good morning, it is 11:00 a.m. at wework headquarters in new york city. it's 11:00 a.m. on wall street, and "squawk alley" is live ♪ we are family ♪ we are family, get up everybody and sing ♪ ♪ we are family, i got all my sisters with me ♪ ♪ we are family

good wednesday morning, welcome to "squawk alley." i'm carl kinquintanilla, with morgan brennan the dow down 538 and the other big story is the inversion of the yield curve which has preceded every u.s. recession for the past half century. we're going to watch that carefully along with the vix above 21 dom chu is looking at some various factors about the curve and how it might affect assets all around the whorld. >> it was just around 6:00 a.m. eastern time that we did see that inversion, the difference between the two and the ten-year looking like it's moving higher. you can see the ten-year note yield curvely 1.584%, no longer inverted however, it has widened out just a little bit two basis points separates these two particular yields. that's going to be a big deal. like you said, it has been a possible reliable recession indicator, and one of the ways you're seeing it here is how long it's been since we've seen

the last move in that particular yield curve. you have to go all the way back to 2005. that was the last time it actually started to invert, and then in 2007 it's kind of exited that move. so you can see that move here, have to go all the way back to that '05, '07 era prefinancial crisis now the reason why it's important, according to data from credit suisse and many analysts who are out there crunching some of these numbers, you take a look at the reasons why, since 1978, the analysts at credit suisse note the last five to ten inversions led to recession. recession occurs on average about 22 months, so almost two years after that inversion actually happens, and it's usually about a year and a half, 18 months before markets turn lower when an inversion happenings that's something to keep in mind the silver lining here, though, is one year later the s&p 500 is up on average 12%, so as we take a look at the market dynamics setting up, this is the key to watch here let's talk about what's

happening with rates and why it's important i'll send things back over to you guys. >> dom chu thank you for breaking all of that down for us ian linion is with us here at post nine. ian's been ranked number one on the street by institutional investors for the last two years. welcome to you >> thank you >> happy to be here. >> okay. so we know when you see an inversion between the two and the tens in the past, it doesn't cause a recession, but it is an indicator that a recession could be coming in the coming months, in the coming year and a half. are you worried about that here now, or should we be taking some of these other factors into account, for example all the easing we've seen from central banks around the world >> i'm worried about a recession. i'm worried about a recession in 2020 i think that what makes this particular event different than inversions we've seen in the past is that powell has already cut once typically we don't see an

inversion inuntil after the poi the feds needs to cut but haven't yet. still the curve's inverted. >> you think they've been more proactive this time despite all the criticism from the white house? >> they've been more proactive, but the market is telling us today they haven't been proactive enough, which really gets us back to what we're watching in the equity market right now is a selloff that's going to increase volatility when we think about the powell put, which is kind of a relationship between the spike in volatility and the equity market and tighter financial conditions, that's what i'm worried about. i'm worried the fed's going to need to do more. >> is the case building for a 50 basis point cut or an intermediary cut. >> the case for a 50 basis point cut was pretty high before yesterday when we saw that surprisingly high core cpi the fed's got themselves in a bit of a box it's going to be hard for them to deliver 50. >> i'm glad you brought up that inflation data, these latest developments around this latest round of tariffs and the fact that some of those have been

pushed off to december definitely the reason you saw the market or equity market rally yesterday, but given the fact that you are seeing this inversion in this key spread within the yield curve, does that essentially force the fed's hand here? if it does, when you do look around the world, we see $15 trillion in negative yielding debt globally, when you see the fact that you have an inversion in the uk between twos and ten's curve as well, how much does that actually do >> very good point there's very little that the fed can do at this point the expression pushing against a string comes to mind because you know, frankly the market is not con vinsed that the fed can actually sustainably stoke inflation. and we had a little bit of a rally yesterday in the equity market but the reason we sold off overnight really had to do with chinese data and what's going on in germany. germany just had their first negative gdp print. >> is this stacary when you already knew you were watching a

horror movie >> i focused on the bond masht market so it's really, really fun to be in the bond market right now. that said the relationship between all asset classes has started to go in a way that what ends up being bad for american stocks can also be bad for american bonds sometimes good news is bad and bad news is good, so i do spend a fair amount of time worrying about that >> what about people who point to refis today, mortgage purchase apps, argues maybe they're not pushing on a string. what's wrong with that argument? >> >> it's a strong argument. we have seen core consumption spending on the house held level has driven the bulk of the expansion thus far anyway. pushing that forward is good and it might get us to the point where the trade war ceases to be an issue. >> also 18 months is a long time, right? if we look at historically what these inversions have meant. what should people actually do

versus just reacting to a yield curve inversion? >> well, at this point the damage has been done to the economy in terms of investor and business confidence. once business confidence rolls over, we've seen that in europe, we've seen that here as well, then companies are less willing to expand, they're less willing to hire. i'm more worried we're going to see an inflection point in the employment market. when that happens, that's when you want to be out of risk. >> so things upyou want to look for are a sudden spike in claims or something else? >> historically, if we see the unemployment rate increase 3/10 of a percent or more on a three-month moving average basis, that means we're in or actively entering a recession. i'm watching the unemployment rate. >> anything more high frequency we can count on. >> the challenger survey that gives us layoffs that's a good one. >> it's that empirical

