cyclical move once the bottom is put in but it's august and september. let it come to us. >> easy to push it around, too and to your point, lighter volume, et cetera. it's been good having you. >> thank you >> that's mike wilson from morgan stanley dow, pushing near 3% decline that does it for us. "the exchange" begins now. thank you, scott hi, everybody, and welcome to "the exchange. stocks are selling off sharply today as the bond market flashes that recession warning we have now given up all of yesterday's gains on the tariff delay and then some. in fact, a lot the dow is down 737 points right now. and in terms of sectors the banks, retail, energy, they are getting pummelled. this is not at all just a u.s. story. markets in hong kong, china, japan higher than now but down more than 10% from their recent highs. we are going to get the details on all of this, pluls the record moves in the bond market today but let's again with dom chu who

has a look at where things stand at this hour >> it is session lows. lows of the day, however you want to put it these moves a 745 drop does represent nearly 3% downside this would represent the low point of the session the s&p 500 off by a similar position and nasdaq, the real loser here so far today now remember still below that 3,000 market that a lot of people have been eyeing for the s&p 500. it's not at all red everywhere if you take a look at some of the haven assets, we focus so much on treasuries and yields, take a look at gold prices again, and you can see that up trend has been pretty much in place for the better part of this year, at least the second half of this year so far, we are watching gold prices we are going to end things with the biggest drop in the s&p 500 today. it's not just the mashlrket but also an earnings miss and a

forecast taken down. that's pushing macy's shares off 15% right now. and this has been a big down trend over the course of the last year. plus, we'll continue to watch macy and that regional complex but a very bad day for markets overall. we'll see if they can find some support in the afternoon back over to you, kel. >> we are just down about 758 points so let's get some more on what's contributed to this music swoon. bob pisani is at the nyse with a runthrough, bob. >> and this is a fairly uniform decline. everything is down about 2.5 to 4% cyclicals exposed to the global economy, the retailers, energy, semis, industrials, maybe communication services stocks are weak overall there's only a very few stocks, so where is the bottom well, just a few short-term indicators the recent closing low for the

s&p 500 was 2844 that is the closing low. the 200-day moving is 27 the 95. we're, oh, 50 points away from that right now the immediate cause of the decline, weaker global growth in the form of lower china industrial output and german gdp. that's combining with a couple of other concerns. first that the delaying the tariffs may not necessarily be the magic button that the market hopes it will be but the delay will not necessarily improve the market outlook. finally there are some questions about the limits of effectiveness and other central banks cutting rates that low rates are not having or may not have the same effect as stimulating growth it's a very potent stew. >> and, bob, are you hearing anything in the last half-hour about this latest leg down >> no. the thing i would point out is it's august and liquidity is very light so when you get declines like the dow drops 500 points, the they will widen the bid out, and

you get less liquidity these are called simply risk management by market makers. but to us the loss of liquidity kind of can exacerbate and august is notorious for this, so is september. >> it's living up to its reputation let's talk some more about the mainly moves in the bond market that have investors so worried about a market coming. >> we don't say yield curve every day. so let's just get everybody on the same page here an inversion to the yield curve sounds really technical. it means when short-term bonds yield more than long-term bonds. that's because investors want higher interest rates to lend for a longer period of time. but the 2-year and the 10-year, they flipped this morning. i guess they are slightly positive right now that was the first negative percentage we've had there since before the financial crisis in 2007 and it's a pretty tried and true recession warning i hate to say it but here are three inversions

going back to 1985 each one was a curtain-raiser by anywhere from 13 to 7 months history inversion shows when they go negative, they tend to stay negative for a while. 21 months in the case of 1980. and then we had several others in the 10 to 11-month. on the one hand an invented yield curve is a signal of a recession. it's the pricing othe market on the other hand, it helps cause them he says, and i quote in, the worst case bank profitability turns negative in. the best case, credit only goes to the highest-rated borrowers leave the question of how the fed will respond they meet next september or this coming september 100% chance of a rate cut in september. some percentage chance in there of a 50-basis point cut but not very high right now. you have to go out to january till the market is priced in the third one.

we will get a feel for how the fed thinks about how serious this threat is to the economy. and most importantly comes friday, speech by chairman jerome powell. >> we'll definitely look forward to that. i don't know how he's going to try to address or walk back the mid-cycle language but that's eons away compared to where we stand right now quickly, have there been false positives -- >> not on the negative side. we've had false positives on the decline. if you pull the chart back up, you can see it falls so people get worried and then i come on tv and i say, no, has to no negative to actually signal or create the recession. and for how long some of these charts use quarterly data which means this needs to happen not just for an afternoon but for a weird of weeks or months. >> you don't get a quick run into negative. it tends to stay there and remain negative for quite a while. but with rates so low, is this inversion the same as other inversions? i am not saying it's different this time. i am pointing out there is

