an etf it is interest in. they're buying 3,500, november, 26 calls here as well, scott a lot of activity there. we know what ccj has done recently as well a huge run up. a little bit of a pull back. >> all right >> final tray, uaa, under armour >> good stuff. great to see everybody thanks for watching. "the exchange" is right now. ♪ ♪ thank you very much, scott hi, everybody. welcome to "the exchange." i'm kellie evans we are at session lows on the dow right now, down 2.2%, similar decline for s&pand loo at the nasdaq, down almost 3% today. we are going to dig into every aspect of the september swoon. a big reason seems to be the trouble in china one of the country's biggest real estate companies could collapse, the market fearing potential shock waves, but is it part of china's intentional crackdown? we will have it all in a moment. let's start with the numbers

today, dom. >> reporter: session lows for the dow, the s&p 500 and nasdaq composite, a lot of the weakness having to do with a general risk aversion it is not just what is happening in china that sentiment is carrying over to about every asset class out there. like you said, 765 points for the dow, pretty much session lows at this point here. if you look at other parts feeling some of the reverberations, let's look at the flight to safety one place people are starting to buy up is the u.s. government bond market, forcing prices higher and yields lower. a lot of the yield curve, various maturities within the treasury spectrum are seeing interest rates fall. one of the spreads that people are looking at right now is the difference between 30-year interest rates for u.s. government bonds and 5-year treasury note yield. that is collapsing down, now about 2% the reason it is important, if you see here it is the lowest difference between the 5 and 30-year government bond it has been since the summer of last year

the reason why that's important is because that's going to affect the banking sector, specifically here in the united states take a look at that. when these banks start to see that spread compress, they tend to go lower in stock price citigroup shares down 5% right now. bank of america down 4%. jpmorgan chase down 3.5% regional banks like key corp. down 5% as well. those interest rate differentials are huge with regard to the banks. keep an eye on that trade, the second worst performing sector, financials and s&p 500 look at the big technology stocks apple is down 2.5% microsoft, 2.5%, amazon, alphabet, facebook, all making up a large part of the u.s. market one place to keep an eye on, utility stocks they've been wavering between gains and losses every so slightly you can see just about flat on the session right now. the utilities trade has been an underperformer over the last couple of months it did catch a little bit of a

relative bid today compared to other parts of the market, but even then, kelly, that utilities etf currently is on an eight-day losing streak. we will see if it can break it today. back to you. >> yeah. again, defensive sectors holding up except that one there are so many other stories going on in the energy and utility space. dom, we appreciate it. dow is down 770 points the nasdaq on track for the worst month in over a year is it too late to make changes to your portfolio? joining us, portfolio manager of the newburgher berman large cap value fund let's pick up on what dom was describing so you see that flatter curve and you must be, you know, we've seen this environment before did you do you think today is a head fake >> i think today is a head fake. there's a lot of fear this is a lehman brother as contagion moment we don't believe that to be the case at all. we expect later this year the yield curve to steepen

as most of you recall about four weeks ago i said on cnbc that i thought the next four to six weeks would be choppy. i think now we're down to the final two weeks. i think this is the last opportunity to take advantage, buy the cyclicals and specifically buy the financials. take advantage of the head fake. >> so we have the s&p not quite down 5% and you are telling me it is over this is like the first 5% correction we've had in over a year is it because of corporate buy backs, huge retail participation in the market? is it the fact everybody has been anticipating this decline so it scares nobody? i mean what gives you the confidence to say this is going to be just a pretty short-lived event? >> yeah, yeah, i'm not saying today is the last day. i believe over the next two weeks i believe it will be short lived. i expect some point in the next two weeks the china government to step in and frankly stop the contagion so the yield curve flattening should stop and start to steepen again if you look at the cyclical side of the market, the market has

been weak for the last several months while the overall indices have held up, the cyclical side of the market has not been a good place to be over the last three or four months i think is the final two weeks >> i'm glad you put it in that context because it has been a tough stretch for cyclicals. you say, i want to make sure everybody caught this, you think it is the last chance to buy them before they start to take off again and run away with things tell me about what would have to work for that to happen? do interest rates have to rise do commodity prices have to resume their increase, and is all of this going to happen because you fundamentally think china is going to stop the crackdown and start pushing its economy towards expansion again? >> sure. i mean, listen, let's talk definitionally for a second. for value or cyclicals to work you need an accelerating economic environment we think the economy is on the verge of reaccelerating as we get through delta covid which we think is peaking as we speak and as china reverses some of the policy stance they've taken that have caused some of the real estate issues, we think you are