>> it correlates extremely well to spikes. >> what about softer data like consumer confidence, anything like that? >> consumer confidence only matters if it rolls over into spending tomorrow's retail sales number is going to be huge. >> we've been focused a lot on government debt, government bonds. what about the corporate side of the fixed income market? what is that telling us? are we seeing similar yellow flags or recessionary silgnals s well >> credit spread have been seeing upward pressure people need a little bit more compensation however, at the end of the day, the credit market has performed remarkably well in this cycle, and spreads are probably unlikely to really, really gap higher unless there's a much more significant slowdown than we're expecting. >> how are you factoring what's been a strong dollar into all of your analysis right now? do you expect that continues to stay strong or do you think that weakens, and what is that -- what is the carry over to the

bond market? >> well, the most important aspect of the dollar in terms of the real economy is what it means for importing inflation or not importing inflation. the fed is actively trying to change the way that the market perceives its relationship with inflation, and for that reason a weaker dollar that actually brings inflation into the system would make the fed happy a stronger dollar only serves to tighten financial conditions and that will get the fed to move. >> all right, we're in a blackout window here, we're not getting any fed commentary this week jackson hole is next week. how does messaging start to sound next week? >> newscathat's a great questio. we've been worried about or concerned about the point at which the fed wants to transition to price level targeting or more average approach to inflation. we thought it might be at jackson hole, but right now jackson hole sounds like the bigger concern is going to be can they justify going 50? will they need to do more? >> less discussion about dallas fed trimmed mean kind of stuff.

>> more concern about global financial conditions. >> what do you think happens to the ipo market now in this environment? i mean, we've been talking about wework which is one of the more anticipated prospectuses and ipos of 2019 we just got that out last night, and then we got a yield curve inversion in the morning what happens to the ipo market typically when these things happen >> historically you would think there would be a period of slowing, and then as the fed becomes more active, valuations start to become more attractive, so after a period of adjusting to what monitory policy is going to do, i'd expect it to pick back up. >> ian, thank you for joining us today. speaking of ipos, wework, parent we company releasing its ipo prospectus earlier this morning. deirdre bosa has the details from san francisco. >> not only is this another startup losing enormous amounts of money, 1.9 billion last year, but it is extremely complicated. take a look at its corporate structure. this is a photo from the s1.

three classes of stock, multiple levels here. another thing that sticks out to me is what this prospectus does not include. i was eager to get some numbers or color at least around occupancy rates, especially key to what might happen in a downturn, and this is one of the biggest questions wework is facing we do not get that another key metric is average revenue per member that is delivered to us in the prospectus on its own, $6,320, but there are no past numbers given telling investors what the trajectory has been. there's a note, however, a few pages later telling us that this number has declined, a trend that wework expects could continue in the near-term. now, guys, what the filing does tell us could be concerning to prospective investors. wework has long touted the growth of its enterprise members which makes up about 40% of the total. they typically sign longer leases and lead to a larger committed backlog of revenue the proportion of these memberships has exploded over the last few years, but this

year the growth rate has ticked down moving on to another metric, contribution margin, uber and lyft, they use a similar metric to show unit economics, how they eventually reach profitability in weworks case this is membership and service revenue minus operating expenses and stock-based compensation what you need to know, though, is that the growth rate of this metric has been flat or declining over the last five quarters lastly, guys, i'll just point out that expenses at wework more than quadrupled from 2016 to 2018 major questions about its path to profitability in short guys, this is a prospectus that probably raises more questions than it answers. >> it raises a ton of questions, deirdre, among them and you touched on this a little bit, wework says that 70% of its markets are not mature, meaning they say that after two years in

the given market it tends to reach maturity occupancy stabilizes, cash flow stabilizes, their expenses stabilizes 70% not secure the fact that they don't give occupancy rates on such a huge market of their markets, it seems aren't mature and probably don't have great occupancy rates raises the question of what does happen when inevitably things slow down or we get a recession? >> absolutely, jon, and the fact that we don't get occupancy rates but we don't even get a breakout by region is latin america faring a little better than china. there was another line far down on the prospectus saying it's china business because it is still developing, probably took off three percentage points from that continribution margin. i'm wondering what's happening in other areas around the world. wework is operating in many different places you touched on another point that i think the prospectus did not answer that investors are going to want to know.

