♪♪ fed chair jerome powell signals it's time to start reducing its historic emergency economic support >> my view is that the substantial further progress test has been met for inflation. >> it's a decision that will affect everything from the market to the economy to your investments. we're covering it all tonight. a cnbc special edition of "fast money. the fed effect starts now. >> hi there. welcome to a special edition of "fast money. i'm leslie picker. jim cramer is off tonight. tonight, the focus is on the fed.

chair jerome powell signaling it's time. it's time for an eventual winding down of the emergency economic stimulus program. here is why this matters the fed influences just about everything part of our financial lives, whether it's directly or indirectly it keeps money flowing through the economy. it insures that banks can give out loans. it steps in during times of crisis and that's what we're coming out of a crisis driven by the pandemic. in response, the fed lowered borrowing costs and purchased securities to stabilize the economy. today, though, growth is back. the stock market at all-time highs. the housing market shattering records. in fact, the prices of most things we buy are going up the fed believes it's time to pull back on that stimulus, a move referred to as the taper. a word you'll hear a lot tonight. following that, the fed may look to hike interest rates as well a policy shift even the hint of one will impact your investors the economy, even the value of

your home, potentially, that's what we're going to dive into tonight. but first, let's start with the news of the day. the dow and s&p finished at records after mowal said the economy is making progress and sees a taper later this year steve liesman is here with the details. hey, steve >> hey, leslie thanks for explaining all that complicated stuff so i don't have to. fed chair jay powell tip toeing carefully through the taper mine field, saying he thought the fed was on track to taper this year, but not saying precisely when. >> my view is that the substantial further progress test has been met for inflation. there has also been clear progress toward maximum employment at the fomc's recent july meeting, i was of the view, as were most participants, that if the economy evolved broadly as anticipated, it could be appropriate to start reducing the pace of asset purchases this

year >> powell said the outlook for jobs had indeed brightened and that inflation, the problems we're having right now with high inflation, will likely prove to be transitory, they'll go away soon, he says, and the rate hikes require a higher standard than tapering. that would be further down the road now, in an exclusive cnbc interview, the fed vice chair, richard clarida followed up the speech by saying he expects the economic to meet the fed's condition for tapering >> we have had 800,000 jobs per month for the last three months, and so i expect that those gains will continue in the fall. if that happens, i would also support commencing reduction in the pace of our purchases later this year. >> while powell was careful about pinning down the taper timing, several presidents said they had growing concerns inflation could prove to be a more permanent problem and that the fed's asset purchases were doing more harm than good, but

most were united in saying they did not think the delta variant posed much of an economic threat >> that was really interesting, steve. stay with us let's bring in a former fed insider who can give us insight into the central bank's thinking richard fisher, former fed president and contributor with us thank you very much for being here after this very important week, especially as it pertained to your area of expertise. i want to just play a sound bite from powell today where he talks about just this idea of inflation being transient or potentially not. take a listen. >> there are inflation pressures as well. those are a little bit more difficult to dissect right now it's really tough to tell how much of that is transitory, how much is going to be permanent. >> okay, so richard, what is the risk, what is the potential that inflation does not turn out to be transitory? what does that mean from a policy standpoint given you

can't just kind of snap your fingers and have things change when it comes to monetary policy these things take time to work their way through the economy, through the financial system >> well, actually, jay powell acknowledged that in his speech. he mentioned specifically that central bankers have long been concerned about trying to differentiate between transitory inflationary pressures and those that take grip and become more permanent in the economy he acknowledged that directly. i thought it was a smart thing to do. he added that if that's the case, that they see it's not a transitory influence, given that it takes, as he put it in the speech, 12 months or a year for policy actions by the federal reserve to work its way into the real economy, that they would take the appropriate actions so i thought that was the appropriate thing for him to say. meanwhile, he wanted most of the speech dealt with the issue of inflation. and i think they still have this conviction i hope they're right