looking at an environment where three or four months from now you will be looking at a much healthyer or rosier view of the economy than we are looking at today. >> eli, i know you are not a china specialist, but i'm curious why you think they would stop a crackdown that seems to be accelerating and gathering force? they have nover about the problems with evergrande for months, right? they had ample opportunity to stop it before it got to this point. it is like they are literally shepherding it to this point maybe they will figure out how to mop up the mess so it doesn't affect those in wealth management products and those who put down property down payments, but they seem to be on the side allowing it to proceed, not the side that would lean against and stop the clock although, again, jim chanos warned us last hour we have seen the story four times in the last decade and each time they've gone back to a property-fuelled expansion and maybe they will this time around >> yeah. i don't think they can risk the contagion. you know, right now from what we hear there's about four or five other real estate companies that are feeling the contagion right

now as well as some of the banks. they can't afford to, you know, as we go into 2022 they have the olympics, they have their elections, they can't afford for this to spread and become a contagion. they need to stop this and stop it now >> they may need to stop it now. final question on this but if people are saying this whole property companies -- again, some of the biggest companies in the world if you go back, certainly the biggest property developers, they're saying they are too big to fail, they will be bailed out by the government, so forth those are not comments china's leadership wants to see. they've gone after every big tech company, every prominent billionaire, celebrities are getting scrubbed from movies he they appeared in, some of the biggest fan favorites china had for a decade, why would they stop short on cracking down on a sector that seems to have more power than any other sector they've clamped down on? >> i'm not saying evergrande is going to go away here, i'm not saying that the china government won't, quote, unquote, figure out a way to buy evergrande at a discounted price and it may hurt

people like the shareholders, but they can't afford a contagion to happen here they can't afford for it to spread to the banks and affect the entire economy it may hurt evergrande but they can't let it hurt the economy. >> i appreciate you sort of elaborating on these thesis as we watch the market continue to slide. as someone who has been through a number of these cycles, you said it is the last opportunity to buy cyclicals you have a large cap value fund with huge holdings in financials and consumer staples, cyclicals, even pfizer, aeon, companies of that ilk if you could explain why you think the next phase of leadership will be companies in this part of the market, not big cap tech, right, not innovative, developing economies, not the new stay-at-home, the new economy plays people have been telling us about time and again that will lead the way out a lot of these kind of are a snapshot of what the world looked like going into the pandemic >> yeah, yeah. a couple of reasons.

one is the consumer is incredibly healthy and reliquified. two is capex levels have not been this low in the last 30 years. three is inventory levels have not been this low in 50 years. sorry, cap x since the financial crisis there was one other people when it was this low. you will get a rebuilding on cap x side, rebuilding on inventory, a healthy consumer, and as delta covid moves on you will get a reaccelerating economy which is better for the cyclicals over the noncyclicals including big tech >> do you think china is the key coming out of this or should i be asking about the debt ceiling or other things that could be contributing to a market sell-off? >> i think the two most important factors is the next three months is china reversing policy and not letting it become a contagion and delta covid getting past us. i personally believe delta covid is the last major covid wave, and if the last major covid wave

starts to decelerate, cases come down, hospitalizations come down, and we are seeing that move, that in combination with china reversing policy, you will see a massive move in this market >> eli, thank you for your time today. we appreciate it >> all right thank you so much. >> eli sulzman we turn to mike santoli. mike, often trading behavior even intraday can give us an idea of market positioning >> absolutely. it looks like a broad step back in equity exposures. it is not really applying to things directly in the orbit of china, the property tech sore, any deleveraging over there. you saw on a somewhat tactical basis a few levels on the s&p 500 that people thought might be a good place for some traction didn't really hold we are now still working on this, you know, 5% pull back roughly from the all-time highs, just about there i would say, just a few more points i think that's part of it.

i mean we come -- we have this spillover effect often after the september options expiration you have basically people leaning in one direction without getting into the mechanics of it there was the open possibility that there would be a little bit of a cascade because you have some people who -- i mean think about it, right. there's a certain number of traders who are involved on the long side because nothing gets this market down >> right >> we haven't had anything more than a 3% pull back. when it no longer applies maybe you have to kind of widen out your band for what you would be willing to accept on the down slide. >> mike, corrections have been so rare that people -- do you think they will be more willing to jump at the first opportunity? how do you think the dynamic might be different now than it was even 12 months ago, which is basically the last time we had a 5% correction. >> >> yeah, it is tough to read because there's a lot of house money built up you would say in portfolios equityexposures calm into the summer really at high levels in other words nobody has to buy just to generalize to get their equity allocations where they

