening they're actually buying back or not, you know, reissuing the bonds. over 90% of the runup we had from '09 on is correlated to the fed quantitative easing. we now have tightening it doesn't mean the world's coming to an end: the economy's strong, and we still have upward momentum in the market >> we've got the very bullish and very bearish takes all in a half hour. >> i hope you remember this

years from now, i hope you remember this. >> i will. >> you know that i will. all three of you have known me for a long time. you know i will remember >> obviously our thanks to brian belski and barry james, very robust discussion. the nasdaq seeing its worst day since brexit in june of 16 the etf tracking the tech sector the and the faang stocks, facebook, amazon, apple and netflix, and alphabet lost $750 billion in market cap despite all of that, our next guest is upgrading facebook saying now is the time to buy that stock let's bring in scott kessler, the analyst at cfra. hey, scott. >> how are you >> this stock has been in the dog house, in the penalty box for a long time now. why is now the time to buy it? >> right, so context is really key here we actually were positive on facebook for four years, more

than that actually we went to neutral in june, june 27th, we actually downgraded the stock to hold. the stock since then, as everyone knows, has gone from from over 200 to about $150 when we upgraded yesterday, we really think a lot of the bad news is in the stock it trades at an out year multiple of around 19 times earnings that's on par with the s&p 500, but we have a lot more growth. there's a big balance sheet. look, i know about the risks, but the stock already has priced those in. >> what about the fact that -- facebook may have growth, but growth stocks are under assault. why would now be the time to buy one of them, which seeming you've got this big rotation going on into value from these high flying marquee names? >> you know what's interesting scott, i could whisper to you that facebook is a value name right now, and that's kind of key to our thesis to some ebs

ten -- extent the conversation earlier was about names like amazon and netflix, and there have been a lot of questions related to their valuations, but when you look at facebook, the questions really aren't around valuation at this point. it's really more around the fundamental story, how bad is revenue deceleration and margin compression going to be, and we think the company could actually surprise on the upside you have a lot of people leaning, we think, in the wrong direction ahead of earnings, and that's why we want positive. >> are you confident that you know you have a handle, scott, on what the company will have to spend in order to deal with security and fake news, et cetera? do you have a good handle on what the future u.s. regulation could be on facebook and its peers and what that might cost because that seems like that's the unknown. i feel like we're going to go into the conference call, and they're going to drop a bomb again about expenses which seems like it happens not

infrequently. >> in short to answer your question, no, i don't know how much they plan on spending it's going to be a lot, but you know what? there are few companies in the position that they are to spend considerably -- i'm talking about billions of dollars -- on this type of initiative. and you know what? they have already level set in terms of, you know, what they're expecting and what they think the street should be expecting, and it's our belief that they've set the bar extremely low. i doubt veryhighly that they'r going to take another cut at kind of reducing the, let's call it intermediate term outlook for their fundamentals at this point. i'm not saying they're going to be great, but i don't see a lot of let's say go forward disappoint i agree that there could be third-party legal and regulatory issues coming into the story even at this point, but we think that's largely priced into the stock. this is trading at a market

multiple with far more growth and a lot more levers to pull for growth, and even dare i say, using that value sheet to create value with a buyback. >> you are more realistic before we go on how much the stock can appreciate, even though you upgraded to buy, you do cut the price target to 181 from 189. >> our 12 month target price is $181, which in this market offers, we think, nice risk-adjusted potential upside i think in this environment, scott, as you pointed out, people looking at pure growth with revenue gains only are going to probably be underperforming. that's one of the reasons why surprisingly we think it makes sense to look at facebook right now. >> appreciate it see you soon scott kessler. our next guest says the president is wrong and that the fed is moving too slow he will defend his case next. on this down day, we take a look at some of the bright spots in the dow this month and whether they're a good buy going forward. and why lower oil prices and

rising rates could sllpe disaster for the oil industry. we are live in midland, texas straight ahead only half the story? at t. rowe price our experts go beyond the numbers to examine investment opportunities firsthand. like e-commerce spurring cardboard demand. the pursuit of allergy-free peanuts. and mobile payment reaching new markets. this is strategic investing. because your investments deserve the full story. t.rowe price.