$15 trillion of negative yielding debt in the world today. >> and there's plenty of models out there where people say, whatever you want to make of it. >> it's definitely elevated. >> but whether or not it's a certainty is a different question >> that's what we're going to talk about right now ext guests aren't convinced that a recession and market selloff is imminent. joining me are craig callahan, sandy is co-portfolio manager of thevillery balance fund. and it's wonderful to have you all here craig, i'll begin with you because you were saying months ago like brian and others that the fed should cut what do you think the fed should do today, and if you think they are behind the curve, why are you still bullish on stocks? >> bullish based on value. we find the market today to be about 25% below our estimate of fair value so we would expect it to move

higher you're right we did think the fed should have reduced the federal funds rate we would expect them to do it one more time the next time they meet >> yeah. one more time. i mean, at this point you have people in the maet calling for a half-point intermeeting cut, craig. do you see any more urgency than that they can just do one more and be done as far as you're concerned? are you worried about the yield curve inversion? >> no. normally the ones that precede recessions it's because the short-term rates move higher when the fed's tightening. this is a case of the long-term rates coming down. it looks like a pretty crowded trade to me where people are worried about a slowdown they're buying long-term bonds, seeking safety feels like we've been through this many times during this 10-year bull market. >> we have for sure. this just maybe represents a new breach brian, i know in some ways you also think it's different this time you think that we heard what joe said an inverted yield curve, it creates a problem for them but you're saying that that's

not the whole story, is it >> it's not because in the past other yield curves followed along with the treasury curve. this time other yield rves are behaving in differfashions the one that banks use, the fannee and freddy curve, that's actually still possibly. and the ones that banks used, that's actually steepened to the steepest in almost four years. so we're probably actually going to see an increase in shadow banking which will mean stocks will go up probably sometime next month >> so when people say to you, hey, look, i don't want to hear explanations if this time's different, you've been in these markets for so long, how confident are you that these dynamics are really different this time? >> well, i wrote a column yesterday titled "investors have to look at yield curves the way shadow bankers do. because shadow bankings, the things we did with world com and enron, that's more attractive

now nthan it was six months ago and they're going to intensify in the next year or so based on what those yield curves are doing. >> you think they're multiple years, two, three four years out from a credit crisis, not 18 months? >> if you look at the most liquid heavily traded futures contracts in the world, they're telling you that there's a series of rate cuts coming for the next two years and that curve is steeper now, which is telling you that those investors who are closest to the economy think the glob eco is going to slow that, inflation is going to go down and if the fed finally responds to that, that's going to lead to a very positive environment, the same thing that happened at the start of this year when your show debuted, the fed turned around, caught up with the market and we were off to the races. >> and that was just as you had described. so, sandy, meanwhile you are looking at a couple of names in particular, kind of like craig where you say i can still find value in this market, stocks

still look okay to me. talk through that strategy >> yeah. so we're always looking for value in this market we love growthy names, but we love reasonable prices so with the market hitting strangely all-time highs just the end of july, it's tough to find those bargains but we see a lot of value in a name called abiomed and semiconductor and teleflex, that we think you can buy in this volatile environment. >> but you do have a higher cash amount than normal >> we're up as high as 25%, which is more cash than we've held in some time. it's not because we think we're going into some sort of deep recession. we're just not seeing the stocks that we want to buy at the reasonable prices. i'd advise investors to have that laundry list of great high-quality companies and buy them in these dips i think that's going to serve you really, really well looking out two or three years >> craig, one of your list is

financials how the heck can you be a buyer with financials? >> first of all we disagree with the popular notion that banks borrow short and lend long they don't they match six-month cds with six-month loans. they match five-year cds with five-year car loans. they are very good at taking money and marketing it up a few percentage points and so they're making money just fine >> about 20% of warren buffet's portfolio is financials right now. you would also say information technology, and industrials. what happens, so brian's call in a way is predicated on the fed cutting a few more times from here, meeting the market in its demands. are you comfortable with this positioning no matter how many more rate cuts we get from here? >> it's more of a long-term view we think the 10-year bull market is still intact. this is just a pause or a setback. and the leadership for ten years

has been consumer discretionary, technology, financials and industrials and we just simply expect that to resume. >> how long can this cycle keep going, craig >> a few years >> okay. well, that's better than a few months or a few minutes that the market's pricing in right now. brian, finally going back to what you said as well on, look, if the fed meets the markets in these calls for rate cuts, that will be bullish ultimately what if it doesn't >> eventually the fed will have to catch up to the market. this has happened six times in history where the money market investors have been this strident about the fed cutting rates. all the times that happened before the fed finally caught up to the market, except the one time they ignored the market we got the crash of 2008. so i think the fed will eventually get the message from the money markets. remember, those investors, it's not in their interest to cut rates because they spent eight years waiving fees and cutting fees because of the zero rate. so it's not in their interest, but they are making this call as