want them to be. on the other hand, i can also view what's happening today as the biggest stocks, particularly the nasdaq stocks, catching down to a lot of what else was going on in the market already the average s&p stock came in today 11% off its high nasdaq, small cap stocks even worse than that. in a sense it is a little bit of corrective action that has come for the belatedly. >> we have the commodities complex where things seem to be going the wrong way. you have energy inputs most consumers and business relying, generally heading upside especially overseas, meanwhile the cyclicals moving down pressuring cyclical things today. >> right it all fits sewing if i looked at the sub industries in the s&p 500, it makes sense. trucking is not down very much today. the airlines are actually holding up it is a lot more of the global reflation, cyclical type stuff that is pulling back along with

financials and the big techs, which just outperformed by too much coming into september i think to withstand this kind of selling. it doesn't feel like a buying panic in treasuries today. yes, the yields are down the curve is flattening, but it hardly seems like something that is forced buying of safer assets definitely it is more just adjustments around the edges watching credit spreads, too, definitely softening up, widening out, but it is not something that says things are really in dire straits, at least not yet. we also have, by the way, the asian market is closed, it is a holiday over there >> true, true. >> the fed meeting today there's all kind of reasons not to be a hero >> jim chanos said he does not view what is happening with the property sector something systemic to western market at the same time he thinks it is a terrible investment. his point is that the chinese stock market under performed for 12 years, the only one of the major markets, even while the economy has grown. now you have the "wall street

journal" coming out with pieces how they're continuing to press ahead with a company that will look more socialist, common prosperity, that has less interest maybe in the success of the capitalist market-driven model, mike. here is my question. what is the impact, the ripple effect for u.s. investors if china's economy slows, if the stocks continue to struggle? how much of a correlation is there right now? look at the hedge funds that already got wiped out earlier this year. >> right arguably our capital markets have rarely in the last few years been lessen t entwined wih the chie au market it is a big contributor to global growth but i don't think it is decisive it is not something that most s&p 500 earnings really hinged on but, you know, look, this market ignored a lot of potential threats all along. we are up 20% going into september. it is not like the u.s. stock market kind of owes you anything

to kind of have, you know, complete neglect of things going on overseas. i just do think between the seasonal effects, a lot of the technical stuff and the fact that earnings forecasts are flattening out for u.s. companies just because of where we are in the cycle, i think it makes sense you are getting a bit of a pench here. >> all right, mike we appreciate it let you go for the time being. mike santoli watching things for us let's turn to julia bore sten with a check on the social media movers as well yulia. >> kelly, look at the social media stocks they are down more than the broader market snap down about 4% spotify, pintrist, both down over 4%. twitter and facebook both down about 3.5% i just want to point out one rare stock that is trading pretty much close to the flat line that is verizon. verizon was up in the green earlier today. now it is down just fractionally this is on news out friday

afternoon about verizon sweetening its subsidies for the iphone to match competitors. so that is a rare stock that's not down too much, but the social media players all down more than 3% kelly, back over to you. >> again, julia, i think you could try to draw the line from china's crack down to u.s. social media names or you could just say, nah, they're just down >> well, kelly, you know, we have to remember that facebook does not operate in china. these are in many ways, these companies have been restricted yes, you can access them if you have a vpn or things like that, but these are not -- you know, the social names in particular, it is not like the hollywood studios that increasingly are relying on china for box office revenue. you know, facebook is a little bit of an unusual situation there in terms of its limits on its ability to operate there >> no, absolutely. i think it gives a broader sense of what is going on than the over simplified narrative if you want to call it that in issues in china property sector

julia b julia boorstin with a look at big droppers today pfizer saying its covid vaccine is safe and generates a robust immune response in kids ages 5 to 11 today the company along with biontech tested a two-dose regiment with about a third of the dose for teens and adults and they plan to submit the results to the fda as soon as possible. they have now turned negative by about .1%. biontech is lower after a 329% run so far this year moderna flat today, up 309% since january. let's bring in peter boockvar now with a look at the economic landscape for us. bleakly is not a point of view here we should emphasize it is just so happening that things don't look that great, do

they >> absolutely. we want prices to rise, not fall >> explain how you think the linkages today's sell-off work is it emanating from china do you agree with jim chanos it shouldn't have a big effect here if so, is it that the debt ceiling is seasonable, et cetera >> i don't think it is a coincidence this is happening right before it is about to paper it's set purchases, the ecb is trimming back on their qe the bank of england may have mentioned the same on thursday and that liquidity spigot, even if it just stops, stops not in terms of continuing to flow but isn't increasing anymore, that i think is a reason to have a gut check on risk. i do think for industrials in the u.s. when you see credit