>> yeah, they also point out that they have a kind of complicated ownership structure or financial structure in which they have partial ownership in investment, real estate investment vehicles, that they also then do business with, so it could be that if those investments go south, even if it has nothing oto do with wework' business, it could affect wework's finances. this is a controlled company also, so the amount of general governance that we're going to get this this company is also a question mark? >> yeah, it's a good point, jon, and you touch kind of overall this is adam newman, the cofounder's role in all of this. there's a lot of unusual things relating to him, particularly what could become conflict of interest relating to arc that is the company you're referring to that holds actual assets, property assets that then wework can lease from there's some other parts about family members involved in the business adam newman pays a direct family

member less than $200,000 to be the director of wellness at the company the so there company. so there's a lot of unusual quirks within this prospectus. some of them could be glaring conflict of interests. some other ones that like i said where a little bit smaller but still raise questions as to what is adam doing with the money, especially that he's taking out of the company he has a rien of credline of cr to $500 million. >> deirdre bosa, the dow is now down 623, obviously a session low. one big reason for the selloff of course is about hong kong flights are resuming at the airport after those violent clashes between riot police and protesters our brian sullivan has made his way there on the ground at the airport, has the latest. hi again, brian. >> reporter: hey, carl, hi again. you are exactly right. one of the reasons the dow is down over 600 points is because of what is happening here but for a couple of different reasons we'll get to in just a minute the airport is open.

we obviously came in, protesters, it's 11:00 at night here, they are settling in for the night. you can see people sleeping in a guy's got a sign, welcome to tear gas city. they're bringing in food here. they have no plans to leave. this is now a protected protest zone by the chinese government in caloun across the bay there are reports of a protest there protesters are shining laser lights on the police station there's two sides to the story about why this matters to the global markets number one, just the idea of global unrest, you've got brexit, you've got some of the issues around the world. you factor in argentina a couple of days ago. this adds to the story everything that's happening here is happening under the framework of a major trade war between the united states and china as a whole. this adds to that level of uncertainty global volatility. number two, just from a purely economic perspective, guys, is hong kong that big, not really,

340 billion in annual gdp, maybe 2 to 3% of macro china this is as everyone knows the key hole, the bridge, if you will, between china and western financial markets. this is the legal framework that a lot of the transactions go to. there is concern that as we enter our 11th week of protests, if this were to slow down, hong kong financially generally, it could already be a drag on a slowing chinese economy. industrial production for china coming in today at the lowest growth rate since 2002, 17 years ago. tourism is down. our flight was nearly empty coming here. there's a real concern that if hong kong, which is so much of tourism, if macau, which is so much of tourism, if that slows down, it will just be sort of another drag, guys, on the macro chinese economy, which is already slowing. you've got the trade war factor everything else that's going on nin the world and what you get is a dow down 650. a couple of days ago we were hosting worldwide exchange, dow

futures were up like 30 points nothing was happening. then word came that this airport got shut down and dow futures fell 150 like that i guess the closest thing i could say is imagine if l.a.x., carl, was shut down or jon, imagine if heathrow in london were shut down we're open now, but this is a big economic worry and a big economic drag, and that is why we are here. >> yeah, brian, it's morgan, it's obviously a big airport for passengers, also a very big airport for all the cargo that's moving in and out of the region as well. i'm curious what your sense is for the rhetoric and the sentiment on the ground given the fact that chinese officials have accused the u.s. -- the u.s. and other foreign countries of backing these pro-democracy protesters i mean, yesterday we had chinese officials rejecting a u.s. request to have two u.s. navy ships make port there in the coming weeks as well is there a sense that this is

adding to tepgnsions between the two countries? >> reporter: well, i think it has to, morgan we just got here a couple of hours ago by the way we don't have our feet on the ground yet just been walking around reading some of the signs, chatting with people now and then. a lot of people don't want to go on camera. they're not worried about tear gas, they're not sick, they don't want to be fully identified because their families may be at risk as well if this tends to accelerate. i think your point is exactly right. i think that's the reason the world cares. we've had protests in hong kopg before you go back 2014 heck, i could change it up we had the sars virus scare a number of years ago. there have been things that have happened in hong kong that have spooked the global or asian financial markets. the reason this time it feels a little different number one we're already in a trade war with macro china, so now president xi in beijing has kind of go two fights to go after on

two different fronts or what else happens now where does this go you've got on october 1st, the 70th anniversary of the people's republic of china, the communist party. that's going to be a huge day, a hugely important event for the entire nation, and they want the country to be at peace, and they want the country to look from the outside world like everything is in order as well so i think the next couple of days and weeks are going to be highly critical to see to your point, morgan where that goes, as far as answering your question, we're here for a couple of days we're going to be working during the day. we're going to be on tv at night, we'll get hopefully more answers. get our feet on the ground, talk to more people, and see how this thing plays out. it does contribute to that dow down 600. >> that's why you're there, brian, luckily for us, get some intelligence on what's happening in hong kong brian sullivan is at the airport there as we're down 600 points by the way, it's not the worst day of august at this stage. you'd have to exceed the 767 point loss on august 5th, got

the vix above 22, obviously we're going to turn to our right and talk to bob pisani about this price action in the first half of today. >> i was talking to some of the traders. what would be the pain trade right now? the pain trade is what would cause the greatest number of pain to the greatest number of traders. there has been a buy the dip thing for a while now. the pain trade would be we drop another 5, 600 points on the dow. the 200 mf day on the s&p is 2795 that's a good number to look at. i think the problem is two issues number one, the economic news has not been great we saw the china industrial numbers, the german gdp turn negative, and i think there's some concern president trump doesn't have as much leverage with china as people thought before given the actions yesterday interpreted all sorts of different ways. i saw this as a positive for the markets. other people saw his position is a bit weaker i don't necessarily look at it that way i think those two issues are combining to create a lot of