stridently as they ever have in history. we've had 36 pullbacks before in the last ten years and we're probably going to see another couple dozen more of these if these go five years >> that the cycle keeps going three to five years, the pull backs have been very brief and the rebounds quite sharp sandy, one of the other topics the last couple of weeks that have thrown markets into a frenzy has been the tariffs that were first imposed on china and then yesterday reneiged somewhat how do you consider the president's next move on this, whether it's fully removing the next 10% round or not if he doesn't like the way this news flow is going. how do you factor something like that in? >> i don't think it's going to be something that's going to be protracted and prolonged i believe the president does want to get elected and he's going to try to come up with ultimately some solutions. and this is going to more of some short-term noise over the long run so we would use it to buy stocks

and we think the fed is going to -- they're going to work hand in hand with this. the worst that trade news is, the more likelihood the fed continues to cut rates >> and you don't think -- or what i should say what would make you think, sandy, that there is a recession around the corner that you want to be a seller not a buyer of stocks here >> well, the only thing is even if there is a recession if you go back to the average recession, you know, how stocks acted the eight months prior to a recession since 1945 they were down about 8% off the high here we are down about 6%. so i'm not too nervous about that, and if we were goi into a recession which i don't think we are i would still be a buyer of stocks >> guys, thank you all a lot to really dig into, but on a day like this it's really pre. the dow right now is down about 707 points at the lows we were down 759 that was just in the last 15 minutes or so. we're down about 2.7% for the

major averages and about 3% for the nasdaq today those big gains yesterday after the president delayed those tariffs on china feels like ancient history now. when wilbur ross was asked on squawk box "this morning what the u.s. got in return, he had this to say. >> nobody want to take any chance of disrupting the christmas season -- >> so you're saying we didn't distract anything from china to do this? there was no quid pro quo? >> no. it was a decision made to do what we decided to do. >> well, to talk more about the president's next moves now, joining me are stefanie miller, the co-founder of sandhill strategy and dan mitchell, co-founder for the center of freedom and prosperity great to have you both here. and, stefanie, does this make sense to you is this a win for the u.s. in any way, shape, or form? >> i thought it was a really smart political move because what it ultimately did was say that, you know, we're still

going to be tough because september 1 is going to come around and 10% tariffs on about half of that originally estimated 300 billion in exports. but the other half we're going to take a step back. so, china why don't you come to the table so we can do some things in the near term which i view as giving out exemptions on companies trying to export to huawei and maybe getting china to kind of turn around some of those restrictions on u.s. agricultural imports those would be really helpful to the president over the next month or so. >> for sure. although, dan, if i'm the president yesterday, i save the yield curve from inverting i come in the market's at 500 points i pull back. he barely got a couple of hours of positive response before today just came and wiped that all off. so if you're the president worried about this recession signal and what may be happening, what do you do now? >> first i would say that it's

not really trade i think that's driving their volatility it's the fact that we've had years and years of easy money policy there's too much liquidity in the system and people are just worried that at some points that half the cards collapse. having said that there is no question that the president's trade policy i think has been bad for the economy. i think it was interesting that wilbur ross basically admitted that, yeah, it is consumers who suffer when you have these taxes on international trade so i desperately hope that somehow we have some sort of deal, and hopefully it's a deal that liberalizes markets, not puts restrictions into them. >> but i just find it hard to believe that china says, yeah, we're going to liberalize, no problem. so if the president is worried about the market's decline, worried about a recession being around the corner in time for his re-election, do you expect him to maybe delay all of those 10% tariffs? are we talking about other kinds of stimulus measures he could pull out of his hat?

what should we be thinking about as possibilities >> well, unfortunately, the easy money policies are already baked into the cake. i hope trump doesn't go up to the capitol hill and agree to some pork-filled boondoggle infrastructure plan. it didn't work for obama it. >> won't work any better for trump. so unfortunately there's no substitute for just good long-run policy. good long-run policy is good short-run policy so, yes, continue with tax reform, continue with deregulation stop spending so much money and back away from all these trade wars which are i think compounding all the damage by the fed. >> originally what's happening in bond markets is increasing the calls in some corners. people say we should issue 50 or 100-year debt right now basically for free, use it to fund infrastructure and what's the problem? i mean, do you think that that is likely to become more of a consensus type of view in washington >> yeah. i think that clearly the

president who only a year ago, less than a year ago was a huge proponent of trying to reign in federal spending, he just signed a deal a couple weeks ago that increased federal outlays by about 4% over current levels over the next couple years and so i think he's absolutely trending towards i love this, you know, pork-filled boondogy i think there is going to be a lot of spending potentially our way out of this. >> in what form should we be looking for, infrastructure? >> yeah. so i think the first fight we're going to see is the one coming up on federal funding that hasn't actually happened yet so the current fiscal year funding expires september 30th so i would expect to see a little bit of a delay. but there's going to be conservers trying to reign that in and then i think an infrastructure package is absolutely something that congress is talking about and depending on how the economy is doing, i think the president could help usher it over maybe