but he did acknowledge the fact that if they're wrong, then they would have to step on the brakes and i thought that was the appropriate thing to do. >> steve, markets reacted pretty positively to what they heard today. especially the equity markets in particular is that a good thing you know, there was an article by larry summers in "the washington post" yesterday, where he said that this quantitative easing is running basically at levels that, you know, have want really been fully analyzed as appropriate. there is previous commitments and a reluctance to accept the immediate pain and dislocation associated with changing course. in other words, the markets react to this kind of thing. so it's really difficult to pivot and at risk of upsetting the capital markets as they are. but is that tough decision making necessary sometimes >> yeah, i mean, there is a

school of thought that the fed's job is to take away the punch bowl and what powell said today, i think one way to put it, is the punch bowl is going to be around for a bit longer we're just going to reduce the level of punch in the bowl and maybe serve you up somewhat smaller glasses out there. look, you gotta go back and understand a little of the history here i think richard fisher lived through this as a policymaker, which was the taper tantrum. back in 2013, ben bernanke, the fed chairman, said we're going to think about tapering. and the markets freaked out. so everything that powell's been doing has been to allow himself to reduce the amount of stimulus to the economy without freaking out the markets. the trouble is, and this is summers' point, are they just delaying the pain that will come from ripping the band-aid off? or can they get away by taking

the band-aid off without creating the pain. >> let's ask richard what do you make of the taper tap dance that's been going on >> steve makes a very good reference. and the taper tantrum sent the markets into a tizzy the chairman of my board at the dallas fed then was herb keller, founder of southwest airlines, a colorful character he used to remind people he drank more wild turkey bourbon than anyone on the planet. i'll never forget his comment after bernanke made the comments because he was my chairman in 2013 you can't go from wild turkey to cold turkey overnight without creating enormous risk so powell's very aware of this he joined us in 2012 he went through the 2013 experience and i actually feel he's handled this just right. the market is ready. the market knows that they will begin to taper the question is when, not if and setting that up, i think,

was bearing in mind herb keller's wisdom. >> leslie, i want to add one thing to what richard's saying everybody should understand the fed has two tools. the first is to lower interest rates to zero. the second is the asset purchases we're talking about. what powell has struggled to do is make sure the market understands we can pull back on this lever of asset purchases and not change the lever of interest rates powell's been very successful at that the stock market might go a little crazy up and down with the talk of the taper. what's interesting, though, is the bond market has been anchored like a concrete pillar and not changed at all its expectations of those first rate hikes. we have been coming on saying that guys who -- the kind of job that richard used to have, president of this bank or the dallas bank or that bank, they're ready to taper what's happened to interest rates? they haven't moved at all. in this regard, i think that powell's been very successful.

we'll see how it all comes out later. but if his initial idea was, hey, i'm going to let the markets give me the flexibility to do that, it's been an extraordinary run for him. >> that's a really, really good point. we were just talking about that on "fast money," divorcing the two successfully you can see the reaction in the various types of markets i also appreciate from both of you the thanksgiving analogies we have cold turkey, we have punch. >> and barben. we have bourbon. >> and bourbon there you go we're set. all set to go. richard, i want to give the last word to you on this whole idea that steve was talking about with regard to kind of the tone and the communication that powell had today what do you make of it >> well, look, he's a mild figure that's what you expect of a central banker someone who is serious and sticks to his knitting they have been consistent on this theme for a very long time.

and i just think his mannerisms evoke what you expect to see in a central banker one of my mentors was paul volcker, and i have known all the central bank chairmen since then i worked under three greenspan and bernanke and yellen and it's very important that their physical countenance, the way they express themselves reflects what one expects of a central banker i'll set aside my personal friendship with chairman powell and the fact we play golf just to say he conducts himself with a proper manner. and this is very important, especially in the washington that we have today when everyone takes extreme positions, are very harsh, and their expressions are sometimes bordering on profanity the central bank has to be the most serious, grown-up institution in any country and i think powell reflects that well >> we'll chat offline about

whether the same is true on the golf course. especially if he's the one behind anyway, we appreciate you both being here thank you to richard and steve i hope you have a great friday night. >> our next guest has a warning for investors. stagflation, not inflation, is the real risk to the economy and the market with us now is nancy davis, founder and chief investment officer at quadratic capital management it's great to see you. in powell's speech today, we heard inflation. we heard deflationary forces, but stagflation is something that seems to be more under the radar at this point in time. why is that a concern of yours >> so stagflation the last time we had it, leslie, was in the 1970s. it was from the oil embargo. clearly, that's not happening today. but we are experiencing a labor crisis where i took my son to burger king the other night for dinner their help wanted applications were all over the counter. people cannot get enough labor