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you can do things like change your settings, learn tips and tricks, troubleshoot, and even manage your account. finding your xfinity username or wifi password, restarting your equipment, or paying your bill is easier than ever with x1. x1 help. another reason to love x1. say "teach me more" into your voice remote to get started. welcome back to"power lunch. the recent slide in global markets being pegged to that sharp drop in the chinese yuan see ma mody is here with a look. >> as you know unlike the dollar, the chinese yuan is tightly controlled by its

central bank what we've seen is the yuan down about 10% bringing back memories of when china -- in august of 2015 that's a move that we saw that did result in global market -- global stock market volatility which does underscore how interconnected china's masrket i with the rest of the world a weaker yuan diminishing china's purchasing power that's a problem for big consumer giants that sell their product overseas one sector in focus, european luxury names, burberry, which is the parent of gucci, have all come under pressure this week. concerns that as the yuan falls, the price of their products go up for the chinese consumer, which is seen as a growth market washington keeping a very close eye on the chinese currency. the treasury will come out with its currency report next week, and the question is whether it will designate china as a currency manipulator back to you. thanks president trump attacking the fed for a second straight day for raising interest rates

he voiced his concerns earlier at the white house. >> we have interest rates going up at a clip that's much faster than certainly a lot of people, including myself, would have anticipated. i think the fed is out of control. i think what they're doing is wrong. under the obama administration, you had a lot of help because they had very little interest. when you talk about economies. our economy is far better than that, but we have actually -- we're paying interest, and they weren't. they were using funny money. but i think the fed is far too stringent, and they're making a mistake. >> is the president right about rates and the federal reserve? joining us on the cnbc news line is stephen roach great to have you with us. >> good to be with you. >> you think the pace of the fed is glacially slow and that there's mounting inflation risks. what are the primary drivers of those risks in your view >> two factors, melissa. global and domestic. in terms of the global factor,

supply chains have been a major force holding down global and u.s. inflation, and they're being unwound by tariffs on china, which will hit china's supply chains, and the revision to nafta will raise the price of north american vehicle costs through the labor content and minimum wage provision, so that's a big unwind there, and the domestic factor is a 30 year low in the unemployment rate is finally starting to give you wage pressures, which, by the way, will pose problems for earnings in an overvalued stock market. >> can you walk us through here how you view the inflationary pressures put on by the u.s. tariffs? we had a pretty heated discussion last hour about this very thing, whether or not it matters if this inflation is organic in that it's being created because there is sharp demand in the economy versus a

jolt, a man made southerly sort of inorganic jolt because of tariffs. those are costs that may not be able to be absorbed in the economy quite as well as organic inflation, which comes of a growing u.s. economy >> well, i cheated, melissa. i watched and i know that you're on the organic side, but i'm old enough to remember that in the 1970s when i was working at the fed, that was a -- that got the fed into trouble we tried to dismiss all the somewhat idiosyncratic risks to inflation back then, a special one-off or you would call them inorganic developments, and so we started stripping them out and created the first core cpi we then took out home ownership, youth cars we took out gold because we didn't like gold prices. we even took out children's toys

for reasons that escape me, and we ended up finally taking out about 80% of the cpi, and then one day arthur burns comes to work and says i think we have an inflation problem. so you've got to be careful on stripping things out. >> stephen, do you think the chinese have been selling treasuries do you think part of what we've seen as a result of retaliatory measures because of the tariffs and trade issues >> no, i don't, scott. i think what they're doing is they're just less eager to buy at auction, so the lack of aggressive incremental buying to match the type of aggressive funding that's required by this r r runaway budget deficit of the trump administration is going to create a lot of congestion going forward. >> what about playing games with the currency >> chinese have lots of tools. currency is one of them. they have fiscal tools they can stimulate infrastructure they're a developing economy they've got a huge reservoir of

saving and a big stash of foreign exchange reserves. they got plenty of options and the currency is one of them. >> stephen, it's dom, it's been suggested by president trump and perhaps others that the fact that our stock market is not down as much as china's means that we are winning the trade war. is that the right way to look at it >> no, it's not the right way to look at it this is not a question of who's getting hurt more or who's getting hurt less. we are vulnerable, i think, because an awful lot of our low-cost imports are being used to provide cheap goods for american consumers to make ends meet to the other point we need surplus savings from china to compensate for our inadequate savings that becomes very problematic as budget deficits expand so we both are at risk of losing here it's not one winner versus another. and by the way, we're certainly feeling some heat in the