next summer or so. >> i think i see a tear in dan's eye slowly, slowly emerging. [ laughter ] but let me ask you, dan, about the fed because the president has already made his frustration very clear thinking they're too tight. there were multiple people saying that the federal reserve needs to cut market rates. so does he turn to the fed and increase the pressure there? >> well, i don't think it's the solution but i think that trump is going to rachet up the pressure even more what frustrates me about this issue is that republicans were criticizing easy money policies when obama was in the white house. now a lot of them have just conveniently did a 180 and they are saying we need easy money policy with trump in the white house. i just don't think you get long-run growth. we see from japan by simply keeping monetary conditions easy i don't like that fiscal policy.

if that approach worked, nations like italy would be economic superstars >> i know what you're saying that, look, the best we've seen it look in the last couple of years, there's been a lot of deregulation happening is that all losing momentum, though >> there's no question that if you look at the spending bill that we just had, the commitment to free markets and limited government, well, certainly it's not there in the democratic party. they are going hardcore socialists, but it's evaporating in the republican party. it's sort of like these guys saying that they ran for office saying that washington's a fess pool now that they're here, they decided that it's a hot tub. [ laughter ] >> what kind of rhetoric -- look, he's already put so much pressure on them i don't know how it could get any worse from here. but if he feels frustrated that the tariff relief offered just a couple of hours of a market rally, would you expect him to go further in that direction >> yeah. i think we see that weekly now on twitter, and in his comments it's clear that he wants to see

more and it's clear that he wished potentially he had more control. and so i absolutely expect there to be a lot more pressure outwardly from him towards the fed. >> all right we're watching the tweets. thank you both i appreciate it. let's get a check on where yields are today this morning that 2-year, 10-year yield inverted and then in it happened again just a short while ago. the 10-year yield continues to sink at absolute levels. and the 30-year has breached its lowest level in quite some time. the 10 year a little bit above the 2-year and the 30-year at just 2.034. the market reaction, well, it's pretty clear on what it makes of all this it doesn't like it the dow is down 685. 2.6% decline the nasdaq down nearly 3%. how about some of the individual movers, luckin coffee shares

down 14% on disappointing earnings today in its first report since going public. it posted a bigger than expected loss the company expects discounts to its drinks in an effort to challenge starbucks' dominance in china mean tile, tilray also reported a wider than expected second quarter loss its sales beat expectations but they also saw an increase in expenses this is the cannabis company it's the third straight day of losses also for uber, which hit another all-time low today as shares fell below $36 and there they are below $34 right now on more than a 7% drop. the company still feeling the buyout from its second quarter loss speaking of pain, how about the transports down more than 2.5% frank holland is here to talk about what else is pressuring that sector. >> i think what else is what people in the trucking industry are thinking about now this today is the first proposal for new trucker rules

in 15 years from the federal agency that regulates truckers really adding to the uncertainty caused by tariffs and plummeting truck rates. the federal motor carrier safety propos right around the market open, big truck stocks seeing a dip beyond the market. now this appears to be a fear of change more than anything else the biggest shift would be allowing drivering to split their mandatory 10-hour rest time, also permitting a break. the american trucking association says they're kind of neutral in this proposal right now. they are still digging into what these changes could mean if they are implemented. remember, this is a proposal but again another layer of uncertainty for an industry already feeling the pain with the trade war with china >> so, in other words, just as they are worried about the economy, they've had direct cost issues here comes this proposal that would add fuel to the fire >> exactly like this is kind of a shift in how people do business

in 2018 it was a shift to the electronic logging device. that kind of shook up the industry even though long-term it didn't create too many problems for individual truckers more than for big companies. this time it's just changing how they are doing business. and the markets they don't like uncertainty. >> that we know for sure, frank. coming up, we'll talk about macy's big miss, about banks under pressure and about going from bad to worse for kmerng the dow down right now don't go anywhere. "the exchange" is back in two minutes.

welcome back we're in the midst of a serious market sell-off this afternoon let's drill down on the action now. joining me are courtney reagan, dom chu, and seema mody. let's talk some shares at macy's tanking today on a major earnings miss and trading at a 9-year low yesterday we saw some relief for the retail sector because the tariffs are being rolled back a bit. even now it's not clear that there was that much relief in that now today the whole sector is tanking again. >> i think there was a lot of confusion yesterday. there still is to be fair. but let's go through macy's. so there were some internal problems to be sure but also