concerns about whether the market is valuing things properly, and you can see all of the european autos weaker. that's a direct response to the china's problems the semis are global growth plays. these are all down the other thing you've got to remember is this is august there are liquidity problems always in august so what happens to these market makers when there's not a lot of people playing and the market moves down 500 points, you get them pulled back they widen the bid and asks and don't play as much on the bid and offer. for example, suppose you got a big stock, a bank of america, jpmorgan, something that moves easily, maybe it would take 50,000 shares on a normal day to move these stocks $0.10, pick a number, on a day like today it might only take 10,000 shares o move $0.10 there's less playing on the bid and offer. there's less shares suddenly this is -- they call this risk management other people say where the heck is everybody

they're supposed to be market makers this is what happens on days like today throw in the tariffs and it makes it very volatile. >> what are you hearing about these levels i mean, even though we're down quite a bit roughly 600 points on the dow, more than 2% on the s&p, we're still not at the low levels that we saw last monday on the 5th is that a key level to watch over the rest of the week or what does this mean overall? >> the answer is i think it's very good news we're not there look how we've just sort of rolled over here i see this largely as a liquidity question there's not a lot of people playing in the market right now. it's hard to pick technical levels but a good one is the 200-day moving average i would pay attention to the 2795 level what you're seeing here now is sort of breakdowns in key sectors. daimler is at a multiyear low in europe they're taking the multiples down i know this doesn't sound attractive right now, but you're

starting to get at levels that are actually kind of interesting for buy opportunities. i'm obviously not a strategist here we're not in any bull market right now, and a lot of these sectors in no bull market industrials, no bull market in autos. we're in a bear market in energy, and ox dental is a $40 billion market cap it's gots a $40 billion market cap and is at a ten-year low today. that's a pretty shocking number. >> what do you make of -- the conversation at this point has been about global trade, the impact on american manufacturing, the consumer will save us because it's mostly our economy. then macy's comes along. are people going to excuse macy's away as execution or do we have to worry about the bleed from manufacturing to services and consumer >> i think macy's was an execution problem. they obviously pout out clothes there, particularly women's appar apparel. i hope you've listened to

courtney, she's been doing a great job, that people didn't want essentially that's the definition of an execution problem. the american consumer if you look at the numbers are pretty darn good. the spending is pretty darn good overall. they're spending in a lot of different ways they're not spending it in places like macy's necessarily they're finding it in other online places. i look at the health of the american consumer. i think it's pretty good, but the market globally is a little bit different, and i think that, for example, the decline in tourists coming into the united states specifically referenced by macy's. >> look at tiffany today, the action at tiffany's is not good. >> same situation there. >> i think there are lots of opportunities still out there. my concern is the market now no longer believes this multiple is worth it if you look at the multiple now for the s&p it's down into the mid-16 level this is getting closer to historical averages. the market is certainly not overvalued anymore two nt mmonths ago i was sayings

is pricey right now. they're starting to take the number down. lower prices makes the market more sane at this point. i'm not thinking it's good news for anybody. i'm not happy when the stock market goes down, but we certainly have more sane valuations that are starting to reflect the greater global uncertainty, so to the extent i'm looking for a glass half full way of looking at this thing, the market is more sanely valid. >> and certainly one of the things we've talked about many times is how important that first hour of trading is in the session and that last hour of trading. the last two days we've seen technical difficulties play out with the exchange as well, and where averages were closing. is that hammered out i know wroyou've been digging io it. >> the source of the problem on monday appeared to be a hardware problem with the servers in mahwah that are run by the new york stock exchange. a failure that caused some trade reporting glitches yesterday in the middle of the day we saw suddenly for about a

ten-minute period the s&p and the dow jones indices stop computing. this was not, i don't believe, a technical fwli technical glitch i'm still waiting for an explanation. there's some technical things that are going on, but yesterday and today everything appears to be working fine. again, i think the problem on monday was actually a hardware failure. this just goes to the point, the whole technology industry, we are still slooifaves things still go wrong. i don't mean a code error, i mean a component physically failed at a server over in new jersey that caused a trade reporting glitch that occurred we saw this in airlines scheduling, maybe some maker of that component, who knows what it was, there was a failure there. it wasn't the fault of any particular person miscoding, it was literally a hardware failure. this stuff doesn't work perfectly all the time. >> yeah, that's old school failure.

>> real old school. >> wait until we get ai. >> some little component sitting in some little lot suddenly failed, and there was ripple effects around because of that. >> bob pisani. thank you. now, let's keep talking about it, as a matter of fact because right now we've got the dow still down quite a bit, though it's off session lows we were down more than 600 points, now down 570 technology does not seem to be suffering the most i mean, you talked about a number of industries that are suffering, but you know, if we take a look at microsoft, it's holding up okay. take a look at amazon, that too even though it's in the past been a big value -- yeah, yeah what do you make of that >> well, it's nice you picked out microsoft, which is the one survivor of the last 20 years. you could construct a list longer than your arm of the