plus, we're also hit with the global chip crisis, and chips go into everything. so i do think stagflation is something that should be on investors' radars because that's typically when both stocks and bonds sell off together. >> so what would you say to the argument that those issues, especially as it pertains to the labor force and pertains to supply chain, are transitory, are temporary? they're bottlenecks that will ultimately get filtered out as things return to normal with regard to covid. is that your viewpoint or do you think they're more enduring? >> i definitely think they're temporary. i think the problem, though, is prices equity markets and credit markets, so corporate america, is priced for perfection, right? we're priced in for a super high growth environment, very strong earnings per share and if companies cannot deliver on those expectations, that's when you can have a pullback in both credit on the bond side and

also stocks on the equity side so i think it's really not -- yes, all these things will be temporary, and we will get through it, and things will normalize. it's just a question of whether we're going to have some bumps in the road because corporate america's priced so strongly >> so then, should investors be hedging against stagflation? if so, how should they do it >> so, stagflation is a weird thing, right it's a very strange -- it's higher prices but lower growth it's very hard to know what would actually work in stagflation. i don't think oil would necessarily, although it did work in the '70s, i think that was the cause of it. i don't think that would be a good hedge potentially adding inflation protected securities would be helpful to portfolios i also think owning volatility, i know leslie, you and i go way back, and volatility is a passion of mine. and i think it's a nice

non-correlated asset to own, but i like in this environment interest rate volatility, not when most people hear volatility, they think equity, but anything that has an options market has a volatility market because volatility goes into pricing options. so specifically i like fixed income volatility. i think it's a good buy. >> you're bringing me back to my business school days thank you, nancy davis always great to see you. >> now to the markets and the hottest trade that's been fueled by the fed, faang, facebook, amazon, apple, netflix, and google have gained $1.7 trillion that's trillion with a "t" dollars in market value so far this year, making up about 28% of the s&p's gains here's the theory. lower rates making investing in growth stocks more attractive because future earnings become worth more in today's money. but the opposite is true, too, so will higher rates kill the

trade that's propelled the market higher? is there kind of this reversion to the mean possibility in the market right now let's bring in delano sapporo, cnbc contributor and founder of new street advisers. thank you very much for joining us what do you make is this idea that what goes up must come down if various factors such as interest rate increases are present? >> leslie, that's a great question there's a couple factors that play into it as you mentioned, the formula, we also have to look at earnings and how we're projecting earnings going forward if you're seeing a rise in yields, that's going to affect your value, the present value of the future cash flows, but when you look at these companies, a big thing that pulled forward and is driving the price is the earnings for these companies, especially during the throes we're going through in 2020. we saw a lot of demand pick up, especially for stay-at-home moves, a lot of the growth plays. if you're looking forward, what happens, we saw that normalize, a lot of these companies and

management had normalized numbers in the last couple quarters but that trend is still going to pick up i highly believe in the trend, we're talking about mega cap growth, and we're going to see these earnings pick up, especially for these companies long term. >> so should investors then be compartmentalizing this because you have on one hand these demographic forces, these macro forces that are serving as tailwinds for the companies and on the other hand, you have potential for the cost of capital to increase. how do you square those if you're an investor right now >> you have to definitely look at both sides. i think that's a great point, and one, you're looking at the macro environment and what the fed does we saw today chairman powell give a lot of confidence to the markets in what their plan has been for going forward for a while now, so i think you have to look at both sides and really drill down into certain companies that you really like going forward. if you're looking at a company, say netflix, a company that has subscriber growth and a lot of that is coming internationally as well. that's an area where i think there's going to be a lot going

forward for netflix to capitalize on. facebook and google, these are companies that perform really well year to date, there's options for a lot of people to drill down into certain companies they like the business model going forward, despite what may happen on a macro level as far as rates. >> if we can bring up the full screen showing the year to date performance, it's clear there has already begun this dispersion effect taking effect among these names. alphabet up 67%, amazon up 5% year to date what do you think is the big risk for big tech moving forward? >> i definitely think the big risk is going to be how the game theory plays into if there's a raise in rates we just had a great discussion on the fed and tapering and different things that may happen that's going to be kind of that theory play, as you mentioned the markets are anticipating a kind of a slowdown in growth, and that could play into a sort of near term sell-off

