there really any way you see our ten-year of being immune to having a significant percentage of that move priced into our yields >> again, the federal reserve could use its balance sheet in order to do that and given the fundamental economic realities in which we're dealing with in this country, the fed should be using its balance sheet to offset what's happening in the market place. that's why we have the large balance sheet. that's why they should never have executed quantitative tightening >> excellent steve, it's just an absolute pleasure to discuss this topic with you and i would like to -- you know what, steve steve, we have a little bit more time so let's go in another direction here another direction. when i see 7-to-1 breach with regard to the chinese currency and i see even small discussions that we should maybe try to devalue or move into the fx intervention game, that seems like a huge mistake to me. your thought >> again, currency intervention never has worked for us. the reality of the situation is, we are the reserve currency. and we have to treat our

currency with benign neglect in order to function as the reserve currency properly. and this is something we really have to take seriously in this particular environment trump can say whatever he wants politically. mnuchin can say whatever he wants politically, but getting into intervention has always been a failed tool it's never worked. and the concept that the federal reserve would cause it not to work by sterilizing is probably incorrect. it's not going to work in and of itself because nobody is big enough in that market to really drive the size of that market enough to have a noticeable impact >> excellent steve, glad to get your thoughts on that. we'll go back to jon fortt and the gang thank you, steve >> pleasure. >> good monday morning welcome to "squawk alley." i'm jon fortt with morgan brennan and david faber live from post 9 live at the new york stock exchange carl has the morning off and we have to begin with this sell-off stocks are falling across the globe, as china devalues its currency and trade tensions

swell. tech names are among the hardest hit. apple, facebook, ibm, netflix, all down more than 3%. the dow is down 550 points at this hour. the s&p down more than 2%. bob pisani joins us here on set to break down today's action bob? >> so the thing all the traders are trying to figure out, is there another may that leads to a better outlook in june so remember what happened in may? we had new tariffs put on, 10% to 25% china retaliated we had the huawei ban come in. we had a little conflict with mexico, as well. but the bottom line is we dropped about 6% the s&p is eerily similar to what's happening in the beginning of august. oil dropped 15 or 16% for the whole month. bond yields hit the lowest since 2017 we were at 2.1% in may that seems like a nostalgic number considering where we are, but this is eerily similar i think the concern the market has is that this may be a different pattern at this time

number one, there's no g-20 meeting to ride to our rescue immediately. everyone kept believing there was a g-20 meeting and it did happen at the end of june. but the other problem is, just this move with the currency today suggests china might be gearing for something that's a little more long-term. and so the overall sentiment doesn't seem as supportive for the idea that maybe we'll get some imminent deal down the road >> are we running out of head fakes? we get a tweet maybe things aren't that bad with china and there's hope for things moving around we seem to be getting dug into a situation where even the president is saying, they're going to want to wait this one out and not do a deal immediately. and meanwhile, it's not like things are necessarily just holding steady there's this fear that it could be getting worse >> and it doesn't come at a good time for the markets just last week, we were heading towards 18 times forward earnings that's a very high multiple. if you're getting low or no growth and the consumer in the u.s. might be under a little pressure, you're not going to

hold an 18 multiple. that's what the market is saying we've got pressure across the board. and it's not just china related or momentum stocks or it's semiconductor names. you've got broad parts of the market that are still pretty extensive. even consumer staple names for example, and not just industrial names. i know you cover all of that very well. so we're breaking some patterns, if you look at the ruffssell 200 small caps, domestic focused, below its 200-day moving average, the dow transport, below its 200-day moving average. that's not a good sign for the overall markets. then look at other things that's out there. people say, focus on domestic oriented if the consumer weakens a little bit because of global trade wars, that's a problem discounters, for example, they've been great all year. everybody says, let's buy t.j. maxx or ross stores or walmart they're domestic focussed and winning the retail battle in the u.s. they're all down here today. that's telling you something that you're not going to necessarily -- oh, let's just buy domestic, you know,

retailer >> now that you've got these tariffs potentially across the board, they potentially get hit, t too, with narrow margins i understand why apple is down it's always connected to china but look at tech, even just tech alone, facebook, intel, netflix, ibm, all being particularly hard hit. why? >> and you look at the momentum names. the f.a.a.n.g. names, there's not a lot of momentum behind a lot of these f.a.a.n.g. names. amazon was, what, $2,000 was it two weeks, it was at $1,700 and change. look, $1,777, that was $2,000 a few weeks ago. that's been essentially strait down all of these names have been essentially straight down. the market is taking the multiple down. that's what i'm trying to get at, slowly but shulurely. they're not all sitting around saying, this is going to benefit. >> but we see days like this, there's a flush, a reaction broadly speak and people come back and take a look at the individual situations. you remember walmart, last week

we had simon on, bill simon who ran walmart u.s., talked about the minimal impact of another $30 billion in tariffs for that company. don't you believe that there are going to be -- and then with the ten-year at 1.76 and the dividend yields -- >> i think the market believes there's a lot more than just these knock-on effects, i think they're now worried about additional measures that could be taken that this could get a lot worse. so if you just run a theoretical numbers basis, maybe they're fine the market is telling you that other things might be happening here that couldn't get a lot worse. >> the consumer doesn't look to be under that much stress right now. >> no, you could walk in, but all of a sudden, any of these global companies anywhere in china you could walk in and suddenly have a problem. everybody says china is retaliating. i don't know what anybody is talking about here just allowing their currency to depreciate and not doing anything is a pretty passive means of retaliation, i would say. you could walk into any store in china and suddenly say there's a health problem here and start messing with a lot of people's