so-called win that we're celebrating right now. >> how far behind do you think the fed is in in coping with what you say is -- it could be a big jump in inflation because of wage pressures and the impact of tariffs? i mean if jerome powell and the fed take the course of action that they have laid out so far as it has been laid out most recently, then would they be behind >> absolutely, melissa i mean, the best way to look at this, the fed is -- have to be forward looking. they have to set rates today with an eye toward where core inflation is going to be 12 to 18 months out. today the so-called forward-looking federal funds rate is identical to the back ward looking core inflation rate of 2.25 reported this morning. if that core rate because of supply chain disruptions and higher wages goes up towards 3%, that requires the fed not to be neutral but to be in a restrictive fashion, and that

could put upside funds rate in the 2 to 300 basis point range from present levels. >> we're going to leave it there. thanks so much for your time stephen roach. coming up, a look at some of the day's dow bright spots verizon, walmart, they're all popular this mthon are they safe havens in the selloff? we'll discuss next

welcome back to "power lunch. it is time for trading nation. the selloff continuing today as the dow drops another 200 points, but not all dow stocks are getting wrecked. verizon and walmart are two bright spots this month. so do you stick with these names? joined by craig johnson of piper jaffray, stacy gilbert with susquehanna. craig, obviously these are some defensive type stocks that are sort of living up to that reputation and even look worth buying right here? >> i think at these levels we got to recognize that portfolio managers have to do something. if they're going to take profits out of the fab five tech stocks, microsoft, apple, et cetera, they need to put money somewhere, so verizon is one of those names that you can step up and buy.

you've got a nice dividend yield, a constructive looking base on the charts, and fs one that's going to outperform on a relative basis maybe not absolute, that's one name we'd be buying in here. >> all right, stacy, among this bunch, any of them look attractive >> it's interesting. if we look at the options what's really seeing the uptick in bullish flow, it's been more walmart. this can be a defensive name, but this is also a company that's really kind of gotten its act together relative to some of its performance over the past year it's not surprising to see the uptick with the recent selloff and what the company has done. i would say of those names i would concentrate on walmart. >> all right, down a little bit today, but maybe going to weather these times a little better than others for more trading nation head to our website or follow us on twitter at trading nation. now over to sue herera >> hello, everyone here's what's happening at this hour at an oval office sea pollution bill signing, president trump praising the federal response to

hurricane michael, which devastated everything in its path when it hit the florida panhandle wednesday as a category 4 storm >> has gotten rave reviews the first responders, law enforcement, everybody's gotten rave reviews i just spoke with governor scott. they're very happy food is being now following the hurricane, being now brought in. we have unbelievable large amounts of water and food and everything that people can want. >> the president also welcoming kanye west to the white house saying the rapper has been a friend of his for a long time. in a ten-minute long speech p l filled with profanities, west claiming that many people believe in a person is black that person has to be a democratic. prince charles in london to tackle illegal wildlife trade. he told them it's heartbreaking that his children might not see

elephants, rhinos and tigers left in the wild that is the news update this hour i will send it back to you, dom. thanks very much, sue her a herera coming up on the show, we've got high debt and low credit ratings. that's what's lurking behind in the background in the energy sector right now as yields rise and stocks fall. is this a recipe for disaster in that sector? that's coming up next on "power lunch. and now the latest from tradin tradingnatio tradingnation.cnbc.com a bullish wedge consists of two converging trend lines, slanting down towards. conversely, a bearish wedge occurs within the down trend and consists of two converging lines pointed upwas.rd a breck of the lower trend line is considered a bearish signal

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a product of mastery. you can do things like change your settings, learn tips and tricks, troubleshoot, and even manage your account. finding your xfinity username or wifi password, restarting your equipment, or paying your bill is easier than ever with x1. x1 help. another reason to love x1. say "teach me more" into your voice remote to get started. the russell 2000 today down 10% from recent highs. bertha coombs joins us with more. >> the russell 2000 crashed through its 200 day.