correction i think that's the biggest risk. but i think long term, with a lot of liquidity we still have with m-2 and money supplies still at its highest levels, i think that will be support for a lot of these companies and then look at earnings going forward and how the companies are capitalizing on a lot of the stimulus they have and organic growth, but in the near tomorrow, you want to look at the macro. >> thanks for keeping an eye on it >> coming up on this special edition of "fast money," money has been rushing into some speculative areas of the market, but what happens when the fed changes course and is no longer there? an expert weighs in when we return with live better u, my 'what ifs' were erased. ♪ ♪ ♪ ♪ experience, hyper performance ♪

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we're seeing unintended side effects. excess risk taking and particularly in the credit markets. you're seeing some distortions and excesses that i think are going to need to get normalized. >> that was dallas fed president robert kaplan yesterday on cnbc talking about excessive risk taking, particularly in terms of unusually tight credit spreads fueled by low rates. that behavior in all parts of the financial market has long been a concern of central

bankers. and it may be one reason why we have seen a flood of money going into more speculative investors. so what happens when the fed changes its policy let's bring in tom lee, head of research at global advisers and cnbc contributor tom, what do you make of this idea that as kaplan was alluding to, the fed kind of changes course, and then thee things just normalize is it linear like that or it does take a little more than just kind of one thing goes up like interest rates and then speculative assets go down >> i mean, we're in an extraordinary period because the fed has been so accommodative, and i think investors have really benefitted from this long enough that taking away the accommodation and tapering is going to be a huge adjustment. so i don't think anything is going to be linear and i think there is going to be a lot of market adjustments that take place once markets begin to

realize tapering is taking place. so it could be very painful in some areas of the market, yes. >> analysts will come on our air, we'll talk to sources that point to a couple areas i wanted to get your thoughts on. they point to things like the meme stock activity, they'll point to spacs, to nfts, nonfungible tokens, to crypto as evidence of kind of these pockets of excess in terms of what's they have been seeing with regard to price activity. how do you kind of assess these various areas and those that are more sensitive to monetary policy >> you know, i think we're going to know as we get closer to a period of adjustment what is grounded on fundamentals and what's supported purely by liquidity or by, you know, the reflexivity, assuming other people are buying things i don't necessarily agree that nfts or crypto is in a bubble in that manner. and i think as you know, spacs

are largely a capital structure, and so i think there are going to be some spacs that can take advantage of this, and there's going to be a lot of sort of despac entities that might rerate it's going to be a winners versus losers, and as warren buffett says, it's going to be a moment when the tide goes up and we can see who is wearing a bathing suit >> that is one of my favorite buffett quotes as well where do you see the winners and losers what types of companies can be opportunistic here >> you know, i think there's a lot of things that have changed since the start of the pandemic. you know, one is that there are a lot of businesses that have fundamentally drastically reduced cost, and that benefit is going to be decades of re-engineering, over 18 months, they had a chance to take a look at their operations and cut costs. i think a lot of s&p 500 companies fall into that category even in places like leisure and theme parks, you know, like a six flags, these companies have done a great job of really rethinking how they serve and

delight customers. so it's not as easy to say the whole market should have a drastic adjustment and then i think there's really a demand story out there i think there's a lot of pent-up demand, and we are seeing things where more investments coming, whether it's people moving to the suburbs or supply chains moving to america, these are big structural changes and maybe they hurt companies outside of the u.s. it's a really important question, once accommodations sort of starts to come off, but i do think it's not something to say that the entire stock market will, you know, have the rug pulled out from under it >> interesting so what do you think is going to happen with the broader stock market, as you listen to fed officials speak this week? chair jay powell speak today have you changed your assessment for what the stock market looks like moving forward? >> i think the stock market in 12 months is in great shape because we're in the midst of an