supply chains very, very quickly. this could get a lot worse, very easily and what i'm concerned about is the goodwill that everyone thought was going to be there seems to be evaporating a little bit. >> and you've got -- there's nothing that's going to immediately change that sentiment. i don't -- if you say, what would i get to stop this decline today? you can say, well, some kind of agreement that there's some truce that goes on but what does the truce entail where do we go what's the agreement that we have the truce on? that we won't do anything else the united states has already said, a truce is not good enough for us we've said, we want specific changes in the laws. are we going to back off on that i don't know everyone has sort of backed themselves into a corner at this point. so you've got these momentum names that are running out of momentum, frankly, for the moment and i'm not sure how much further you can push the market. remember, we were at historic highs two weeks ago. so maybe you can resolve a truce some way for the rest of the year, but it calls into question where the -- what multiple is right for the market

certainly, 17.5 times forward earnings where we were last week is not the right multiple when you're dealing with these kinds of uncertainties >> so if we're settling in for a much longer term situation, we'll call it, between the u.s. and china, and a truce is not going to be in the card, then how does this shake out for the markets, longer term and how much of that really hinges on what happens with currency >> a lot hinges on the currency. i think the problem is, the whole market has lifted this year you'd be hard-pressed, other than a small group of retailers, perhaps, the department stores have gotten killed, to say, here's a piece of the market where we can rotate into that's very easy for us to go ahead and do because even consumer staple stocks have done really well this year. there's a whole bunch of them that were essentially at new highs. so the rotation part, we can say, boeing's down, but now we're going to rotate to fill in the blank is a hard one if you assume the global economy is going to be notably lower. it's just hard because the prices have been high.

so utilities have held up really well what are you going to -- you know how small utilities are it's 2% of the s&p reits are 3% of the s&p. energy is 4% of the s&p. it's really hard to make a difference when you're dealing with companies that are defensive that have done all right and there's not a lot of room to rotate that's what i'm concerned about. you've got to find new stocks to move into that's pretty easy and it's hard to make that valuation. >> bob, stick around apple one of the stocks feeling the pain the most this morning the worst performer in the dow today, now back in correction territory. bernstein's toni sacconaghi, the top-ranked sell-sider on wall street joins us on the phone line now toni, good morning >> good morning, jon >> the question over the weekend seemed to be, what's china going to do to respond to this tariff threat so now we see this devaluation in the yuan. let's use iphones as a lens to understand this. what are the valuations you see for iphone sales in china on the

back half of the year on this weaker currency, and then exports from china, given these tariffs? >> sure. so, look, i think the export issue is more likely here and now, which is, if a 10% tariff does, indeed, occur on september 1, apple has two choices one, do you pass along the tariff in the form of a price hike or do you eat it or ultimately, some combination of both. if you don't pass along the price increase and apple effectively eats it, it's up to an 80% earnings hit. and perhaps equally importantly, company gross margins go down about 150 basis points and that's a figure that investors care a lot about if you do pass along the price increases, then you're gauging, well, are consumer going to buy less phones.

and the answer is "yes," and the question is, how much less and the break-even on that math is, if they buy roughly 20% less phones in the u.s., that's probably the equivalent of apple eating the price increase itself and so that's a tactical decision that apple needs to make now, in the first part of your question, what happens in china, that's the big unknown mainland china is about 13% of apple's revenues and so apple is a high-profile company. they could certainly be targeted uniquely or more broadly in terms of tariffed u.s. goods in china. so there's risk on both sides. you know, the potential tariff in the u.s and then as you were all talking about before, potential retribution from china >> tony, when you look at the dow, of the four worst-performing stocks today, three are tech names and names you cover. apple, ibm, also intel well, maybe you don't cover intel, but in terms of the

sell-off in these names, does it makes sense to you and how much worse do you think it could get, given the fact that there are so many unknowns and uncertainties out there? >> sure, well, in ibm's case, part of the sell off attributable to them is they had a webcast on friday and there was sort of mixed news out of that they provided some updated guidance for the current quarter that was below consensus, and so i think you have investors reacting to that generally, ibm has much less exposure to china. in fact, very limited exposure, only about 5% of its revenues are sold into china. moreover, it doesn't really import anything from china so typically in tech, ibm is a relative safe haven. i think on intel, the worry is that if you do have incremental tariffs, you know, that's going to effect pc demand, most notably notebook pcs, all of which are made in mainland china. so ultimately, you'll have the same kind of potential trade-off

here, which is prices are going to have to be passed along or absorbed by manufacturers, if prices are passed along, you're invariably going to have less demand, and that will impact intel. >> do want to note, major indices trying to stage a bit of a comeback the dow is down as much as 600 plus points. now right around 500 the s&p also trying to come back a bit, but still down nearly 2%. toni, i want to go back to apple and iphones for a moment this last quarter, tim cook on the call, the things he said seemed to suggest to me that price sensitivity really was an issue for apple, especially around the iphone and that the trade-in and the v.a.t. flexibility that apple experienced in china really helped them have such a good quarter. given that, do you think apple's more likely to absorb any

potential impact on either side that would raise the price of iphones, just to keep the momentum going >> well, i think apple will try and keep price increases to a minimum, but i think a 10% tariff is too hard to absorb uniquely i think one thing apple has from a timing perspective that is fortunate is that it will be releasing new iphones as it typically does at the end of september. so when you introduce new iphones, you have some flexibility in base price of the unit, but you also have flexibility in terms of how much storage you put in and what kind of pricing you attribute to that storage. so, fortunately, nan prices have been going down very steeply over the last 6 to 12 months, but for instance, if you look at the high-end iphones today, you can get them with 64 gig of nan storage. that's the base model.