companies that have not succeeded. microsoft has because i think they brilliantly moved towards the cloud and brilliantly expanded and a great, a good example of what visional management can do. i don't want to do -- that was a company that did a brilliant about face in execution on new fields to go into, particularly cloud. a lot of others are not, though, and a lot of others are in serious trouble. i look at the stuff that hasn't worked energy used to be -- if you go back to the 1970s, energy was almost 20% of the s&p 500. it's 5% of the s&p now that's in a depression, not a recession. that industry is in a long-term depression right now i don't even know where -- we stopped finding oil analysts who can tell us we're buying bottoms here nobody talks about it anymore, and i don't have a clue, even when oil is up, energy stocks tend to be down. >> bob pisani, thank you. dow's down 583 right now

european markets are set to close shortly. seema mody joins us with a break down of today's actions there. >> we're seeing a bigger move in european stocks following that weak data from germany and china, more warning signs of the european bond market as well the yield on the u.k. ten-year breaking below the two-year rate for the first time since 2007, and so far the selloff in european equities has been more pronounced with germany down 9% compared to the s&p 500, which is down just about 5% from its recent high. but let's dig deeper into germany. here's the story there german gdp contracted in the second quarter by 0.1% from the previous three months underscoring how europe's largest economy has been suffering from slowing demand for german cars and a drop in construction activity. barclays says germany is now one step closer to entering a recession and expects the ecb to deliver not one but three deposit rate cuts starting in september followed by the restart of quantitative easing in january the question now is if germany

will introduce its own stimulus package given the domestic pressures it's facing, germany's economic minister labeling the data as a wake-up call and a warning signal while also keeping a close eye on the u.s. companies with notable exposure to germany, that's names like ebay and cody. guys, back to you. >> seema mody at the hq watching that for us. thank you very much. let's go not too far away and get the news update with sue herera. >> good morning again, carl, good morning everyone. here's what's happening at this hour at least six people have died under piles of rubble after their house on the side of a hill in the chilean port collapsed. two children were rescued alive and taken to the hospital for treatment. the iranian president said persian gulf countries can protect the region's security are not needed he repeated a long standing rejection of the u.s. maritime security in the region one that

the u.s. launched backed by britain. a swedish teen climate activist has set sail for new york crossing the atlantic in a racing yacht to join protests in the u.s. and take part in a united nation's climate summit she is hitching a ride on the yacht outfitted with solar panels and underwater turbines to generate electricity. >> and it's not going to be comfortable but that i can live with i'm not at all worried about my safety because i know this is a very safe boat and that the crew, the sailors are very experienced. >> best of luck to her that's the news update at this hour, guys, i'll send it back downtown to you. jon. >> thank you, sue. and the nasdaq is down close to 2.5% joining us on the phone alpha one capital partners found dan niles. we have the yield curve inversion this morning the market responding, what do you make of it

>> i mean, quite honestly think about this, what really changed today? the yield curve, the two and the ten did invert, but the three and the ten has been inverted for quite a long period of time. i mean, part of this is you're getting -- people are just getting whip sawed daily by thing that are impossible to predict, the tweet yesterday that tariffs are getting postponed until december 15th. i'm not sure what exactly changed in the two weeks from when we talked about tariffs being put on september 1st so you've got all of this stuff going on so the market's up over, you know, a percent and a half yesterday on the s&p. today it's down 2%, and you're just going through this violent churning and it's causing huge issues for people who are trying to participate because it's very hard to focus on the fundamentals when you're continually getting whip sawed by this policy uncertainty yesterday we were sitting in our

hedge fun at 5, 6% cash. when the market whipped up we increased our cash position to 12 to 13% on a net basis you know, for us we're trying to become, you know, much smaller play in less positions and in stuff that we're more convicted in this is the toughest environment to invest in that i've seen in the last 20 years because of that kind of policy uncertainty that we haven't had in the past. >> the last 20 years, dan, i mean, you've seen some crazy cycles this is more difficult to navigate than dot com boom, than financial crisis >> it is because here's why ninp my opinion, back then one of the best pieces of research i wrote when i was a research analyst, i wrote it in 2001, i think, ask it was called don't fight the fed. we say don't fight the fundamentals what we meant is you focus on the fundamentals you could just invest off of that you knew things were going to get bad in '01, '02 and that's

what we stuck with we didn't upgrade a stock for over a year during that period of time. but you had a very clear direction in that you were more focused on what the fed was doing. the problem now is you look at and you say okay, we're going to put tariffs on two weeks ago no, we're not, we're going to push it off until december 15th. you know, these things keep changing it seems like on a daily basis in some cases and so it's making it very hard to deal with that because on the one hand you do have the fed -- well, actually, you have central banks all around the world easing, and so you know that's pretty clear the bad news is the policy decisions keep switching back and forth, and these are big ones, right? when you're in a trade battle with china, if you knew that, you know, you were going to put on tariffs definitively, you could at least invest based on that if you knew that we were all settled, you could at least invest on that the problem is you're not really sure what the environment is, and it changes on a weekly basis, and that's why i'm saying