some external factors. so macy's said, look, we had a misexecution a lot of our womens sport ware, mts wasn't what the consumer wanted to buy. a warm weather clothing, that sold pretty low too. and this has been a problem for more than a year in the u.s. that's a problem because international tourists when they shop at macy's are buying fuller-priced merchandise so they're not going for the sales racks and they have few to little returns so when you see that drop shortly from the first quarter, that's going to be an issue. put those things together, macy's had a bunch of inventory, they had to discount at much more than they had planned so that killed the earnings and that killed the margins. but they did it because they wanted to go into the second half of the year very clean because it's really important. but then in the second half we've got these tariffs. some september 1st, some december 15th. macy's said, look, we were prepared to give you guys the

cost analysis of this before yesterday. but now they split it into two >> it's a huge headache for them so even before today's report they were down i think more than half from their recent highs the stock is at its worst level since february of 2010 i mean, i don't want to call in the next j.c. penney >> there's a lot of worries here about the department store sector and jeff addressed that on the call he said i understand there's spheres about our sector, our balance sheet is strong. to be fair, they did grow their comp store sales yes, was just three-tenths of a percent. they still logged $5.5 billion in revenue in one quarter. it's not like nobody's buying. they had a profit, yes, was smaller. i don't think this is fair to say this is the next j.c. penney, but there are problems here and if the international tourists and i love that they don't do a lot of return well, we're not getting on a flight back to go back to harold

square to return stuff [ laughter ] but we heard that from hotel ceos already this year i hate to say it the latest mass shootings over the last week or two, we've seen a number of foreign embassies warning their citizens about traveling to the u.s. >> it's interesting, when you pull up your facts and look at the s&p 500 companies that generate more of their sales here in the u.s., macy's is on the top of that list and you would think that a company like macy's even though it generates most of their sales here in north america that they'd be less vultabl to these international head winds but because a lot of these retailers rely on international foreigners shopping here in the u.s., they're certainly being impacted and that is something that the travel operators, hotels and booking have been impacted by that as well they've been picking on that for a little while >> talking about how it's not just the stronger currency but the trade tensions and in general foreigners feeling less welcome here in the united states >> i just feel like i want to

bring up the fact that you know they announced this whole idea of starting a subscription service? and a renting clothing service >> are you signing up for it >> you know, i need more money [ laughter ] >> we have analysts that look at this and look at macy's and look at what he's doing and saying, look, he is pulling out all of the right strategies he's doing everything he can but you're in macy's which means for the most part you're in a mall mall traffic is lower and the department store format is just not as innovative as it once was. so a lot of people say, like, oh, it's not really him, it's not that he's not doing the right things >> if you break down retail sales in the u.s. department stores are among the worst in terms of -- department stores for sure one of the worst. >> the real es taet they have actually done okay they are loving those low rates.

if you thought it was bad for retailers, it's a brutal day for the banks. are in bear market territory after these moves. the s&p financials are close to correction we've flown in wilfred frost you know, i don't know if you caught it at the top of the show we hear bank analysts. they say it doesn't matter, the banks can still be profitable. citi is trading so far below tangible book market, but this market is totally unforgiving of all that >> the u.s. banks will still be profitable this year, but of course estimates are going to have to come down. the twos, ten inversion doesn't hurt the banks incrementally, but the broad flattening and fall in the yield curve we've seen since the start of august certainly does it. it also increases the chance that we get another fed rate cut. bank of america and citi are the worst performers, both down about 5% that makes sense when you look at their percentage exposure to

net interest income. both have more than 50% of their revenue coming from that yield curve linked part of earnings. and it's a similar story if you look at the performances at the start of the month as well >> i like the point that jim cramer made. he was like warren buffet's money is in these banks. if you're looking for deep value, i guess you can keep looking here the banks themselves are doing so many buy-backs, aren't they >> a lot of buy-backs and a lot of dividends the meeting dividend of the big six is now over 3% they are trading on a pe basis, kelly, at 53% of the s&p 500 average. they always traded a bit of a discount to the s&p 500 but not to that level. so they do look incredibly cheap. if we get more rate cuts, that'll hurt, but will it spur the economy? and if it does and it leads to

more economic activity, that can boost investor banking revenues. if it boosts the level of the equity market. and at the moment valuations aren't suggesting that that's what's expected. but it's certainly a trade that you could play >> so i would say this and this is something i know that wilfred is watching, too. if you look at a chart, a one-year chart of the spider bank etf, that kbe that you were talking about. this is the test of a lower end of a trading range that's been in effect since probably about mid-march at this stage. so you've got the lower at just around 40 bucks and the upper bound at 46. we traded just below 40 today. but that's what i'm saying amidst this idea of a collapsing yield curve. >> but just below 40 >> so these banks have held up extraordinarily well it's only today that you're starting to see this kind of

real move to test that downside again. so maybe that either speaks to this idea that banks have held up relatively well at least the money centers will. other ones maybe not so much >> they also fared better. >> that's the big fear everyone's afraid this is going to turn into a lost decade like it has for the european banks. >> but i'd say actually turn itself on its head the u.s. banks have actually suffered more. the stock 600. banks in europe is only down 8% in the last two weeks. why we have a benefit for the economy in the u.s. that the fed has more room to cut, it also is a negative for the banks that we could see represent a bigger cut relative to the european picture. you can't really get a much worse yield curve for them to operate. >> i thought that weeks ago and months ago and it keeps getting