spreads as tight as they are, when you see valuations as high as they are, that what is going on in china could be just a reason to rethink, paying below 4% for a high-yield bond, receiving 6% for a ccc bond, which is one grade over default. this is a perfect reason for people to start paying attention to valuations and the prices they're paying >> fair enough, peter, although it will be hard to tell what the, quote, unquote, right price should be when we can't figure out what the right price for benchmark treasuries is. the level seems to be divorced from any economic reality unless you would say we are in at kind of, you know, stagnate growth period for quite sometime here in the u.s. and maybe we are obviously if you lose chinese growth at the margin it is not going to help anybody. >> absolutely i think growth concerns are the reason why the ten-year is at 130 and not higher in light of the inflation stats. there's also growth concerns in

the u.s. as we have potentially fiscal hangover coming next year considering that a lot of the money spent this year may not be repeated, particular the government transfer payments that was able to sustain consumer spending. and then i have been under the belief inflation itself is slowing growth in that we are in this sort of stagflationary type of environment i'm not aware of a time in history when that leads to higher multiples it usually leads to lower multiples. >> fair enough do you think it is going to persist into 2022? we are starting to see, especially in europe, big, big problems in terms of the government having to help out house olds with the cost of energy bills could get worse obviously before it gets better does the issue just go away come 2022 >> i think sticky persistent inflation is going to remain with us for the next couple of years. as supply side issues aren't quickly cured, maybe we top down

in terms of the rate of change in inflation, but we have to remember that all we need to do is go to an inflation rate of 3% to 4% to create its own challenges i mean a world of 0 interest rates, negative interest rates, tight credit spreads, high debt levels, high equity valuations around the world, it is not a good backdrop when -- if inflation just slows to 3% to 4% i don't see us going back to a world of inflation of 1.5% to 2% for a few years to come. >> let me ask you a couple of questions about positioning. we spoke with newberger off the top who is positioned in a lot of banks, thanks cyclicals is the next leg of the trade. do you agree with that >> the cyclicals i'm most comfortable with will be beneficiaries of the inflation story, which, yeah, it is going to get dinged in the short term with what is going on in china, but i think that the demand relative to the supply for energy is going to be remaining

off balance. i think agriculture is still a good area to be in as the global demand for food is not going to stop regardless of what is going to happen in china, and i even think precious metals. overall in a portfolio it is -- people have to just lower their expectations for returns over the next couple of years, especially with inflation no sticky, sort of tying the hands of central banks s, and if we're about to embark on a tightening, which i do believe tapering is tightening, it is different than we have seen over the last several years, aside from covid. >> sure. the question i want to pivot is whether china is uninvestable which is something that was suggested this morning, that jim c chanos, as i mentioned was talking about last hour. do you think china is uninvestable if so, is it just for the near term, the near couple of months until this big party congress happens next year and xi jinping is reelected using air quotes to

a third term is a lot of this preparing the way for the chinese sort of big gathering next year in which that is likely to happen and then growth kind of takes off again or not what do you think is going to happen there because it is one of the most important asset classes to a ton of u.s. investors. growth obviously even more so, but even the investment aspect >> i think from a macro economic perspective china is a powerhouse that will only grow in presence when you look out over the next 10 to 20 years yes, they got to overcome the excessive debt levels and bankruptcies but they seemingly are willing to tolerate. but i don't think it is investable but you have to be careful. i think investing in maybe a hong kong company that is not under a v.i.e. structure i mean china is not going to cram down on pharma, on health care, on several areas of consumer discretionary i mean the chinese economy,

they're not going to, and a lot of the things they're doing is not much different than we are doing here 20 years ago we tried to brink up microsoft and we're banging the heads of all of the internet companies that we're seeing. so i think that china's hard-handed fist is what is causing a lot of angst, but i think if people take a step back their approach to regulation is not much different than what we have seen in europe and the u.s. >> i think the final question chanos raised was the tactical one saying when u.s. investors think they own in china even when it is pharma and others, that you are not owning the underlying chinese authorities don't recognize that gary gentzler is somewhat concerned about that does he have a point >> he is absolutely right. but there are ways of playing china without owning some of those stocks you can buy stocks in singapore that will benefit from the chinese consumer the chinese consumer i argue will be the most important economic growth driver looking over the next 10 to 20 years as

the u.s. consumer was over the prior 20 years there are many ways of playing the chinese consumer without necessarily owning a chinese stock. >> fair enough i'm sure there are u.s. names as well that, quite simply, get the exposure there, you don't have to deal with the hoops and hurdles. thank you for your time. >> thanks, kelly >> peter book vrckvar. it is down 2.3% down for the dow. the nasdaq is down 2.7%. energy financials and consumer down a quick check on oil right now as i mentioned shows some of the red across the screen. wti crude heading down towards 70 a barrel, about halfway above that mark right now. it is nearly a 2% decline. the ten-year yield moving lower. more on the other side of the break including the travel stock and how homebuilders are reacting, each after positive