that's long-term support some analysts at oppenheimers were watching that the russell 2000 often outperforms in the six to 12 months after but part of the drag we've been seeing on small caps, especially here at the nasdaq has come from biotech names. the nasdaq bio tech index hitting that all time high by august, down nearly 10% from that it's just coming over the last couple of weeks here in october, and some of the biggest russell and ibb losers month to date, biotech names, momenta pharma down, intercept down 18%, a lot of those with double-digit losses among the small cap winners it's more of a mixed bag. there is a pharma name in there, amag pharma up 12% here in the nasdaq a mix of consumer names and energy names, at least month to date, they've done pretty well as you guys have noted there are some concerns down the pike for some of those energy companies when it comes to debt.

back to you. >> let's pick up on that conversation another bad day for the oil market here. we are near the lows of the day: let's check in with jacky deangel deangelis. >> good afternoon to you, dom. it was a rough one for oil energy had been a bright spot because oil prices were rising again but today about a 3% decline. crude hitting a session low officially of 7089 retreating under that in the after hours session now. all over the place with stocks as well. ultimately the two are moving together there's three real reasons i want to highlight, stocks, the correlation is back. if the economy slows because of rates, demand for oil goes down t inventories a 6 million barrel build and production in the u.s. three opec monthly production up almost 200,000 barrels a day indicating there is some flexibility ahead of the iran deadline on november 4th supplies there, demand may not be strong enough to meet it. it's an equation that's taken crude oil down more than 4% in a

week. >> thank you very much markets down about 380 points is the dow right now so we're moving back lower. s&p 500 down about 1 2/3%. it's been so volatile today. >> i was saying to our producer sandy, the 2:00 is when funky things happen in the market. >> the fact that we saw green on the screen at one point late this morning, it seems like such a far cry from where we are just right now? >> yeah. buyers have tried to come in, to your point, and they've gotten run over nearly as fast as they've tried to come in looks like we're seeing a little bit of that. oil prices and rising rates putting a lot of pressure on oil producers. as you might imagine, and many of them are located in the permian. that's where brian sullivan is, joins us live from midland, texas, with more . >> reporter: is that a technical term, funky things happen? >> oh, come on, brian. >> i'll tell you what's funky, a boston red sox fan in the bronx.

>> that's a funky thing. boston this the bronx, and that's higher oil rates, or higher interest rates and lower oil prices that's another bad combination because this is an industry, guys, that industry executives will tell you is built on three things, rocks, people, and money. and money is particular debt this is an industry which is probably the most heavily indebted and so if interest rates continue to rise, this could be the oil and gas business, the industry that is hurt the most. according to moody's, got new data last night from them, 240 billion in oil and gas-related debt is coming mature in the next five years. 93 billion of that is just in the e and p, the exploration and production space alone not a lot this year. look at 2022, $68 billion. now, of course a lot of that stuff is locked in, but if you want to refi and rates are higher, not a great combination, especially if things continue to move down. last night we're at an event here, a big simmons piper

jaffray barbecue, about 600 industry insiders -- that's why we are here, by the way -- and we grabbed the head of research at piper jaffray, and i asked him how much interest rates matter to the oil and gas business >> companies are living with a much closer, i guess, proximity of cash flow, and there's been true capital allocation reform, so effectively, i think that was a germane argument two or three years ago when companies were living well outside of cash flow today coupled with pretty responsible balance sheets i don't think is nearly as alarming as it could have been. >> reporter: a couple years ago there was no free cash flow, not much anyway. now companies are getting a little bit smarter, but of course not just rates. costs are coming up as well. people, sand, whatever it is, costs are going up here's the good news, at 75 bucks a barrel or 70 bucks a barrel now, i guess, you still got a little free cash flow.

dividends are likely safe, and a lot of that debt we talked about is locked in but still, as you guys noted, there's some funky things happening in oil and gas stocks today. worst performer of all 11 groups. >> i feel like you're making fun of me, brian yeah, oake thanks see ya later. we were just noting that the dow, the nasdaq and the s&p 500 having making fresh record lows. it looks like it's been a downturn in health care and financials and on the dow specifically, we see a decline of jpmorgan, 2.6%. we've got boeing down by almost 2% as well we're seeing some pressure as we go into this final hour of trade. our next guest said he wouldn't be surprised if this was the start of a bigger correction let's bring in jim paulson how does the market feel to you right now? >> well, you know, i think the central problem, melissa, is that we have a 3.7% unemployment rate, and even modest growth,