worse. but thanks, wilf wilfred frost. and if you thought retail and banks were bad, we have one even worse for you because just wait to see what's happening in the energy names apache, hal burton, and in some case multidecade lows. hitting an all-time low. on pace for its fifth straight negative week. investors in this space must be, i don't know what they do. >> the near to medium term and even now longer term down trends, just oil prices is still intact this is a story right now where it's not just about the focus on supply or it has been the world is awash with oil. we have so many inventories here there is always a surprise build in inventories like cushing, oklahoma every weekend we have this the prices have been coming down the issue right now for the oil market is whether or not there will be steps taken by parties outside the u.s., opec and

friends, ropec whatever you want them will they step in and say, hey, maybe we'll cut production more to support oil prices. it's also now in play because of u.s. shale producers where it will not be economically viable for many of these guys to keep on pumping and drilling >> they are hoping we cut supply we are hoping they cut supply. investors are hoping anybody cut supply and consumers are hoping nobody does. >> now there is a possible slowdown in the u.s. economy and growth around the world. so now you're throwing on a wash with supplies, flagging demand at some point somebody will have to step up and say, hey, we have to support oil prices. >> and that's what was i was going to say you've got german exports falling. you've got this bummer of a number out of china. i think it's a 17-year low you've got fears that we are going to cut demand even further. i mean, there is nothing bullish

here for the price of oil. >> and unusually for oil they get hit on both sides. you could go down 2x for every other move in the market and perhaps most importantly we do need to talk about the global nature of this sell-off. more than a dozen global markets are now trading in correction. it includes the uk, italy, china, the hang seng so you have now local leaders saying it's the worst situation there since maybe 2008, maybe even worse than the financial protests for hong kong you have the awful germany data and china data and the question is the u.s. contributing to all of this? or are we just being impacted by it big question for our bond markets. >> and it's a combination of economics and politics that really raises the level of uncertainty that investors are trying to play with. this is the second half of the year this is when the global economy for the most part was supposed to rebound

and we are talking about china unveiling these different types of stimulus packages but it really hasn't taken effect showing industrial production falling the most in 17 years so clearly more needs to be done from the fiscal standpoint for a lot of these governments it's interesting even germany today the data was bad, and, yes, that raises the expectation that the european central bank will cut rates but now there is this idea that germany may unveil their own fiscal package to stimulate their own economy. that's new >> they are running a budget surplus and they are just kind of sitting on it going, no, we are not going to do anything >> you would think this global rate party would raise global stocks >> that's what everybody is talking about today. guys, thank you, all, appreciate it >> seema, dom, and courtney. we are about 200 points off the lows believe it or not the dow was down 759 at those levels

they have moderated to about a 2.25% drop the nasdaq still down 2.5% and guess what, the top tickers on cnbc.com today, 10-year topping the list, then you've got the dow, macy's, the spread that we've been discussing, the two's tens and the s&p 500 now markets across asia are also falling deeper into correction territory on recession fears made worse by the trade war with china the trade war poses an existential threat joining me now is kasie wahl which is a predictive analytics company in tokyo can you give us a sense, what is happening on the ground there as we are watching all of these market movements, what's the economy that you're experiencing >> uh, i think what i see every day and speaking to the different business leaders is everybody's pretty positive here the market's been good for a couple of years right now. everybody in japan for the most part is expecting until the olympics it's going to be a good

economy. after the olympics is going to be a question. so that u.s./china trade war that you mentioned, that's the big existential threat right now. >> you might've thought worse relations mean better outcomes for japan and south korea. but they're actually in a fight with one another right now, right? >> that is true. i think it's more on the political spectrum so that's actually been in the background for kind of years. in the 20 years that i've been here, that goes kind, that goes kind of a little bit low in terms of how loud that gets. right now it's at a peak moment, it's not very good, but it's carrying into the business sentiment. we are just not seeing it right now. in the market, then we'll see some economic effects here >> fair enough what is the attitude in japan, broadly speaking about the u.s./china trade spat? >> there's worries like, it's unpredictable so is japan going to get wrap

neighborhood this in a different way? is the global order going to change a little bit? but there's quite a lot of business leaders that are this is opportunistic can japan take an advantage of this do a little bit of a deal here, get some more kind of trade going either way so there are a lot of opportunistic players out there in the market, business leaders thinking that japan can capitalize here. >> and finally what about hong kong, just seeing the way that that's gone and how much of a disruption it's been to business throughout the asian region. is this something they're going to be able to bounce back from or not >> um, hong kong's a little bit outside of my sphere, but i really do hope so. i think in kinds of the terms of the tourists and how that affects the japanese economy, we have south korea negative. so the trading partners around japan, there are concerns about that but overall, the economy here i think going to be boyant until

after the olympics >> i love that caveat, until after the olympics remember very similar thing in the uk in 2012 casey, thanks so much for joining me he is ceo of attuned in tokyo. some troubling signals from the bond market roiling stocks today with the dow falling 759 points below a gngo head to the new york stock exchange on a trader's perspective memory support brand. you can find it in the vitamin aisle in stores everywhere. prevagen. healthier brain. better life.