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welcome back, everybody. the markets are near session lows at which point the dow was down 843, down 761 now let's check on some of the biggest movers that's energy, the biggest laggard in s&p today, no longer the best performing sector this year even, replaced by real estate de'veon, occidental, diamondback energy, all down about 6% right now. it makes sense

these are cyclical parts of the market some of the individual names are down about 4.5%, also on track to snap a four-month winning streak with the worst month since march of 2020. airlines are bucking the trend as travel restrictions are planned to be eased for foreign visitors vaccinated against covid. arnie airlines squeezing out a 1.3% gain. a check on the homebuilders. a look at how they're trading after positive reports this morning, di. >> we thought so, kelly. they're all down 3% to 4% on the day. homebuilder sentiment was up for the first time in three months with builders citing a drop in lumber prices but a surprise from horton, giving guidance on q4 revenues citing continued significant interruptions in supply chain along with tightness in the labor market. they flashed revenue guidance due to lower outlook in closing.

similar guidance from pultey and we will be getting quarterly from lennar later in the day >> what is going on in china is basically a giant question about the property sector. in china it is not a new story but a very, very old story they had a version of kind of our '06 house situation for years and years. they had home prices appreciating, the government trying to figure out what to do about afford abability and the government trying to figure out how to crack down. for those looking at the u.s. and say, wait a minute, we will end up in a similar position with the way home price acceleration is going. >> we have that, double digit gains, prices for new and existing homes up over 18% year over year, some call it a bubble but you have to remember we have strict underwriting. i'm not an expert on how chinese

mortgages work but i know the underwriting on loans today is very strict meaning you have to have a lot of skin in the game on your home even if prices were to pull back, so many people have equity in their homes, in fact $1 trillion added just this year. there's a huge cushion for homeowners to fall back on should prices ease up. you could see some local markets that weak en you could see the home price gains shrink we definitely expect it and see that already, but i don't think the u.s. is in that sort of situation at all >> interesting point, just how much wealth is tied up in the household sector diana, thanks. we will check back soon. diana oleg in washington, d.c. now checking on the tech stock, some of the biggest decliners? >> we will start with apple in the red here positive commentary from some on the street this morning about early iphone 13 checks but it is

not helping in today's trade apple is down about 10% from the 52-week lie. same with amazon if you look at that name, 10% off its 52-week high as well just barely in the green so far in 2021. faang members all down more than 2% semis also work looking at the smh, the etf that tracks the chips, on track for the worst. under the hood of that etf, nvidia, applied materials both down hard -- both up strongly still though in 2021 back to you. >> josh, thank you our josh lip ton today we are continuing to watch a big market sell-off with chinese internet worst performing on the nasdaq bitcoin is getting crushed, bitcoin hitting the lowest level since august we will tell you why some in that community are concerned about developments in china. big tech falling amazon, face bob, google, lower, even though they have no exposure to chinese economy or do imabt est ke now a good time to

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sector spook global markets. caterpillar, getting 5% to 10% of sales in china, on pace for the worst day since last november, down 5%. commodities tied to china's growth story low as well iron ore continuing to drop, down 5%, 6%. china, of course, top buyer of steel. the steel and mining etf down 5% today. for more on what is playing out in china and whether there are opportunities, let's bring in our very own seema mody as well. what are you hearing in china? i guess the biggest question for global markets is whether authorities will intervene to prevent evergrande from defaulting or that situation from getting worse or not. >> you got to wonder china doesn't like a black eye if that's the case, why they haven't stepped in yet but in the meantime i think markets are trying to understand what the direct complexes of this evergrande story really is. if you look at what is actually

moving today, the global mining and steel stocks, i mean this is a country that just in the last 10 to 12 months spent billions of gladollars on copper, iron, e steel, so the idea it could get the economy out of this downturn by funding these infrastructure. if you have a property sector starting to slow down, how does it impact the prices of the major commodities when you have china being such a big player? >> nancy, we have been for months covering this story now in china it started with ali baba arguably last fall then you had the issues with their ipo here, we've seen them crack down on everything from after school tutoring to video games which can only be played three hours a week arguably to seema's point this property crackdown could be part of that. do you sit back and wait for the end of the story or do you see any opportunities as an