expansion, and there's a lot of pent-up demand and for the first time in a long time, a real demand growth. but it would be incorrect to say stocks will sail through a fed tapering easily. i think everyone should raise for a period of volatility, and then it's hard to tell if the sell-off starts before the fed because the market is anticipating it or if it's in response to the fed, but i would expect a lot of turbulence >> we'll look out for that it's what keeps our jobs interesting, and we appreciate your commentary. tom lee, thank you for being here >> yeah, thanks. >> still ahead on this special edition of "fast money," did the fed give the green light to bet on the banks we'll ask a veteran analyst which stocks are on his buy list

financial stocks on fire since the pandemic low up about 120%. outperforming the s&p 500. if the fed begins winding down its bond purchases, it could push up longer term rates which in theory helps most bank stocks, so is now the time to go all in let's bring in gerard cassidy, the manager director and head of u.s. bank equity strategy at rbc capital markets. do you think the recent move upward in bank stocks is pricing in a potential shift in fed policy or do you think they still have room to run and the market is still trying to dissect what is going on here? >> well, leslie, i think it's a combination of both. clearly, the ten-year government bond yield as you know, bottomed out around 1.15 basis points

it's up to 1.30 today. that has an effect on the steepening yield curve i think the market is also determining that as you heard today in jackson hole from chairman powell, there's a very high likelihood that tapering could begin by the end of the year and of course, if they start cutting back on their bond purchases, there is a likelihood that the yield curve could steepen even further, which would be positive for the banks. i think the move you have recently seen in the banks is reflective of both rates moving up already, but also the anticipation it could go even higher over the next 12 to 18 month. >> not all banks are created equally, of course, as we alluded to in the intro here it's those that are making loans and that's the bulk of their business that are potentially poised to benefit here, but there are also investment banks and other types of financials out there. do you believe that those that are kind of the bigger lending focused firms that are the ones that are poised to benefit or

are there others that could also benefit in ways that may not be as obvious >> i think what we're going to see, leslie, is a rising tide lifts all ships. so many if not all of the banks will benefit from a stronger economy in the steeper yield curve should it start to materialize further over the next three to six months but there are some banks that could benefit even further when you look at the assets sensitivity of the balance sheets of the banks and asset sensitivity is essentially the assets reprice faster than your funding costs primarily deposits, and some banks are more positioned to benefit from the steeper curve and more importantly, when the fed decides to raise the short end of the curve, which of course is fed fund rates, they'll do even better names of bank of america, wells fargo, and then the custody banks especially, names like bank of new york and state street, would all benefit very nicely should this yield curve steepen and we start to see higher short term interest rates, possibly as soon as the second half of 2022.

>> how important are dividends and buybacks to what we're seeing so far in the market with regard to banks? just recently, this summer, the fed after a pandemic induced hiatus, allowed firms to return capital to shareholders through buybacks and dividends in a way that was no longer capped. do you think this is an important calculus as investors are looking ahead in terms of investing in banks right now >> i think it is because when you look at the industry, it's overcapitalized, following the financial crisis, as you know, the capital ratios for the industry were changed dramatically banks were forced to raise capital. they had been extremely profitable for the ten years following the financial crisis and they built up enormous levels of capital, and to your point, the fed did temporarily suspend buybacks during the pandemic they lifted that suspension on july 1st so when investors look at banks, this is definitely one of the pieces that they use to

determine when they should buy bank stocks, and we fully believe the return of excess capital or the capital action plans which includes dividend increases and buybacks will continue indefinitely into the future because, again, the banks are very profitable and on top of that, they have excess levels of capital >> and against that backdrop, they do have a looming threat in fintech. we saw the news earlier with regard to a firm's partnership with amazon. how concerned do you think investors should be with regard to competition from these newer technologies creeping into the traditional banking space? >> i think it's something we need to pay attention to we never dismiss the fintech companies, but they're fairly narrowly focused so they're really competing around the edges for customers that want a full-fledged banking relationship you need to go to a commercial bank what i mean by that for a consumer, it's not just a deposit account, it's not just a buy now pay later account which is what affirm is known for, as