if you get 256, it's an extra $150 if you get 512, it's an extra $350 so apple has an ability to potentially play with those configurations, perhaps ordinarily, those configurations would have gone up and price wouldn't have changed. perhaps that won't be the case in the new iphones you'll still have the same amount of nan at the same price or potentially higher prices, which is one way that apple may be able to sort of crawl back, you know, some of the potential impact from tariffs. >> interesting to note that timing there, tony does this up the stakes for the services expansion here? >> look, i mean, you know, that's the classic debate on apple, is, is this still a hardware-centric company, because about 75% of revenues today still come from hardware actually, closer to 80% and about 20% from services. and so that, i think, has been the investor debate over the

last couple of years, which is, are services big enough to make investors put less dependence on iphone and i think the answer is probably, no, not get. a year ago, apple was at its all-time high at about $230. and the rhetoric then was, this was becoming a services company. and apple has pricing power and an ability to influence consumers with products and price. and then we had a very weak iphone year and the stock went from 300 to $250 so the raw math, when 50 plus percent comes from iphone and 75 plus percent is still coming from hardware in general, services is certainly helping, but that ratio isn't going to change overnight >> tony, you know what i want to see -- >> my question >> -- a question of

profitability. >> -- on exactly what you're talking about is can apple grow services independent of iphone growth i mean, we did see apple music grow, but that was kind of replacing the itonne business. for me, that sort of doesn't count. but this year, we'll see them come out with appletv plus, we'll see apple arcade, and we're going to see this apple card we get to see to what extent they can meaningfully grow that services business without having huge growth in iphones and for me, that's going to be a lot more meat on the bone versus just what apple's been saying. >> agreed. >> i think one of the most encouraging things with apple and services is that they have been able to increase arpu or average revenue per user, per person in the installed base so this past quarter, for instance, services on an adjusted basis grew 18%. we think the installed base grew about 4% so the math would say, you're getting you know, 13, 14% more

spending per user in the installed base and that's happening in a couple of ways. one is, perhaps shockingly, less than half of the installed base is spending any money on services and so, apple said that the number of first-time services buyers increased double digits in the quarter now, obviously, these were probably less-affluent buyers so they're not spending as much, but they are extending the reach of services to people who hadn't purchased services before. that's point one and the second point, jon, as you noted, apple's been very good about coming out with new services advertising is a little-known, billion-dollar business that apple started a couple of years ago. apple music is now a multi-billion-dollar business. and then off series of new services being launched over the next couple of quarters, which could be material. and to its credit, i think apple recognizesthat installed base

growth is slowing and will likely continue to slow, but it's working very hard to bring in new users in the installed base that haven't bought services and to introduce new services all in the spirit of driving this average revenue per installed base user up >> toni sacconaghi, thanks for that view. apple down now just about 4% a note that the dow has clawed back more than 100 points, hanging right around that 500 mark, now down 510 points. well, china's devaluing of its currency is having a specific impact on certain companies. and dom chu has more on that part of the story. >> all right, so currency is a huge focus, david, not just because of the yuan side of the equation with china, but also relative to what it does to the u.s. dollar and its relative strength to other currencies, not just major developed one, like perhaps the sterling or the euro or canadian dollar or yen, but also against emerging market currencies as well with that being said, we take a look at three companies that

have mentioned about the currency impacts in their recent earnings calls, all ahead of what just happened with regard to the chinese devaluation or letting devalue of their ewian, their currency first of all, coca-cola in its q2 earnings release that we just saw a couple of week ago, they talked about the fact that earnings per share grew 4% despite a 9% currency headwind those currency headwinds could play a major role if the u.s. dollar were to strengthen even more than it is right now. so we're watching that they expect a 6% currency headwind going forward in the third quarter of this year not just coca-cola and consumer staples, also talking about other names with regard to industrials, like harley davidson, a lightning rod company with regard to trade, especially with china, the u.s., and everyone else. on its earnings call, it said that a drop in sales for street motorcycles was largely driven by unfavorable currency exchange rates, as well so it's seeing some of those impacts. could it get worse for harley davidson currency headwinds partially

offset by higher year over year pricing and sales. and one more to put it in perspective. for a larger industrial-type name, as well. we're talking about caterpillar on its earnings call, industrial sales declining by 1% with gains in most regions more than offset by currency-related impacts. that's going to be a big deal. declines in the asia pacific region reflected continued aggressive competitive pricing as well as unfavorable currency impacts. so as we talk about the rest of earnings season, morgan, david, jon, the idea here is if the u.s. dollars continues to have a relative gain versus everybody else out there, will there be a lot more talk about just how big of a headwind some of these currencies are these are just indicative of some of the calls that we've seen so far, but major companies within the s&p that get a lot of business from outside the u.s., morgan, get a lot of that currency headwind in their earnings conference calls. we'll send things back over to you. >> dom chu thanks for breaking that down for us blackstone's byron wean joins us