welcome back and take a look at these markets. the dow is down about 2.3% right now. that's 608 points. we're 150 points off session lows the nasdaq down 2.6% and the 10-year note down. falling to an all-time low right now it's just above those levels at 2.3% joining me are peter bookvar, matthew is designated marketmaker down at the nyse and art cashon is director of floor operations arton, let me just start with you, having been a long-time market watcher, how worried are you about the yield curve

inversion today and what it means to be economy? >> well, you have to couple it with the fact that we had some very bad news, economic news out of china and bad news out of germany. then we had the inversion which kind of hinted to people that maybe even here in the u.s. we are headed toward a recession. but the lead time on the inversion tends to be anywhere from 14 to 22 months so it's not around the corner. but we started trading down, and i think from a technical basis they look like they wanted to test the august lows, which are 28, 22 in the s&p and 25, 440 in the dow jones. they headed in that direction. but then they seemed to get a mild case of exhaustion. so we'll see it still feels like we are going to get a retest of those levels sometime over the next couple of days. >> and matt, the inversion happened this morning during the global trading session the uk curve inverted. canada's curve is more inverted than ours is

is the u.s. just importing these problems >> i don't know if they're importing it by any means. i think we were close to testing it on monday we saw the news come out of the trump camp yesterday about the china tariff talks. talks. this was in the cloudards we can move on from this we sought china devaluation that occurred the other day, went across 7, that was almost a one or two day event we have forgotten about that now. so we're on to new and better, i think more alarming here is the economic news that we got out of china and germany as arthur mentioned. that's definitely probably going to scare the market more as we approach the next couple of weeks. >> when you say we can live with this inversion, do you mean that we will get used to it being the case and that stocks will continue to move to new highs and the economy will be fine >> i don't know, i'm not going to say all that, for stocks, historically, we see a 12-month run-up after this occurs before, you know, the market really sees the downturn based on the

inversion. we may have time, if you think you're going to market time this event right now, you may be a little ahead of the curve. >> market timing, peter, you got to tread carefully -- trying to ever do that what do you think this is the real information here that we're learning from these moves today? >> i think it is obvious that it is reflecting the slowdown the two 10s is the last domino of the yield curve we have been seeing inversions happening for months now and particularly the three month and the ten year has been inverted for more than 30 days and the interesting thing about the 2s and 10s is it started to narrow soon after the election. >> this trend has been going on for a couple of years. >> exactly started with when the fed raised rates, it pays to flatten the curve. as it got deeper with their eight or nine hikes, the curve got flatter and flatter and flatter. you throw on the tariffs and the anchor of negative interest rates in europe, and you have what we have now but don't mistaken the signaling

is very clear. it is just a question of to what degree do we have the slowdown and whether central banks are going to be enough to offset it with their easing which i don't think they will. >> fair enough, art, going back to the overseas issues, they're pretty severe and, you know, every year the markets get more globally intertwined would you take a grain of salt about the severity of u.s. downturn here? >> no, i think you got to combine many of those things we looked at some of the geopolitical stuff you still got hong kong, how will that be resolved? will that in fact relate to trade talks with china will that make them less likely to make any trade concessions? you got to look at what's going on between pakistan and india. so away from economics, we have got some things to make you nervous out there. i think the markets will continue to be that nervous. >> yeah, it was interesting when you said that people know in the past it has taken some time for this to play out are there going to be people

jumping into the market to ride the sort of -- the final upswing if you will, until they feel like they see signs that it is coming to an end >> i think they feel they have plenty of time here, so they may try to ride it, i think within the next couple of days, we're going to retest the august lows. >> okay. and matt >> yeah, you know if you think you have 12 months and you'll start to market time, there are probably opportunities you want to take in here, they're taking some -- taking some, you know, some healthy numbers out of here, the financials these things are down pretty aggressively based on what they expect, you know, their earnings to be looking like going forward because of the yield curve inversion. so you know, you are going to be able to have some opportunities to take a shot here and day trade. i'm not certain you're going to want to take a long-term position just based on this historical data that says, you know, 12 months from now we should be all right. >> peter, it is interesting, we are in the month of august we're seeing extreme moves