you know, so it's the full breadth of products. whether it's credit cards, mortgages, wealth management services on the commercial side, the banks have very strong treasury operations and to dislodge the banks from that business, it would be very difficult for the fintech companies. lastly, the banks have been spending billions of dollars on technology bank of america has got some of the best consumer digital offerings of all of the companies, fintech and banks so the banks are not sitting on their hands not investing in technology they're at the cutting edge. especially our very large banks like bank of america and jpmorgan >> i think despite the recent run, they're still gnaw valued like tech companies. i am sure they wish they were. gerard cassidy, we appreciate you being here tonight thank you. >> thank you, leslie >> we have a lot more coming your way on this special edition of "fast money." up next, stocks that pay you back dividend plays we were just talking about dividends, always popular, and they may get a lot more attention if an eventual fed

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welcome back to the special edition of "fast money." i'm leslie picker.

protecting your portfolio is what every investor tries to do, but if the fed pulls back on asset purchases, it could push a lot of investors into dividend stocks a way to generate income we asked mike santoli to take a look at that part of the market. >> while it's thard to say for sure how the bond market might respond if the fed begins to reduce its asset purchases in coming mupg, it is the first step toward an eventual boost to interest rates that fixed income investors might fear while not a perfect substitute to bonds, dividend paying stocks can offer cash income and a play on higher inflation over time. stocks with healthy yields have in fact performed fairly well since late last year davis research points out in the last so-called fed taper from 2013 into 2014, dividend paying stocks began to outperform nonpayers a few months after the taper began. funds that hold higher yielding

stocks such as the spider s&p 500 high dividend etf with a current 4.7% yield, have heavy allocations to the financial sector which also tends to benefit from higher yields as the fed moves toward tighter policies, offering another potential hedge as the economic expansion matures. because shares with the highest absolute yields are often in struggling industries or from companies at risk of cutting their payouts, many financial advisers prefer companies with sustainable dividends and a history of increasing them the pro shares s&p 500 dividend aristocrats etf holds shares of companies that have raised their dividends for at least the past 25 years consecutively for sure, such stocks would lag the broader market if it were again to be dominated by zero yielding companies such as alphabet, facebook, and netflix, and no collection of large stocks offers complete protection from an economic downturn or fed policy misstep, but with the s&p 500, more than double its march 2020 low and

policymakers set to pull back on easy money policies, dividend stocks can offer a smoother ride along the way. back over to you >> thank you, mike clearly an inflection point for dividend stocks. especially as investors wait for the fed to taper they rely on these for income, but how do you determine if it's a solid investment or if there's any risk behind the boundful yield. joining us now is kevin simpson, founder and portfolio manager of capital wealth planning. hey, kevin how are you? >> i'm great i have to send michael a thank you card for that primer awesome stuff. >> yeah, always one to bring the information, that mike santoli kevin, so this is a big challenge for investors, really since the financial crisis, to find yield amid low interest rates. so dividends have been one way to do it but not all dividend stocks are creating equally how do you assess which ones to buy, especially given all of the uncertainties out there right now? >> yeah, you know, dividend

stocks aren't all created equal. too often, investors are looking for the highest dividend out there. as michael just alluded to, it's not always the best way to look for a solid quality investment here's how i break it down for my son we can all go out and buy anything we want we can take a credit card, we have purchasing power. we can buy anything. but being able to buy something doesn't mean we're able to afford it. and the same approach has to be taken to dividend paying stocks. any company can go out there and raise their dividends like crazy. they can leverage, they can do anything what we think is so much more important is looking for companies that are paying dividends and are raising dividends for the right reasons, which means they're increasing their earnings and they have free cash flow so that they can afford to pay those dividends. >> so which companies are those, then where should we be looking for that type of opportunity >> well, the aristocrats are a great example. you have 25 years of dividend growth, and that's fantastic but 25 years is a long time. i have a lot of trouble

remembering yesterday, five years ago, let alone 25 years ago. so we look back four or five years. we look for companies that are increasing at a rate of about 10% to 15% over the past five years. so let me give you four stocks that i own apple, chevron, mcdonald's, walmart. these are great companies, they're in four different sectors. there are four different levels of the yield profile, but each one of them has a common theme which is they increase their dividends because they increase their earnings and if we were to allocate equally to these four names, the combined dividend would be 2.7%. and leslie, that's twice what you can get in the ten-year treasury right nu. >> what do you tell your son and our audience about what to do when these companies, which sound amazing in terms of their ability to generate capital return to investors, do they also get the same benefit in terms of capital appreciation? or is that just not something you're prioritizing as much right now, these companies that