investor >> kelly, i think you definitely have to sit back i mean every investor knows that stock -- asset -- and now the chinese government in competing with you in somewhat unpredictable manner so i think -- however, i think from their standpoint it is entirely calculated and well thought out. they're worried about the demographics that they face going forward, and so this is an attempt, a long line of attempts to get the middle class into a place where things are more affordable and they can have more children. we really saw it with the for-profit schools crackdown and then, of course, all of the ancillary aspects you mentioned. i think investors need to be worried because you don't know who is next and we also don't know what is going to happen with the currency. so i think there are better places to be invested, frankly, and i wouldn't get near china for now and some time. >> and does that then, nancy,

include u.s. investments that might have big exposure there? in other words do you have to literally go through companies in every sector and try to filter out the ones that might have big exposure to the economy there for the time being or not? >> no, think you definitely have to do that you are spot on. we have been running our portfolio revenue against what percent of the revenue is out of china. our portfolio is well below 10%. i think you have to be wary of the target so the government may react differently to chip providers because they simply have to tolerate u.s. providers. but it doesn't mean they have to make nike products available, for example. so i think you have to really deep in, sharpen your pencil and look at where you are getting revenue -- holdings and whether or not -- you know, educate -- you think those are safe

>> make sure everyone understood you. you said you are looking at less than 10% revenue exposure for a lot of your companies to china seema, we appreciate it. nancy, if you will stick around, we want to talk script owe before we let you go as well the argument for bitcoin being a safe haven, it is down below 44,000, the lowest level in two months ether is down 7% ripple is down 12% kate rooney is here with more. kate, i see a lot of discussion online in the crypto space a lot of people concerned about the ripple effects from china here >> that's right, kelley. you mentioned the safe haven argument that's looking further and further away it is not the case this week any of the big sell-offs in equity markets we have seen over the past couple of years really tend to result in collateral damage in the crypto market. so it is a dynamic we have seen play out before, traders and analysts have been talking to say, what happens here is they kind of sell out of the high growth tech names, fintech is getting hit today so that's one dyn

dynamic. bitcoin is a bit of a safe haven. gold has up up today but traders may need liquidity in times of like bitcoin is a global asset so any fears overseas tend to really hit the crypto markets, especially out of asia with the majority of activity ends up in the crypto market tends to happen out of asia. >> is there any direct connection, kate there have been rumors here and there between evergrande and the crypto market. >> so tether at least came out pretty early on and said we don't have any exposure. they are backed by majority commercial paper, they said. we are not tied. we don't have anything, any of our assets backed by evergrande. so they came out early because there was a lot of speculation but we've seen this in stable coin or at least defi market there's a lot of fear there's

some sort of overlap, despite the name stable coin it really is linked to things that could potential be risky there's not as much disclosure and some folks would want. that's something that gary gentzler, for example, is paying a ton of attention to. the whole defi market, bitcoin is one thing, and it is seen in the crypto market as at least more stable. you know, there's a lot of other deviations and examples of things that aren't necessarily bitcoin. they're sort of their own, you know, you think of ethereum or solano which has gotten a lot of attention, but gary gentzler and the sec is paying a ton of attention. you had coin base dropping a product that had hundreds of thousands of people on a wait list >> i was going to ask you, kate, before you go, coin base did announce this morning, i forget the language they're using, they're abandoning the yield product after this public spat with the sec over it now, coin base argues other people are doing this. they're offering even higher yields we wanted to play ball with the sec, just make sure everything

was fine before we launched this that did not go well for them. but i can imagine they might say, we're pulling our product from the market but there are still many, many more out there. >> there are there's examples you have companies like block fi and celsius that have almost identical prosds that have been launched and coin bastee has sad you heard brian armstrong say they couldn't interact with the sec. they were blindsided by the idea that the sec would come out with enforcement action against them. they said they're taking a more ka cautious approach. there have been a couple of cease and desist letters out of sort of state legislatures, so did question going forward will the sec take aim at some of the other companies that have launched this with a good amount of success they have products that are not necessarily banking products but they're high-interest, you know, 8% to 9% interest on crypto and the sec meanwhile is wondering,

wait a minute, that looks a little bit more like a bond or some sort of security. i think there's a lot of attention on some of the products that don't really have -- you know, there's no precedence they're completely new product and the sec paying attention >> we can say coinbase are only down a percent let's get a quick check on markets. dow down about 840 point at the low of the section, down 766 right now. the nasdaq down 2.5% all of this emanating about concerns about chinese property giant evergrande which is said to be on the brink of collapse the company is the world's most indebted property developer with about $300 billion worth of net debt at least. its bonds are included in a number of indexes across asia. it indirectly creates more than 3 million jobs evergrande warned investors twice in two weeks it could default on its debt and noted its property sales will likely continue to drop