now on the phone amid this sell-off with the dow down 519 points right now, below that 26,000 mark. byron, you were on the show last week before president trump announced these tariffs. your take now that they're poised to go into effect on september 1st? >> well, i think the market was ahead of itself before all of this happened. and i think we're coming down to an equilibrium point i think ultimately there will be a trade deal with china. it may not take place before year end, but it will take place during some time during 2020 and so when the market hits the bottom here, it will be like december 24th of 2018, it will be a terrific buying opportunity. but we've got to resolve some of the issues that are causing some of the turmoil first >> what makes you think that you're going to see a trade deal in 2020? what, i guess, sort of green

shoots or evidence is out there that would lead you to believe that >> i think while china takes a very long view of these things, this is really hurting china more than [ inaudible ]. the $530 billion that we buy from them is 5% of their gdp what they buy from us is a small fraction of our gdp. i think china needs it economically and trump needs it politically and that's why i think ultimately there won't be a deal but it's a game of chicken right now and it's who cuevaves first and right now it doesn't look like the choonz ainese are abouo cave >> so byron, does that influence how you read this currency situation now? some people are wondering, is china trying to weaponize their currency here with letting it drop below 7, or is their economy just doing that much

worse than people might have thought that they've been pushed into this position which do you think it is >> well, i think what they're doing is they're using the currency to offset the fact that we're not buying so much from them by legislate it go above 7, they make their goods more attractive to buyers elsewhere in the world. and so they're trying to make up for the shortcomings from our lack of imports by having a cheap currency that becomes attractive to importers elsewhere in the world i think that's their intention so i don't think it's the currency manipulation, i think it's a deliberate currency policy to make their exports more attractive. >> are they doing it opportunistically, or because they're forced into it >> i don't know. i would say -- i would say both. they're forced into it, but it is an opportunity. they've always had the

currency -- they've kept the currency relatively stable and they know that if they push it above 7, their goods are going to be become very attractive to others so that's why they're doing it they're doing it to offset the lack of our buying, yeah go ahead >> yeah, byron, it's david you know, in markets like this, there are always risks that sort of come -- or that are magnified. i'm curious as to whether you see any here, not just obviously chinese/u.s. relations sort of spiraling out of control, but any moves? we've seen a pretty violent move in the treasury market, for example. have, in your opinion, general risks gone up given the market's moves? >> absolutely. i don't think there's any question about that, david you have donald trump acting very impetuously by slapping these tariffs on $300 billion worth of goods in reaction to mnuchin and lighthizer coming

back empty-handed from shanghai. so when you have the leaders taking a hostile attitude toward one another, almost any kind of fireworks can happen so i would say the risks to the market are very high, which is why the ten-year treasury is at 1.6. >> byron, "a," what does this do to inflation "b," are we essentially forcing with policy here are we essentially forcing the fed's hand come september to cut rates again? >> well, you know, i don't -- i hope not, is the answer, i guess to that question you know, i don't think that cutting of rates -- that's a side show compared to what's happening in trade they cut rates, the market went down, initially, and then cutting rates was probably the wrong thing to do at the time. but i don't think we should use

monetary policy to try to put out this fire. i think we ultimately have to end with the turbulence of the market by doing some kind of trade deal with china. i don't think monetary policy will solve the problem >> byron wien, thanks for joining us on the phone today. dow is down 539. s&p is down 60 points right now. and pharma stocks among those moving to the downside meg terrell has more on that from headquarters. meg? >> they are moving downwards, health care stocks are actually holding up a little better than other sectors, down now about 1.3% within drug makers, biotechs, the ibb biotech down 2.3%. the bigger biotechs are all off a bit less than smaller companies, chuck see reflected in the performance of the xbi biotech, which is influenced more by those smaller company stocks than the ibb.

in big pharma, most holding up bigger bristol meyer, merck, johnson & johnson, abbvie, for those companies, earnings season have been pretty good, the exception is pfizer. it faced a sell-off last week after its deal with mylan and disappointing second quarter results. the company also said friday evening a clinical trial with partner glioco medmedics failed, guys health care stocks overall a bit more defensive, and they are also in the red. back over to you >> meg, thank you. casino stocks are also taking a hit. contessa brewer has the latest on that. >> china concerns definitely weighing on those macau-exposed casino stocks. and we're seeing the protests in hong kong dragging down share prices wynn is on pace for its worst day, down more than 6% could be the worst day of the year for that company. melco resorts off almost 5%. that's based in hong kong, but trades here in the united states las vegas sands, it is down now more than 3%, down 20% over the

last three months. and lastly, mgm, which relies less heavily on its china revenue, off 2% now. just a little explainer here they think because there's been such disruption in hong kong, it might actually be dissuading visits from hong kong to macau and then, of course, the currency concerns, the trade war impact on the vip segment, which we have already seen lagging and seen disappointing numbers coming in there. and let's look at the u.s.-based casinos. what you're seeing there is investors running away from the risk associated with casinos in general. some of these casinos are just finished m&a they may have higher leverage levels than what is palatable right now. you can see cesar's off a percent and a half penn down less than 1% now boyd gaming, which is a strong locals casino down 1.5%, and red rock resorts down 2% we will hear from caesars