do tend to have strong dividends, grow their divndz, but as you look ahead to what's going on with regard to fed policy, are they also able to generate that capital appreciation that we have been so used to over the last year or so >> well, maybe we have been spoiled. i don't know about used to, but these are great companies that have made people very wealthy over the long, long term incredible companies that continue to increase earnings. continue to see appreciation it's a lesser extent, to income oriented investors, you know, we also add a covered call component. if i were to sell a covered call one of these four names, 5% of the money which would give us upside, yield of 2.7% could be added to the option premium, which would annualize out at 4.3% you have to do it 12 times, once each month for the year, but now we're looking at a 7% cash flow on these high quality blue chip

names. to your point, we're not going to capture all of the upside with a covered call, but we are able to capture some of the up side if we were to see some appreciation on the names over time >> the idea with the covered calls, adding just an extra layer of cash flow on top of the shares you already own kevin, thank you so much as always. and by the way, you can read more about how the fed could impact dividends on our website, head to cnbc.com/pro, to sign up and check it out >> ahead on this special edition of "fast money," your home, it's likely your biggest asset, so how will the fed impact its value? it's a question many are asking right now. stay tuned we'll dive into that one in just a femitew nus. growing up in a little red house, on the edge of a forest in norway,

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coming up at the top of the hour on the news with shepard smith, late breaking details out of afghanistan following yesterday's deadly attacks near the kabul airport. plus the latest on hurricane ida as the category-1 storm bears down on the gulf of mexico keep it right here, full coverage is just moments away on the news with shepard smith. >> but first, up next on this special edition of "fast money," housing. prices rising at a double-digit rate this year fueled by the fed's low rate

policy, but does the policy shift mean a big change is in store for americans' most valuable asset, their home a real estate reality check when we return.

we have low rates that i think are going to stay relatively low we have 70 million plus millennials that are forming families we have people that are, you know, as i said, migrating to where they want to live. very, very tight resale market very little new home supply. and you put that all together and the long term demographics and it long term prognosis looks really good for the industry >> that was the toll brother ceo talking to jim cramer on cnbc's "mad money" earlier this week. he, of course, has a front row seat to the fed's impact on the housing market and mortgage rates. low rates help affordability and they also help drive up prices to the stratosphere. according to a recent redfin report, the median price of a home is up 16% from a year ago to more than $360,000. good if you're selling, bad if you're buying. but could the fed slow down the hot housing market

we asked diana olick to take a look >> after more than a dozen record lows set last year, the average rate on the most popular mortgage, the hurt-year fixed has moved in a low and narrow range for the last several months that may be about to change depending on what the federal reserve decides about how much it needs to prop up the economy. mortgage rates do not follow the federal funds rate they loosely track the yield on the ten-year treasury, which does react to fed moves. more importantly, though, mortgage rates are tied to the demand for mortgage backed bonds which the fed has been buying heavily since the start of the pandemic as part of its economic stimulus the fed has said it will start tapering those purchases as the economy improves when that does happen, yields for mbs will rise and mortgage rates will follow. so what happens to housing well, the incredible boon we have siege in the last year is already cooling because prices are so high. up 18% in july from a year ago for both new and existing homes. normal annual appreciation is generally around 4%.

prices rose so fast because demand was so strong and supply historically weak, but record low mortgage rates also helped considerably as rates rise, affordability weakens even more and fewer people can pony up for those high prices. while home prices are unlikely to fall given the strong demand, the gains should start to shrink, which would create a healthier market between buyers and sellers. leslie >> diana, thank you so much. let's continue this conversation with glen cowman, president and ceo of redfin. glen, what do you make of the current dynamic right now? >> the market is just coming down to earth some, and it's a good thing prices have been going crazy over the past year, and buyers finally have taken a step back so we'll see inventory increase, the market normalize it's easier to put deals together than it was before memorial day i think it's really been a return to a healthy market >> what would you tell potential