the company is so big some say the fall-out could have ripple effects beyond china joining us from hong kong can mike bird, asia business and financial editor at "the economist. we appreciate your time today. what could you tell us about -- look, i guess maybe in some ways the question is why has it taken the chinese so long to crack down on evergrande this issue has been percolating for like ten years >> yeah, that's definitely the case it has been a very, very long time i think the main issue has been a lot of chinese growth has been generated by the -- sector this is 80% of chinese how hold assets it is a huge amount of economic activity, sort of a double digit share of the chinese economy evergrande is basically the most leveraged, aggressive player in this space and it has been for a very long time it has been able to chase a huge debt interest bill by essentially issuing more and more debt every year, taking on greater and greater liabilities from a number of sources, not

just bond market, not just banks, but its suppliers, it is household purchasing homes, from unbuilt homes, presales, which are a huge part of the chinese financing system for real estate it's been able to outrun those costs basically until now. this is where the rubber hits the road and it seems it isn't able to do it any more >> if we go back to what andrew warned about the company ten years ago when it got him kicked out of trading in hong kong, he argued it was insolvent then and able to keep going thanks to junk bond sales and basically aid from the chinese government. why is it that this year, this moment that has run out? it is not as if property prices have collapsed had is not triggered by something falling on the asset side of the equation so if we have chinese cracking down on all of these other sectors of their economy, i have to believe that maybe this is related, that they're drawing line, saying no more, and even this sector is not immune. in that case, how can they mop this up and prevent it from causing harm to the chinese people on the other side of the

trade? >> well, i think we have to feel for andrew for starters. he got a five-year cold shoulder order from the hong kong authorities. it was so long ago he got the order that it expires next month. you know, he's going to be able to short evergrande, what's left of it, in a month's time and that will be fine. i think what happened here is there's been a chinese government policy now, the chinese government is aware of the problems in the real estate sector and the property market in general they brought in a policy called the three red line policy which is essentially rally estate developers that didn't pass three financial metrics, they were on the wrong side of them shall they wouldn't be able to issue net debt in the bond market that's been the big problem for evergrande the chinese government finally seems to be taking property sector leverage seriously, and when they take it seriously the most leveraged player is, not surprisingly, the first to start a real sense of collapse the real problem here is where

does the line end? you know, is it just evergrande, is it just maybe a couple of other heavily leveraged players and the rest of the sector will be fine? because once you start pulling a rug out from under this stuff it starts to get difficult. one of the things that chinese property developers do is they buy huge amounts of land from local governments. >> uh-huh. >> local governments rely on those land sales as a primary means of financing so the local governments are inclined to jazz up, build up land prices as much as possible. they sell the land as high a price as possible. the real estate developers sell the land to higher prices to their consumers, the people actually buying homes. it is a sort of vicious cycle that has fed in for years and years and years and this is why things are so bad in terms of the property market cycle in china, why it has gone to such a ridiculous extend and what you see falling apart in front of you now. >> this goes back to last august when they started the three red line thing, but back 13 months ago and it is picking up steam

the authorities are saying, don't expect them to be able to make certain payments. the biggest difference from lehman, the chinese seem to be shepherding this company into the period it is entering. i don't know quite what to call it yet so for traders, for investors who have watched this crack down more from one sector to the next to the next, mike, what comes next you know, should we -- if this was the biggest elephant in the room, if everybody said this is how the chinese economy grows, you know, these property developers are too big to fail, is it the chinese saying, you know, no, they're not? if so, then what >> this is the really interesting question i would say that the direct financial linkages between evergrande and the major chinese developers in general and the rest of the global system are quite low, unless you own it directly most of it is chinese. unless you are directly exposed to that through the chinese

financial system the evergrande collapse probably won't mean that much to you the real question is how it feeds through to real economic activity in china. 80% of household assets, you know what happens when home prices go up or down in the u.s., when they go up or down anywhere it affects consumption activity, behavior on the part of ordinary households it affects everything. the chinese real economy has been such a source of economic growth globally the last ten years that pulling out, you know, even just a couple of percentage points for gdp you can see where that comes through. you will see european luxury companies back down, it will feed through the real channels, maybe the fx side, commodities it may not be systemic for the financial system globally, but you will feel it if it continues coming through the real economy.

>> very well said, mike, appreciate your time tonight thank you for staying up for news thanks. >> mike bird with the economist. coming up, more on the swoon for the markets. with the s&p down 4% from its high all this month. many reasons for the selloff, some are fingering the drama in d.c. how much is the debt ceiling debate weighing on sck we will try to answer that right after this are the things america makes out here. the history she writes in her clear blue skies. the legends she births on home town fields. and the future she promises. when we made grand wagoneer, proudly assembled in america, we knew no object would ever rank with the best things in this country. but we believed we could make something worthy of their spirit.