even 2% real gdp growth is going to be enough to continue to aggravate cost pressures and price inflation, and keep rates probably trending higher and we'd probably be oakay with that if we were trading at 15 times earnings but not where we're trading yet today. i just think ultimately when you put enough pressure on the system with the rate structure, inflation structure, that eventually it breaks a little bit, and once it breaks, then you get people that find out they didn't get what they bargained for. you get, you know, a lot of selling. probably until this thing has to burn out now, and i'm looking, you know, near term here just for some show of real panic, a real move in gold, a real move in bond -- in the bond market, bond yields coming down. a move up in the dollar, things of that nature, and i've been kind of surprised that we haven't seen that already, but, you know, if this keeps up, we will probably pretty soon. >> i'm going to ask you, was

it -- what's the nursery, little miss muffett, sat on her tuffet. >> is the fed rate hawkish or slow or just right >> you know, i don't think they have much choice, melissa. i think they've had to raise rates here we've got really strong growth of late, and you just had the core cpi two months ago set the higher year-on-year growth rate of the recovery, pces at an eight year high, wages just set a new high a couple months ago the inflation expectations are close to four-year high and tip bonds. commodity prices are four-year high crude, wti just broke through $75. i don't think they had much choice but to continue to raise rates, so i don't -- did they cause this i think so, and i think the real thing, the next shoe to drop is that we're going to find out that higher rates, monetary

tightening, energy costs is going to lead to an economic slowdown, probably much more severe than what wall street was anticipating. >> so you agree with the president? you think the fed caused this? did i just hear you say that >> well, i think they had no choice i don't think they're not doing what they need to. i think they're doing the right thing. we need to moderate this recovery right now, scott if it's going to continue if we can moderate it, slow it down. >> dow 500 as we're having this conversation. >> i want to point this out, guys one of the drivers here, we are seeing, you mentioned jim, this idea of an absence of a flight to safety. we are seeing that now we are seeing yen gain some strength, the treasury yield now below 3.14%. it was pushing 3.25% a handful of days ago.

you've had pretty dramatic performance. you're going to see that again now with utility stocks taking off probably and gold is certainly looking better the one that's really a stickler is the bond yield sticking around that 3.15 it's off from maybe 10 basis points at most i wouldn't be surprised if this thing gets done. we'll break 3% again on the ten-year in a panic rush to bonds overall. i just think it seems too controlled in some regard the january selloff was similar until right at the very end for a very brief period, and there's too many, i think, too much sentiment, yet, scott that this is just a refreshing pause, a normal bull market correction. i think it may or -- it may be this but i don't think it can end when most people think it is when it does finally bottom out,

there will be a lot of calls for bear markets, maybe calls for recession, that type of thing, and we're maybe starting to get some seeds of that today, but i'm not sure we're there yet. >> financial and health care are down each by more than 2.5%. we want to bring in kenny pulcari. seemed like it happened turn of the dime practically at 2:00 what happened is this. >> we've been talking about this, i said it yesterday. i said it again today in my note it is all technical now. as far as i'm concerned the market is not paying attention to fundamentals, doesn't want to hear about it anymore. we've suffered technical damage on the nasdaq and now at the s&p. we tried it twice to hold it to the 200 day moving average on the s&p. the first time we rallied back the second time we tried it and failed it sets it up to want to test lower. it's almost a flush. you can feel that it's a flush right now, and the market are not paying any attention -- >> what's the test to the downside >> i think it's 2,700, which is

kind of this round number. if it doesn't hold 2,700, it's going to go back to, i think it's the -- i don't have the chart in front of me -- that it would be closer to 26, 25. after that you'll see -- i forget when it was, maybe march or maybe this time last year i have to look at the chart, but 27 for sure, and i think we're going to get there relatively quickly. it feels like certainly if the tone stays today, we're going to be there in another ten minutes, but if we don't hold 2,700, then you're going to the 26, 25ish, 2650 level. >> jim, are you sure you're not too dour on where we are oak this is a correction what are we growing at, 3.7%, earnings up close to 20% we've got only ten months of these corporate tax cuts under our belts, why is the sky all of a sudden falling >> well, first off, no, i'm not sure at all. i've been wrong enough over my career to realize i could be wrong again, and it's always difficult to keep your emotions