tonight so we'll get a bigger picture of what these companies have to say and from wynn about what's happening overseas in mac macau. jon? >> contessa brewer, we look forward to getting to that fresh information. and for now, let's get to sue herrera who has a news update. >> good morning once again, everyone here's what's happening at this hour iranian foreign minister zarif blasting recent u.s. financial sanctions against him, calling the move a failure more diplomacy. it comes a day after iran announced that it had seized a foreign ship in the persian gulf, suspected of carrying smuggled fuel. a midnight explosion following a car crash outside a hospital in central cairo has left 20 people dead and 47 injured. the intensity of that blast raised fears of an attack, but egyptian officials said it was the result of a car accident secretary of state mike pompeo visiting the pacific island chain of micronesia and told his hosts that he would be better off partnering with the u.s. than china. this is the first time a

secretary of state has visited micronesia >> we know china seeks to engage and to influence this region, but i'm convinced that the people of the marshall islands, the people of palau, and the people of where we're sitting here today understand that having partners that are democratic, the united states, but australia, japan, the other pacific democracies are the best partnerships >> you are up to date. that's the news update this hour back downtown to you, jon. >> thank you, sue. social stocks taking a hit along with the broader market, not helped by the president's comments from earlier. julia boorstin has more from l.a. julia? >> reporter: jon, that's right social as well as video game stocks dropping on president trump calling on them to step up efforts to prevent mass shooting shootings. >> we must shine a light on the dark recesses of the internet and stop mass murders before they start the internet, likewise, is used

for human trafficking, illegal drug distribution, and so many other heinous crimes the perils of the internet and social media cannot be ignored and they will not be ignore. >> the president says he's directing the department of justice to work with social media companies to develop tools to identify shooters before they strike social stocks are down more than the dow and s&p, which are both down nearly 2% we see twitter down over 5%. facebook, off a bit more than 3% snap, 3.7. and alphabet parent company of youtube down nearly 3% now, trump also criticized video game makers, saying that we must stop the glorification of violence, including with gruesome and grisly video games. take 2 interactive shares is down about 5.5%, as are activision blizzard shares electronic arts shares down over

4% back over to you >> jew >> julia boorstin, thank you the european markets just closing a moment or two moments ago. >> hey, morgan, china allowing its currency to fall below 7 has implications for not just u.s. companies that has business there, but the european players as well. you can see european stocks down nearly 1.5 to 2% check out the moves that we're seeing the currency market the euro is actually stronger against the u.s. dollar right now. mark saying that a protracted trade war with a bigger knock on the u.s. economy will incentivize the fed to cut rates more aggressively than other major central banks like at ecb. the euro right now at 118. just putting those currency moves into perspective, over the past year, the euro has fallen about 3% against the u.s. dollar while the chinese yuan has fallen by a similar amount the pound, as you can see, down nearly 7% against the greenback. one sector under notable

pressure in europe today, luxury retail even though chinese sales for lvmh have held up relatively well alienain recent quarters, concern is that it will diminish purchasing power morgan, back to you. >> seema mody, thank you right across the screen, as worries of global growth take ahold of stocks, investors sending the u.s. ten-year treasury yield to its lowest in nearly three years with us now is alan ruskin, deutsche bank ag chief international strategist here at post 9 and alex rover, head of the u.s. strategies team alan, that chart that seema joust showed, showing the different currencies that have weakened against the dollar over the past year, would you expect that trend to continue given the fact that the dollar is the world's reserve currency and despite all of this talk about currency war and how the u.s. could step in to potentially

devalue the dollar, whether the u.s. would step in, given its role in the world as the reserve currency >> right now, i think we've got to concentrate on what's happening in front of us, really, with the trade war that's going to dominate all else and what you're seeing very clearly, the dollar is weakening against the yen in particular, the swiss franc as well, in terms of benefiting from safety concerns and the euro has done a little bit better that's partly due to fed expectations, but i think, also, just being on the sidelines is quite helpful. but then you start to roll back and get to the commodity currencies they're not doing great in terms of aussie, to a lesser degree, but aussie is being put in the bucket associated with the chinese economy. and emergency market carry currencies aren't doing well, and most obviously, anything that's very closely associated with china things like the korean yuan are really getting hammered. >> alex, we just talked about the ten-year treasury rate 1717

right now. are you surprised to see the move we have seen, this very dramatic move over the last couple oftrading sessions? and where do you think we'd go from here? >> yeah, actually, so we're down wing, about 30 basis points in the past week on tens. it's a really challenging time, i think for treasury markets, just because they're dealing with a lot of conflicting signals. you know, coming into the fmoc meeting, i think there was a lot of expectations for, you know, either a more aggressive ease on the part of the fed or some sort of signaling that something would follow so they didn't really get that coming out of there. the follow-up move by the president to initiate new tariffs on china, obviously, shocked the market that was sort of a 1-2 punch and now the retaliation. obviously, all things considered, there has been a massive sort of increase in market expectation for risk. and i think it's a particularly difficult time for treasury markets from the standpoint of seasonally, we're just at very