home buyers or current home buyers with respect to mortgage rates right now? is it a good time if you're on the fence about buying a home, maybe to take out that mortgage and buy a home or refinance because rates are low, they may not be forever >> well, at some point, rates are going to go up, but i have been saying that for over a year, so really shouldn't take my word for it i know that inflation pressure is building. i know that the fed can't keep a lid on it forever. but it does seem that they're going to try so i don't want somebody to buy a home that's the wrong home for you. i think it's more important to find a place you really love but money is really cheap, and that's still going to drive some demand so i'm glad that the money is cheap, but i don't want people to make hasty decisions. >> you mentioned that getting deals done is becoming easier, which is very good news. what does that tell you about the supply that's currently in the market right now, as diana laid out, that's been a key

factor for helping drive up prices is supply normalizing at this point in time? has it gotten back to what we would have seen maybe in 2019? >> it's coming back to that level, but that was still an historically low level we haven't seen enough homes on the market for years and over the past year and a half, it just got catastrophically bad, so it is starting to get slightly better. but not significantly better you are having more new listings hit the market, and that's increasing overall inventory because not all of that inventory is being immediately mopped up. what is means is people are still snapping up the really beautiful homes, but occasionally when a clunker hits the market, it sits for a few weeks. and that's probably the right thing to happen. >> can you speak to kind of the disparity in income levels between kind of the lower priced homes versus the higher priced homes? it seems like there's kind of this gap here where the higher

priced homes seem to still be selling like hotcakes. lower priced homes maybe less so >> yeah, it's actually more of a dumbbell, so really inexpensive homes are selling fast the vestors are snapping those up, and then the luxury market is crazy and that just speaks to this k-shaped economic recovery where wealthy folks are doing really well professional class hasn't been affected much by the pandemic, and then other folks are feeling the pinch. so those middle-class homes are a little bit cooler. but the luxury market, vacation markets, second homes, that market is just insane. it has been insane it remains insane. and then at the very entry level, you're also seeing a lot of demand because investors are snapping up places and putting them on the market as rentals. and it's the homes in the middle where it's gotten a little softer and a little more reasonable, but at the ends, it's still crazy >> when you say the word crazy,

do you think this is a bubble? do you think this has the potential of bursting? >> i don't know that it's a bubble in the way that 2008 was a bubble because then people were buying homes that they really couldn't afford the folks who are buying properties today definitely have good credit, often they're paying cash. so i don't think they're going to get upside down on a mortgage and have a foreclosure crisis the way we did in 2008 i just think that prices went up really fast before memorial day, especially in luxury markets, and some of that is just not going to be sustainable. so when you have 25%, 26% price increases year over year, that's going to come down to about 15%, which is where it's headed right now, and it could even be flat for a little while, but the real issue is that we're not building enough homes in america. and so lots of people are trying to rediscover the american dream and just paying through the nose for it and so mostly i'm worried not about a collapse in home prices. i'm worried about accessibility for housing and affordability.

>> and the overall trickling down effect to the rest of the economy. which housing markets in particular have seen the biggest changes as of late >> well, really, it's been second home markets. those are the markets that are seeing the biggest price increases. if you go to a place like martha's vineyard, where so many people are now buying up properties to rent them out on airbnb, you can't even call that a housing market because really those properties are being evaluated as businesses. and the people who would normally live there are being completely priced out of the market so the same is true in jackson hole, in aspen, in all of these places where rich people love to live prices have just gone absolutely through the roof that's where i have seen the biggest change, because folks don't have to live so close to work anymore and so they're taking these homes year round >> they can take advantage of those second homes much more easily than perhaps they may have historically.

glenn, we appreciate you being here today >> and thanks for watching this special edition of "fast money." i'm leslie picker. the news with shepard smith starts now. . the hurricane forecast has changed. ida expected to be a category 4 monster when it slams into the gulf south i'm shepard smith. this is the news on cnbc the mission there being performed is dangerous, but it's a worthy mission. >> specific, credible, imminent threats in afghanistan president biden warned of a likely second terror attack with just four days left to evacuate. hurricane watch, ida strengthening in the gulf. the forecast models predicting landfall near new orlean