in check and try to stay with what you're really thinking in these emotional, you know, fast moving markets >> the margin calls are coming in fast and furious, and that's the market. >> right >> is down 650, at least the dow is that's what cramer's tweeting. >> i guess -- >> it's 245, here it goes. that was cramer's tweet four minutes ago. >> we're down 3% on financials and health care, guys. >> if you take a look at one measure of volume just as a proxy for the action that's happening right now, the spdr s&p 500, the ticker fty is the most liquidly traded etf out there, it is currently traded 155 million shares we've still got about an hour and 15 minutes to go before the close. on average over the last 90 days it trades around 67 million total in a full day, so kenny, let me throw this back out to you. is the volume pickup here worrisome as we head into that final hour of trading? >> no, so i think the volume -- it's not so much worrisome, i

think ing yo there's a lot of action. most of it's being driven by the algorithms, and once you break that rule set, once those technical levels are broken, the rule set just says to the algorith algorithms, sell stock to raise cash that's what you're getting we're down at 2715 when i came on five minutes ago we were at 2730. we're down another 15 points in three and a half minutes it's running on computer trust me, it's all algorithms. >> since we're talking about the charts, and kenny you're talking about the technical damage being done we have chief market strategist with bell curve trading. do you want to opine on what melissa said in the last 45 minutes or so? >> first of all, i think it's important to take a step back and put this in the right context. this was clearly a liquidity driven rally, the move off the march 2009 lows.

trillions of dollars of quantity ta tative easing now you have all these central banks beginning to unwind. at the same time you're starting to see some of the major u.s. equity indices get close to or reach their targets off the march 2009 lows, so you're beginning to see this convergence of fundamentals and technicals when i look at the carnage that happened yesterday and it has followed through into today, i think it's really naive to be dismissive of it i've heard people say it's rujut a big speed bump, another dip to buy. when you look at where we are in the cycle of monetary policy and how deep we are into these march 2009 trends, i think what you're looking at is something that's much more problematic than most people realize. >> what kind of damage is being done, bill, today? today and yesterday combined >> well, i think melissa, look, you know, there's an old saying

in the markets the markets take the stairs on the way up, the elevator on the way down if people began to get a whiff that these march 2009 rallies are beginning to roll, you're going to see a lot more down su downside i agree with kenny that the next stop is 2,700. we put out our note last night to tell our clients buy 2720 to 2,700, but that's just for a trade. you know, if this is the beginning of these 2009 rallies rolling over, you're going to take another 10% or 15% off this easily. >> jim, i want to go back to you. when you see the damage done today, plus yesterday, do you hope the fed is watching very carefully at what the markets are doing or do you hope that the fed is not >> well, i think the fed, i hope, is thinking more about what could they do to elongate this recovery, to maintain the recovery for the longest period

of time, and they have to take into consideration a full out, full on panic in the financial markets, but they should also take into consideration, look if we stabilize this before the close or stabilize it next week, you're still going to be left with wage inflation, cpi inflation, core pushing on the door of that can support three and a half cpi and 3 4% treasuries if we went downright now to 2,500 ish or something it would be a good buy point if the recovery -- >> forgive me for interrupting we are down. the dow is 699 at the low and

now less than five minutes later we are down 539. the s&p may be hanging around the lows of the day but it's a wild volatile trading. >> yeah. what you have got is an allocation program going on. put up the spy and you'll see all of a sudden about 15 to 18 minutes ago we had an we nor mus cell program come through. the spider which is the biggest in the world blew up the volume went right out of nowhere. you can see the volume spike up. we are not even done for the day. what they were doing, they put money into bonds, tlt, the volume in one of the most active treasury bonds exploded on the upside and increased on that why does it happen they didn't send a memo but

yields are going up. treasuries going up for the first time in years are starting to look for attractive against stocks as a source of the volatility you're not paying a lot of attention. >> we want to bring rick in sboo this discussion as well. rick, you gave an a grade to the 30 yearlong bond option that happened just at 1:00. we are now seeing long-term interest rates tick lower. is this kind of like that risk all mentality that we could be seeing now interest rates are moving lower. >> yes they are i don't want to go full board into the safety trade. it is an unusual to see moves after you complete total supply. we did have a little rally