it's actually more difficult because it's not -- you can't just focus on fundamentals and go with that you've got all of this other stuff that's whip sawing, you know, very consistently. >> dan, in light of that and the fact that you've increased your cash right now, are there certain names or certain stocks, certain sectors that you would be looking to put that money back to work in if the price was right, or are you just going to sit on the sidelines increasingly right now because of all that uncertainty? >> no, i mean, i think, i firmly believe you want to invest when there's blood in the streets there's not blood in the streets right now. yes, the market is down, but it's not down that much, and so you haven't, you know -- i think, i forget who said it, one of you said it, but you know, there's been sort of this buy the dip mentality. that's dangerous then you feel like i'm immune. i'm never going to lose any money. that creates people who aren't invested because they have strong fundamental convictions,

it's oh, the fed's going to save us don't worry about it. the s&p's up 14% year-to-date, the nasdaq's up 18% year-to-date, there's a lot of people sitting on some very big fat profits in big indices, and other regions of the globe, argentina obviously yesterday may have suffered humongous losses but we haven't in the u.s. we've made a lot of money, so there's not enough pain being inflicted right now to make me say i want to wholesale jump back into stocks if you look at my twitter feed @danieltniles, you'll see that on december 24th, we're down to one short, we've gotten really long. i think we had an interview with you at that time, we really got ourselves aggressively long, but that's because we had been in the worst fourth quarter in, you know, since pearl harbor got bombed so that's a different situation. right now that's not what we're sitting at yes, i am looking to deploy cash

but and the names i'm focused on are the ones that are not involved with china, that are not hardware related i'm looking at more of the internet names that aren't affected by this as much they don't care about tariffs, you know those are the ones that the googles and the facebooks of the world that we're interested in, and you know, sectors that are secularly growing versus things that are challenged, like i look at oil and gas, and it looks interesting on a valuation basis. i look at banks. that looks interesting on a valuation basis, but secularly lower interest rates are terrible for banks and if we go into a recession that's bad for oil and gas. those are things we think about a lot more, even though they look extremely cheap. >> you make an interesting point about how much we're up on the s&p year-to-date mom and pop at home, if they're doing a good job and kind of checking in every quarter looking at results, i mean, they're not seeing this day-to-day what do you think a smart investor who's not in the market every day, not running a hedge

fund ought to do during this kind of period of turbulence >> you know, that is a brilliant observation, and i think, you know, more people kind of thought about it the way you just expressed it, things would be a lot better because, yeah, when you're doing our jobs, when you're doing what i'm doing, you're looking at this on a daily basis, but you're absolutely right the mom and pop investor who's looking at this more on a quarterly basis, you know, they have a job, it's the lowest unemployment rate in 50 years, right? you've got people getting paid more at those jobs the housing market is still pretty strong across the board, maybe not the high end but across the board because mortgage rates are low for the average u.s. citizen, things look pretty darn good if you're not looking at every tweet ask every tick of the market but i think the problem right now is we're in the longest economic expansion in history. we're in the longest bull market in the s&p in history.

i think for the average investor, what i tell people, they say look, you've made -- if you just kept up with the averages you've more than tripled your money from the lows in march of '09. you know, take some of that off the table, put into safer things put it into cash, i mean, that's the safest investment to some degree, right? you can't get killed with that so just get yourself a little less risky because when you're in that kind of environment and the fed's cutting rates for a reason as i mentioned before, you know, it doesn't hurt to just like you take out life insurance, car insurance, you know, health insurance, you know, take out a little bit of insurance on your portfolio and become a little bit more defensive, and i think that's the right thing to think about. >> dan, as you're talking, the president once again tweeting about the fed quoting a guest on fox business saying the fed has got to do something, that they acted far too quickly, and now is very, very late too bad, so much to gain on the

upside i mean, you talk about erratic trade policy and white house policy, what if the fed cuts 50 in the coming weeks? what if there's an intermeeting cut, does that change your thesis at all? >> you bring up a really good point. think back, the real question becomes this has the riots in hong kong, what's going on in argentina, the stuff in italy, the trade war with china, you know, what are we going to do with auto tariff, is all of this stuff caused so much uncertainty that we do end up in a recession, which doesn't seem likely with unemployment where it is, et cetera, in the u.s., but the rest of the world isn't doing nearly as well as the u.s. if the fed does cut 50, the market obviously will have a knee jerk reaction of it will rip up it will go straight up, just like the market did yesterday off of what, you know, happened with the tariffs being pushed

out. but we're getting all that back and for more today because, you know, concern is more about the economy and what's going on there. ultimately it comes, who said it, that the economy's stupid, right is the famous phrase that trumps everything so that's what, you know, you've got to think through, and if the fed cuts 50, the positives are, yay, it's an intrameeting cut of 50 the market will go up for a day. you've got to worry, what are they seeing that we're not with unemployment at a 50-year low. interest rates are low by historical standards already. >> dan niles, thanks for checking in with us today. always great to get your thoughts, especially as all of the major averages here in the u.s. sell off each down more than 2% right now. every sector in the s&p 500 save one is lower right now industrial stocks are among those names that are trading in the red and seema mody has a look at that sector and what the