low market depth, as we sort of enter august we tend to lose market depth of about 15 to 20%, as we go from mid-summer into august through labor day. so not as many participants to absorb and at the same time, we've also had primary dealer inventories running near all-time highs. so they may be less active and intermediating than they normally would >> alan, byron wien just told us that he thinks a u.s./china trade deal happens in 2020 you agree? >> oh, tough one, really it doesn't look likely at this point in time. it seems like both sides are really digging in for the longer haul in a way in which i wouldn't have anticipated if you asked me the same question maybe a couple of months ago. so i think at this point in time, put it this way, i think we've got to play again with what's in front of us. and it still feels to me that we've got to work through the idea of tariffs being implemented at the beginning of september, and china pursuing

some tit for tat >> how much do politics matter, then, at this point? because if there were a deal in 2020, that presumably would help the president's re-election prospects. do you think the chinese are thinking about that? >> they may well be. you know, i think they may view president trump as something of a double-edged sword on the one hand, maybe he's weakened the u.s.' presence globally that would be one possibility from a chinese perspective on another hand, you know, clearly, he's raised additional tensions vis-a-vis china and they want a much smoother relationship going forward maybe they see alternatives there in 2021, for example that might be helpful >> do you think the threat of a currency war is a real one is it something that's concerning you right now >> i think it is, yeah i think the war -- you know, the idea of a war is maybe a set of language we could abstract from. but it does feel like you're getting into a situation where

china is pushing and using the currency as a weapon language they probably don't want to use. and it's evoking a response and could evoke a response from the united states. >> alex, what's the bond market telling us right now what is it signaling and i guess what do you see as the biggest risks? >> so i think the bond market is reacting to the news it's anticipating that hethey'r probably going to get more, an easier stance from the fed from what they've seen so far i think the bigger risk, as we sort of look out over the span of the next few months is that the market may not get exactly what it's looking for. right now, we're anticipating one more 25-basis point cut in september. and to the degree we either get, you know, more -- a larger response at the september meeting or further eases after that, you know, the fed has told us they're going to be very data dependent on that. and that, i think, is, you know,

the risk there is, domestically, the data have been, you know, reasonably good. in fact, we had two of the regional bank presidents object to the easing move last week we'll see whether or not that sort of persists but, you know, there's this tension, i think, between what we're actually seeing domestically, and what we're seeing in the global data. the global data, we're seeing the response in anticipation of more easing in the euro zone and in japan so there's definitely a dichotomy between, you know, the u.s. economy and what's going on sort of elsewhere in the dm markets. and that's something that keeps pressure on the dollar and on the rates markets. >> yeah, well, to that point, the entire yield curve in germany is negative. so how in the world can we get -- how can rates go appreciably higher here if that continues to be the case with some of our largest trading partners, whether it be germany or even japan? >> so i think the question there

is, how is the u.s. economy different than the german economy? you know, we have continued to see, you know, growth in the 2% area we continue to have, you know, pretty decent performance in the employment data that we saw last week so, you know, as long as we sort of, you know, have the economy sort of progressing at these sorts of levels, you know, that's outpacing sort of what we're seeing elsewhere you know, i think there is -- it does keep attention, you know, between where the dollar is and where rates are. and i think that's something we've seen, you know, for, for some time. and i think it's a theme that persists into the future >> alan, given the fact that we are seeing such notable moves, not only in markets here, but globally as well, do you see buying opportunities right now >> i think it's still too early. i think when you've seen in the past these tariff issues, we've had three different episodes in the past typically, u.s. equities have

fallen by about 5 to 10% this one looks a little bit more serious than the others. i think we've kind of gone another step further, like we've spoken about earlier, there's this tit for tat element that's now playing out. so i would say we're looking at potentially more substantial declines so let's see this play out it's a little too early, i think, for a buying opportunity. >> alan and alex, thank you for joining us today >> thank and now our aditi roy joins us from san francisco with a look at how chip stocks are moving today aditi? >> hi, jon chip stocks are having a tough day against the backdrop of tech being the worst-performing s&p sector right now it's down more than 7% over th week and the story is all around apple, leading the dow lower dragging nearly 60 points off. it is on pace for its worst day since may 13th tf international securities angst minh chi wow said tariffs won't trickle down to increase iphone prices for consumers, meaning apple is likely to

absorb the cost. he added, the negative impact on apple is limited and territory, because the profit from the service business is growing and non-chinese production locations will gradually increase. we're also seeing right across the board with the chip makers this morning, nvidia, amd, micron are all down there. you can see between almost 5% and 6% there the chip companies rely heavily on huawei, which uses the chips for smartphones and laptops, but had been blacklisted from the u.s., and that prevents u.s. companies to selling to the firm qualcomm is down just under 2% at the moment. back to you jon. >> yeah, a lot of pain in semis. thank you. now let's get to the cme rick santelli has got the santelli exchange. rick >> thanks, jon i can understand where all the ire is coming from let's be honest here, if we look at three charts, we can understand why the globe would be nervous first chart is a month of

ten-year note yields and how precipitous the drop has been. one of the main reasons is the precipitous drop in europe, whether you look at bound yields or guilt yields, wee see the same dynamics, the same basic patterns the only thing different is the scale. but let's take a step back now, i've discussed this with my guest today. we are a consumption-driven economy and most of the big economies in the globe are export economies we all know this intrinsically, but it makes a huge difference at the end of the day, many have said, we should look toward europe or allies with respect to trying to address the trade infractions that we have with regard to china. i wouldn't hold my breath, personally but what i would say is this that point of view really matters. you know, whether you're buying a house or a car, sometimes it's always best to pretend you're on the other side of the desk instead of being the house buyer, put yourself in the shoes of the house seller. there's a variety of dynamics