if you flip this around, the price action bonds has been effectively a meltup bubbly feeling. so what happens as we turn the calendar september as heavier volume comes back, as people, you know, maybe take off some of the panic that they have right now, does all of this unwind or not? >> for the bond market, the next big event is what does the ecb do do they follow through with the ten basis cut, do they follow through with qe? if for whatever reason they don't, because let's say they're worried about the european banking system and what happened there, you can actually have a rather sharp sell-off in global bond markets if they follow through, what is the wording around that? is it -- is that it? are they going to pass it off to try to get government to do fiscal >> does that mean the fed has to do more or less? >> that's the question the mistake that people will make right now is relying too much on the fed to save the situation. i think right from here on out the fed put is gone. it is good news will be good

news, bad news will be bad news in terms of the fundamentals and anybody relying on the fed to save us through rate cuts i think is going to be misplaced >> we'll leave it right there. gentlemen, thank you, all, appreciate it. despite the plunging bond yields, no help for the home builders today that group falling after new data showed the supply of newly built homes for sale fell in the second quarter, the first annual drop in six years. there was a drop in potential home buyers. joining me to talk about the key part of the economy is mark zandi and diana olick. some troubling signs for the second quarter, but then this morning some signs of life in response to lower rates, right >> yeah, we saw a huge boost in refinance activity, up 196% from a year ago on those applications but, remember, a year ago refis were nowhere they had nowhere to go but up. and rates are not quite as low as they were in 2012 and 2013.

we saw that nice jump in refis, purchase applications not so much the buyers seem to need more than low interest rates because they're up against many other factors. high prices, low inventory, and concern about the economy, kelly. >> and, mark, how would you read the housing market last time around the entire business cycle, it led us into the crash, what happens as prices keep going up now and rates keep sinking. >> well, i think housing is kind of treading water. i think diana nailed the reasons why. we have a lack of inconvenieven growing concerns about the economy by potential home buyers i'll throw one other factor in, that is tightening underwriting standards. lenders are very nervous about high debt to income lending. so they pulled back on that. so all those things are contributing to weighing on the housing market in a downturn, housing is not going to lead the way like it did in the last recession and unlike in previous recessions, i don't think housing is going to

be the major contributor to the downturn there is a very severe shortage of available housing, new housing. and that will put a nice floor under house prices and rent. so it will suffer in recession, but won't be a contributing factor or certainly not lead the economy into recession. >> do you see anything, mark, you think would be the leading sort of indicator or lead us that way this time around? >> well, certainly manufacturing, transportation, distribution, all back to the trade war, the trade war is doing very serious damage to the entire global economy. we saw it in europe, german economy in recession, chinese economy, central banks throughout asia, cut interest rates, they're nervous so the global economy is struggling and that's going to hurt manufacturing here, transportation and distribution. here's one other soft place, though that is -- we had been talking about this leverage lending, lending that is being done to companies that are already pretty highly levered. very aggressive lending there, those companies are going to

struggle if sales begin to weaken and then at some point they have the hop son choice, do i make my debt payment or i do cut back on my investment and hiring i don't think the leverage lending problem is the catalyst for a downturn that's trade but if trade weakens the economy, that will makeproblem very difficult for those businesses >> diana, meanwhile, is there a level in rates you mentioned that the conforming loan rate went below 4% last week what are the levels to look for to see a bigger response if we're going to get one in terms of housing demand? >> well, you know, back in 2012, 2013, we saw the big response and increase in home sales, home buying, that is when we saw rates around 3.5%, even 3.25%. we he need need to see them go n more confidence. it is surprising to me to see as mortgage rates were falling from january until now that the home builders really were not taking that sign to move forward and build more

housing starts are down 6% in the first half of this year from the same period a year ago why aren't builders having more confidence why don't they expect more volume why aren't they preparing for that that's the big question out there. maybe they don't see buyers coming in at these rates because affordability is just so bad right now that even those lower rates are not offsetting that. >> mark brought this up, in terms of the lending standards now, fannie and freddie did introduce a new fico score, if you will what is the significance of that >> they didn't introduce it yet. what they're doing is allowing vantage score, another type of scoring, to get into the market. they'll be over the next two years, deciding which types of new scoring will be allowed and will be backed by fannie and freddie. the entire mortgage market is set for reform in the next couple of years. so we're going to see a lot of changes in lending i don't see so much tightening as mark is talking about right now. i do see that lenders need more volume because refis were so low last year. so i don't see that happening for a couple of years yet.

>> couple of years, all right, thank you, both. diana, we'll see you soon, mark, thank you. that does it for "the exchange." thank you for tuning in. i'll join "power lunch" which begins now. >> we'll see you in a moment i'm melissa lee with power lunch. stocks off the lows of the s session now. we're wiping out yesterday's big gains and then some. the nasdaq sinking about 2.6% right now. look at this, it was this chart that sparked the sell-off, the ten year falling below the two year yield earlier this morning. this inversion has seen the recession the last three times it has happened. >> welcome, everybody. i'm tyler mathisen we're covering every angle of this big market sell-off bob pisani is in the thick of it at the nor