action there is. seema. >> morgan, you're exactly right. the major industrial stocks are lower, caterpillar, 3 m, boeing, general electric in total accounting for roughly one-third of the losses on the dow right now. analysts say it's the data from china and germany that highlight not just the slowdown in economy but the sharp decline in instruction production which is comprised of manufacturing and construction activity, especially in a market like china where a number of the industrial giants are seeing rising competition from local players. the other concern is that a weaker yuan and the ongoing trade uncertainty will incentivize more chinese firms to select local suppliers which would make it harder to win new deals in what was once a very strong market for the industrial names. i should point out it's still up to a year-to-date. it's had a pretty strong year, a lot of that has to do with the outperformance in defense and aerospace names. >> another name we're going to

have to watch coming into friday is going to be dooer and the earnings there one of today's biggest movers to the downside, apple down more than 2% along with the major indices, bernstein senior analyst toni sacconaghi joins us now. big move in apple yesterday off of that tariff reprieve news is that more important or is the yield curve inversion reaction more important >> i think uniquely and good morning to you, jon -- i think uniquely for apple, the tariff news is more significant, certainly the interest rate environment and the fears of global recession affect everyone including apple. the news yesterday where apple had a temporary reprieve on potential tariffs was really significant because apple is uniquely exposed to china essentially all of their

products, not their services obviously, their products are made in china, and those would have been tariffed, and china's very big end market for apple as well, about 12 to 15% of apple's revenues gets sold into mainland china so the risk of retaliation was also significant to the degree that you have a reprieve, which also provides apple time to try and seek out alternatives to making its products in china, that's uniquely positive news for apple, and you saw its stock notably outperform yesterday >> evening there were three a lot of questions about how apple would handle iphone pricing in this upcoming cycle given the looming tariffs, now not so looming. is that a key number you'll be watching and thinking about margins with this launch a lot of people don't expect to be a super cycle but still important. >> yeah, obviously if the

tariffs do go into effect in december, it will have an impact next year. we don't think apple will really be able to meaningfully move manufacturing of its products by then apple has a choice on two ends one, it could just absorb the tariffs. that would be about an 8% hit to earnings, or it could pass along the prices but the dilemma of course is apple received quite a bit of pushback this cycle that its products were too expensive to have a, you know, 10% increase or close to 10% increase on prices, you know, could create negative demand elasticity that's a conundrum for apple i think the potential good news is that component prices have fallen a lot typically when apple introduces new iphones, it offers a lot more storage capacity and/or lowers the price on storage, and perhaps they won't and be able to benefit from the fact that

prices have fallen about 50% in the last year, and that may be one tactical way for them to try and absorb some of the tariffs >> yeah, one way for them to pick up some margin, toni sacconaghi from bernstein, thanks. >> thanks for having me. phil lebeau is taking a big look at the moves in the autos that's taken a hit during the selloff as well. >> we'll talk about autos, we'll talk about airlines like much of the market, both sectors are under pressure first off, when you take a look at the airlines, most of these stocks are down anywhere between 2.5 and 3.5% we've talked about this for some time, the big concern being that if we do see the economy slide into a recession, that you see demand fall off. so far they haven't seen this, at least domestically. internationally, especially when you talk to asia, there's a few hot spots there. take a look at shares of boeing. i know that seema mentioned this a little bit earlier you're seeing the shares now trading well under $330 a share,

down at 323. this is not a 52-week low. a 52-week low would have to get down to the 290, 295 range that's where that would be again, this stock down 3%. in terms of the automakers, all of them under pressure, general motors perhaps has the most exposure to china. it's the number two automaker in terms of sales in china, ask that's why you look at that stock down almost 5% today as the chinese auto market slows down, the impact is going to be greater than it would be for ford, clear skihrysler and toyoa whenever the market swings higher or dramatically we see usually an outsize move from tesla. that hasn't been the case today, just under 9 bucks a share finally, guys, one last thing, all stocks are being taken out to the wood shed today there was an upgrade by goldman of ferrari saying look, race,

this is the stock that should do well it's a luxury play but even shares of ferrari under pressure today. thank you for that market check. let's get over to the cme now and rick santelli with the santelli exchange. >> we will start with tens minus twos there was an inversion of close to two basis points. it's righted itself to some extent, but the psychology behind that and the history behind it is going to make it very difficult for investors to overlook as for 30-year bounds, also big things going on for you, options traders out there, just talk to the options pick the skew, the call skew, let's make this easy when you buy an option, you pay a premium, volatility goes up. those premiums get bigger. the premium to buy calls is now at cycle highs in 30-year bonds. why is that important? because it most likely means

that the trdrop is going to be more substantial now, as you look at some charts, look at a year-to-date chart of what's going on with respect to the note over bond spread. now you see on year-to-date that it's mostly been climbing, but you'll also as of june 1st chart, that it's starting to dip. it's starting to shrink. look for that dynamic to mostly continue, maybe even feed on itself to some extent. then the dollar which right now is up a little less than one-fifth of a cent. we had a very smart guest on aren't all our guests smart on cnbc the fed wants a weaker dollar. and the reason they want it, it will bring in more inflation that's great, too. the problem is, i don't think they have the tools, and if they did the leverage to make that happen there's a lot of reasons for dollar demand, and most of it are by investors and structured payments where people don't have choices here think about emerging markets or en entities, countries, large

institutions that have to fund dollar liabilities with a strong dollar while their open internals are depreciating or deteriorating. and that's a big deal. so maybe the fed lowering rates isn't going to have an influence there which means you have to question policy when times are unique and finally, negative rate pull is just increasing the gravitational pull increasing and many would say it makes such little sense why would anybody be buying into this there's three reasons i can think of the first is a bit of a complicated spread structure the other two are kind of easy one is a greater fool theory if you front one, theseptember 12th meeting or other meetings with the ecb and mario draghi, and i have a weapon to take care of all this, you know that quantitative easing and government policies by the ecb is the central bank are going to create a dynamic where if you front run that and buy something with a negative yield, there's going to be something behind you that's going to pay more the other one is this.