that change based on point of view when i take the point of view of china, and we've brought up all of these issues today, i just don't think we've brought them up in a big enough context or impact and i think the reason for that is quite simple. trump and politics let's all be quite frank here. whether from a global perspective or a domestic perspective, trump and his style and how he's going about these trade issues is not most entities' first choice, whether in the domestic media, the global media, the central banking community or in the political leadership across the globe. and that matters it seems as though many are sympathetic in the big picture, but saying things like, well, the chinese could wait until after the elections. and i'll give you a couple of reasons why i don't think that will be the case taiwan and hong kong, we know about all of those if china basically has a lot of family relationship issues that should not be underestimated and then throw in some quantitative issues we can measure. well, we can measure to an

extent, because all the measures that are exported to us are likely not accurate. huge amounts of growing debt in china, servicing the debt. all the issues regarding trade, the lifeblood. i've heard said on our channel today, well, even though the chinese have a very small impact on our economy, per se, based on tariff numbers, we represent maybe 5% of the economy. i would say it's much more look at the european car sectors. a lot of sectors that are hugely affected by global trade because they're export economies have an outsized influence so at the end of the day, here's the way i think it's going to end up and the reason it's ended up the way it is today. one word, hope we've all had this hope that a solution was right around the corner we now don't think it is but i'll tell you what i think is around the corner a very solid road map versus an actual signed, completely documented, is dotted, ts crossed agreement.

and don't underestimate the need for china to get this and the impetus on the u.s. election cycle for trump to have such a plan mo moregan, back to you >> rick santelli, thank you. we've got major averages down 2% or greater right now we've got signals from the bond market a big part of the story in today's sell-off as well. mike santoli is back with us at post 9 to explain that >> really picking up on a lot of those issues that rick was just citing right there i think it's good to get some context in terms of this bond move look at a five-year chart of the ten-year chart back into the zone we were trading in back in mid-2016. that was a dramatic pickup in yields from close to 20.5%, below that in july of 2015 and you see it trending higher and back on the left side of that chart, the vertical move, that's the 2016 election so that was when the world's attention kind of got diverted from low-growth and the risk of deflation to a reflationary

policy-type world. and that's what we've been living in for a while. so now it seems that this retreat means we're back in this mode as if feeling as if deflation and an economic downturn globally are the greater risks in terms of inflation skbroeand overheating. another piece of the puzzle is a global scarcity in yields. that shows you there isn't that much positive safe yield out there, despite the fact we keep issuing more treasury securities here to fund deficits. they're being soaked up by the rest of the world. i think it also pushes against the bond bubble idea for me, to be a bubble, there has to be a greed story attached to it. it has to be, i'm buying these because i think they're going up another 20 to 30%. it feels a lot of buyers of bonds have to buy them so that leads to the question, are they getting overbought or people sort of assuming that they're going to be safe for a long time at these levels. if you look at some of the flows into treasury etfs, it suggests

we might be on the lookout for something like that, where you get, it dwreelyields to a level people think it can do nothing but go down. >> history wise, when's the last time that we had a trade war and a slowdown kind of looming at the same time? >> i wouldn't -- i wouldn't be able to conjure a moment when it was exactly that, but you can go back to the late '80s, in japan, and in fact, you were dealing with similar issues. there was concerns about the economy, around the time of the '87 crash, as a matter of fact, in stocks, there was a lot of back and forth with the u.s. and japan on autos and it got to be some pretty heated rhetoric. i don't know that it really evaluated to this scale, though. >> in terms of the relationship or the correlation between bonds, between treasuries and equities right now, how would you categorize that? >> on one hand, the very low yields reflect this risk off, we don't want to take any chances with our money, which should

seem to sap away from interests and stocks, but they also just support valuations right now, today, the s&p 500 dividend yield is now back above the ten-year treasury yield. it's happened a new times in to cycle and it's always been a bit of a valuation cushion for stocks, eventually not immediately, but immediate shows you that you know if you look at the earnings yield of stocks, it seems like it should support you somewhere here it didn't help right away back in the fourth quarter. >> yeah. >> the markets can shoot in both directions nothing guaranteed in the moment >> mike santoli. thanks for joining us today. dom chu has a few names in the green. >> yes, okay, stocks are lower on the day, there are a handful of bigger names that are bucking that trend in positive territory in the green for now at least. we'll start with a check on the

winners on the u.s.-china trade negativity that's gold prices for one they are on the rise because of that perceived safety of gold. newmont mining is higher it's getting the benefit of those prices, that theme continues, though, with the gold miners ticker gdx which is near a three-year high as those gold prices continue to rise. let's not also forget, it is still earnings seasons, a big upside movers tied to earnings jacob's engineering, the construction and engineering services company posting better-than-expected profits in sales. it raised its full year guidance then there are shares of tyson foods, which are up 8 to 9% near the highs of the day so far. that's by the way a new record high for tyson the meat company posting better than expecting profits on sales that missed some forecast. but its full year forecast was better-than-expected higher costs for pork were stronger results for beef in its