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welcome back to the exchange, everybody. with the dow down 750 points today, the question many are asking is how big role are the events and the lack thereof in washington playing in the selloff. the debt ceiling, the approval of the budget. and janet yellen says failure to raise the debt ceiling could lead to larger economic catastrophe. how much are these gyrations

affecting the market welcome -- of strategy securities we have seen gyrations like this time and again is this time different >> kelly, first, thank you for having me. i would argue after 18 months of unlimited fiscal policy, unlimited monetary policy, the risks from washington are increasing that is, we are moving from a pandemic to an endemic that means we have got to withdraw some of the liquidity from the monetary and fiscal policy side. in addition to that in the short run we are going to have to deal with a number of outstanding fiscal policy catalysts of which none of them have a good answer how they are going to get resolved i think it is adding to the uncertainty of other issues that are out there, like the economy slowing, issues in china, and now we know over the next two weeks we are going to have to deal with these issues we have been calling it the september to remember. some of them really aren't big events, but the debt ceiling is starting to become a bigger event for investors,

particularly in the short-term credit markets as investors begin to demand more for holding short-term treasuries because of the uncertainty on how this is going to get resolved. at some point, washington is going to have to put out a plan for how these issues are going to get resolved, and both sides, republicans, and democrats, are digging in on the debt ceiling, which means at that at the very least we are going to have some political headline risk before this actually gets resolved. >> what does it mean when you say you think there is a less than 50% chance the debt ceiling is raised by october 15th? what do you think it means for markets in the meantime. >> yeah, look, we look at the x date, the x date for when the debt ceiling needs to be raised is probably going to be sometime in late october. i think what the market is starting to say is it is probably not going to be resolved on september 30th when we have got to deal with a government shutdown and expiring highway trust fund rather, you have got to let the pressure of that ceiling x date begin to build in before democrats make a decision

whether they are going to do this alone in reconciliation or whether the republicans are going to join with them doing it on a bipartisan basis. it is almost like you need the financial markets to pressure congress to get to that point. now, there are options for this get done before october 15th we posited today in our client note that if you take the bipartisan infrastructure deal and link it with the $3.5 trillion spending package and see if you can get republican votes, not guaranteed, but it might be a way to get a resolution on debt ceiling early. we don't know. we were wondering, do the democrats have a secret plan if he this do, we are probably going to have chaos. if they don't, we will probably have chaos on steroids either way, setting up for gridlock. >> if we have chaos, or chaos on steroids, maybe we can understand where markets are down because you are investor focussed, how would you sift these apart.

if people ask you, what portion of today's selloff is china versus d.c. drama, versus time of the year? which markets do we want to avoid? is there anything we should pick up because there is a bargain opportunity right now? >> absolutely. i think this is 15% driven by washington people know we are pivoting to these fiscal catalysts at the same time that you have a slowdown and china issues building but it is going to get louder. i think that's the concern that folks have i would avoid short-term debt until we start to see resolution on these issues. kelly, to our point that's going to create a huge buying opportunity. we are not going to default on our debt that's very unlikely it is about this headline risk in the credit markets, particularly in the short-term credit markets, that we have to worry about. if for some reason we have a government shutdown, they are also probably going the see highway trust fund money running out. that means people are going to say it is going for harder to raise the debt ceiling

i think it is going to be easier to raise the debt ceiling. in order to open the government, you have to attach an increase and infrastructure funding to it if we are going to see a weakness around the highway trust fund or debt ceiling, i think that's a buying opportunity. these issues are as polarizing as i have ever seen on washington i think we are going to see chaos in the markets until we get a resolution. >> we have funded 18 months of sim lus spending, you could argue it is a victim of its own success because of the inflationary pressures we are seeing as a result >> absolutely, kelly i would argue there are a number of reasons people say the economy is slowing one of them is the delta variant. it peaked. technically we should be getting a better economy here that comes from that. the question is whether this fiscal drag we are facing is

also contributing to it. we did so much stimulus in the first half of this year that it boosted groeft, led to higher inflation, and now that spending is beginning to roll off, roll off in meaningful way, none of which that $3.5 trillion package will replace in the short run. that's another risk that's emanating here from washington as the fiscal aid begins to roll off. >> ends at 59 on the dot a. pro. that does it for us here on the exchange "power lunch" picks things up right now. >> kelly, thank you very much, and welcome, everybody, to "power lunch" on a very busy market day the selloff intensifying as you see right there. the dow now on pace for its worst day since about 11 months ago, october of 2020 now negative for the quarter the s&p near session lows. more than half of the index is at least now 10% below the 52-week highs se