but the important part and you zeroed in on it is the fact that we are finally starting to get that response signal that we have all become very accustomed to when stocks get iffy treasury yields, price should rally and yields should ease back. we are only ten basis points off the highest close in seven years. it is starting to accelerate a bit. i do think you hit on the main reason the 30 year auction went so well. most traitors realize that you don't have this type of flurry in stocks and boom, it ends. it never happens that way. it starts to eat at it like a pack man and starts to move back down i do think that it is very important and actually very optimistic for all investors on a domestic front that interest rates are behaving that way. they are working the way they should >> i want to alert you guy to

commentary he says close to $2 billion for sale ton bell it is just feeding on itself. you're down below 25,000 on the dow. they learned their lesson yesterday. 2 billion for the sale and ended on lows. anybody who is playing now wants to get out of the way. back out to you. as we go into the close now what sectors will you be watching which look the most vulnerable to you >> you know, look, this isn't a time really to parse it that way. i think it's kind of a much bigger wave. i think sure, people will try to hide out in health care and things like that i look at this as a much more of a macro statement of where we are with regard to monetary policy and where we are with regard to the march 2009 trends. i look at today and yesterday as

potentially, you know, don't want to be overly dramatic potentially the beginning of the end. >> i'm sorry >> very close. >> the nasdaq 100 reached the march 2009 target. >> there's one thing on making market calls and there's over levels of -- >> you know -- >> so why is that -- >> why is the beginning -- >> why does everything have to be -- >> the rally -- it has got to end at some point, right >> i'm not saying the beginning. >> i'm not -- >> no. >> so what are you saying? beginning of the end of what >> you're close. i think the nasdaq 100 have basically reached their target from our work off march 2009 i talked about that months ago i said the nasdaq should top out

around 7,500 the high has been 7,700. i think the dow was 28500. could it go 5 to 10% higher? yeah but in context it has gotten close to its objective the one that has the most juice in it -- >> what does that mean though the beginning of the end of bull market or what how far down are we going to go in your estimation >> if -- >> you may be right that the bull market may be showing signs of ending. but the beginning of the end of what >> that was my point the beginning of the end of the march 2009 move. as i said earlier, to pull back 10 to 15% to me, you know, that's not unreasonable at all >> i wasn't sure if you were suggesting we were going back to the lows of '08. >> no.

of the '09 move. >> i said the beginning of the end of the 2009 rally. it is one of the best and longest rallies we have had. to think it could begin to rollover, if that's unreasonable to you you haven't been in this game >> okay. all right. so that's your view out there. let's put a point in this. we are entering the most important hour of the trading day. we always call it that jim, you're with us right now. we know you're not exactly the bullish person you were on the markets before but in any way shape or form could these be considered buying opportunities for those without having to buy at the highs >> i am not sold that this is the start of the bare market yet. it could be. i don't think so primarily i don't see recession. it could change but right now i don't. i'm looking at this possibly if it gets bad enough and it scares people enough then i think it

could be a chance to buy for one more rally in this bull market is this like an 87 magnitude but character. it is 87 like correction that allowed another 2 to 3 years before the recession and although it didn't go that much higher than the 87 high by the end it was pretty good from the 87 crash we might have that opportunity that was an overheat created crash. the economy was going good when it happened which it is here so we maybe could refresh values and refresh sentiment that is gut checked sentiment and maybe there will be a great opportunity. i don't know if it's here today but i think if this keeps up maybe not too much distant future it might be time to get more aggressive future >> all right gentlemen thank you so much for joining us

jim, bill, rick was there. forgive me if i left anybody out. we want to bring in more members of the team. we are getting ready for the closing bell what a big hour. we were commenting here earlier during the show that 2:00 is when funny things go on. today the u.s. felt more we sill gent but not now in this final hour >> another big difference i would point out, the selling in stocks, one of the big reasons that's been blamed is it yields at multi-yield highs today we are getting another big selloff. it is causing buying of treasuries is that going to be some sort of

mitigating factor if interest vats were the big pain now treasuries are a buy so it's kind of a different pattern there, guys. >> yeah. one of the things we were talking about, we have been watching about it far while. dollars are moving down. it is starting to see a little more action. maybe it is different than it was yesterday. >> health care which was the leader in the third quarter selling off hard and so are financials it will be very interesting dynamic as we expect big bank earnings come friday >> yes two-thirds right now is in correction territory or worse. >> we haven't had a correction in so long all i'm trying to say is when stocks try to go down hard you have peopl