prepared foods business. john, if you take a look at the overall picture, yes, it is decidedly red. there are individual stories out there that are making this green move and tyson and jacobs engineering and some of these other earnings movers are those stories. back over to you, john. >> great to have you picking those out for us thank you, dom mortgage rates dropping to a three-year low amid today's sell-off diana olick has that story. >> reporter: rates can move even lower, dipping towards the mid-3s take a look. we were at 3.70% on friday, according to mortgage news daily. we started the year over 4.5%. that's a pretty big savings, very roughly, it comes out to about a $150 less per month payment on a $300,000 loan it also means more people are eligible to refinance. how many mortgage holders could qualify for a refinance and save

at least three-quarters of a percentage point by doing so that's according to a tally by black knight now, the size of that population, however, is still very sensitive to even the slightest rate moves, because so many borrowers have already refinanced to those very record low rates. but it is always important to shop for your rates. about one-third of borrows do not show according to a new survey by fannie mae, strange, because the vast majority always shop for regular products they do comparison shopping. most say shopping for a mortgage is more complicated and they want to go with lippeders they know and trust -- lenders that they know and trust even if it means leaving money on the table. i won't give advice, i will say shop around especially as we are looking for as best rates as today. >> thank you, guys i have been picking up on the market that is not correlated to the drop in rates. the mortgage bond market plays a

role and how many of these banks priced these things. it hasn't backed up nearly as much as rates. you know, has the move in mortgage rates been as strong as mike seemed to be reflective, given this violent move down we've seen overall in interest rates? >> reporter: well, look, we only say that it's very loosely calibrated to the yield on the ten-year treasury. >> that said, if mortgage backed bonds create the rates so you have to have investors that want to invest. the lower their returns, the diminishing returns as rates go lower, the less they will want to invest in those bonds, that could put a floor on these rates and also lenders, they want refinance volumes. it's been very low lately. they need to see returns as well there is push back when you get to these levels, that's why we tone see them plunging the way we see the bond deals. >> thank you for breaking that down for us. joining us is former fed vice

chair alan blinder, thanks for joining us today given the fact that we are seeing this stark market sell-off right now your thoughts on this and i go es the read through that, that seems to be taking place in terms of how these tariffs could affect the economy and thus impacts the markets more greatly. >> well, let me stop by saying no one is claiming i anticipate the chinese would do this much less today but one of my fears for a long time as this trade war waxed and waned, was that someone -- and it turns out to be the chinese, but trump would like it to be the americans -- would resort to what we call competitive devaluations i get my currency cheaper, that makes your stuff more expensive. then the other country retaliates off you go this has been a fear of i say of mine, of lots of people forbe a

while and you know it's premature. it's day one of the second phase of this war. in fact, it's our, i don't know what hour it is or not even the day. we don't know where this is going. but it's worrisome >> but, you know, it's really lard to affect the dollario the isn't it, alan the fed conceivably could sterilize things do you believe we might actually respond by trying somehow to weaken the dollar? >> i do. the president and the secretary of treasury have almost said that >> right can they do it can they actually effectively do it in the market in your opinion? >> yes. >> we had guests earlier who pointed out the real difficulties of dock that in a meaningful way >> sure. i believe they can let me just say two things that are also on your side of the argument if you think that government intervention can devalue the

dollar by 25%, i think you're probably dreaming. it doesn't have that kind of power. those are not the kind of numbers we're talking about. but to devalue the dollar by a smaller amount by government intervention directly in the foreign exchange markets, i believe they k. and furthermore -- i believe they can. and furthermore, if the markets themselves become worried about it, they will start doing the work of the treasury if the treasury goes down that route for it getting hyperexcited as they do about stocks, bonds and everything else, including foreign exchange and the selling will start coming from private parties rather than from the u.s. treasury. >> so alan, layout the risks for us we were just talking a couple weeks ago, people saying that

rates should be lower. the feds should lower rates because other countries are doing it now we're talking about the dollar being devalued because other currencies are doing it. where do we end up if all that a happens? >> well, that's the fear that's what happens if a trade war devolves into a currency war. nobody wins from this so if country a devalues, china, then country b devalues, the united states, then pretty soon country c, the eu is on there defending themselves and other countries are doing the same the odd but obvious thing about a currency war is that it's only the relevant, the ratios that matter right? it's the yuan against the dollar, the euro against the yuan one holds the denominator. the other holds the enumerator it's possible for all countries

to get less valuable at the same time but they can try in a destructive currency war >> alan, i realize in many ways we are in uncharted territory right now. can we point to repeat history, where we have seen treasury step in and devalue the dollar? >> not many. there was an instance in the late '70s when the treasury in the carter administration was accused of that. it's not so clear that they actually want the debt kout outcome. this was sort of words out of the carter administration that got interpreted as advocating a soft dollar that kind of latching on to a few words happens relatively frequently. but it's very, very rare that the u.s. government actually gets behind it and says, yes, that's what we want to do.

>> alan blinder, thanks for joining us on the phone today. the dow is down, 25898 the s&p is also down 65. 2866 is your level there >> and stocks continuing to take a hit as you mention it is major indices, apple we talked a lot about it at the fining is down, continues to be more than 4% let's get to the half. >> all right john, thanks so much i'm scott walker front and center this hour, the trade war with china escalates, the s&p on pace for its sixth consecutive down day, the longest stretch since last october. welcome to the halftime report we are joined on the desk. the chief investment officer at boston private wealth is here and adam parker is back, the ceo of trivarian capital management. an ugly day is shaping up on wall street.