it's fear. look at the bank look at the health of the banks. nothing to brag about. but if you buy in to millions if not tens of millions if not more into the government securities mark eme market, may not get all of it back, but you'll get some of it back >> rick santelli in chicago. obviously, red across the board. dow down 600 the vix close to 22. the ndx down 2.6%. art cashin, director of floor operations at ubs is here. you're watching not just the august lows but that average as well at 2790 and change, right >> the 200-day moving average. the first level i would look at is the august lows, as you mentioned, which would be 25,440 in the dow and 2822 in the s&p you get a feeling they want to try for it we've got a lot on our plate not just the inverted yield

curve. dan niles itemized things from italy to wherever he left out kashmir, the fact that india and pakistan, two people with nuclear weapons are nose to nose, that can't be dismissed. so i think you want to watch for a market that will remain under some stress here, and it looks like they're almost too tempted to test those levels that we just discussed >> are the bears who are -- the shorts trying to hammer, are they getting too much credit because of weak breadth liquidity, depth this week in august >> well, i think they are getting too much credit in the fact that as i think you are pointing to, the liquidity is very light we don't have markets that are in depth here. and, therefore, a little bit of selling goes much further way than ordinarily it would >> gold higher again today how much higher can this go? it's been -- you talk about assets that have outperformed and bucked the trend gold has been one of them. >> yeah, it is returning to that

storehouse of value routine. and i think people are seeking protection it used to be you go to the dollar, you go to the treasuries and maybe go to gold but treasuries have been strange behaviors here and that has led the dollar to not perform assadely so, you know, they move to gold because all others are questionable >> we had a rough may. do we look to what turned us around in june for what might turn this around here? >> i am not entirely sure. i think, you know, they would like to see something constructive on trade. unfortunately, there's a growing feeling that president xi might not have a great deal of trust in president trump that he may reverse on a deal on any time and trump already has that feeling about xi because we were 90% of the way to a deal and they backed off.

so trade is going to be a bumpy road all the way through >> we'll see if that bleeds to other areas, art art cashin let's get to dom chu for a market flash >> let's reset what's happening with markets we're about ten minutes removed from the lows of the session so far. when it comes to the s&p 500, not far from those lows, the only sector in the green, utilities up 0.3%. manager one of t energy one of the biggest decliners. we've seen a decent range to the down side. we were down 637 points. that happened about ten minutes ago. at the highs down 244. decidedly negative day dow, goldman sachs, walgreens/boots alliance down nearly 4% or so. the one bright spot in the dow so far today is coca-cola shares up about 0.5%. so as we watch the trading play out today, it will be about those defensive sectors to see what happens overall there but the dow still down 637 that's the low benchmark today, carl we'll keep an eye on that.

back to you, carl. >> dom, excellent point. speaking of defensive sectors, all sectors on the s&p are in the red except for utilities, which have hung in there currently trading be ining up a. looking for yield. even some of these troubled stories like macy's earlier this morning saying he believes the dividend is safe and when you compare it to what bonds are giving you, fairly attractive. >> it's one of those days where it's worth looking at what's down the least i've got my eye on walmart just about flat. and we know walmart. how people feel about when a slowdown hits. walmart sometimes benefits >> i can't help but think if you're in a troubled industry sector like department stores which we've seen these secular declines if you're ever going to come out, lower your outlook and go for that and now is the time to do it given the fact you have all these trade angst and volatility in the market i also wonder what this is going to do to the ipo pipeline. we got that feeling from we work today.

if you start to see more volatility, more choppiness, bigger selling in the coming weeks and months do you see some of those potential ipos put themselves on ice? >> indeed. and lows for august on the s&p, 28-22 which is about 35 points below the levels that we're in right now. that's going to do it on "squawk alley. the half starts on the other side of this bak n'goway.re (soft music)

- when i see obstacles, i create opportunities. - when i see adversity, i find a way. - when i hear never, i say now. - [announcer] southern new hampshire university is education made to fit your goals with over 200 degree programs, flexible class schedules, and some of the lowest online tuition rates in the nation. (cheering) - so when i face barriers, i can break through. - [announcer] breakthrough at snhu.edu.

stocks are dropping, begging the question is the longest bull market cycle ever all but over it's 12:00 noon. this is the "halftime report." >> the market flashing its biggest recession warning signal are stocks on borrowed time? if they are, how do you protect your portfolio the next move for your money macy's getting mauled. a big earnings miss and a slashed forecast what it's saying about the consumer and what it means for the rest of retail investment committee is ready to go. the halftime report starts right now.