i still like cash. >> and i own pugreszive corp, nice share holder return. buying back stock. returning a a dividend >> and green on the screen yea. not everything is red. i will see you later in "overtime. "the exchange" begins now. thank you, scott hi, everybody. i'm kelly evans. welcome to "the exchange." target logging i, should say,b the biggest earnings miss since 1996 a day after walmart had its worst trading session since 1987 and we have an exclusive interview who warns the market has a lot further to drop. let's first get to dom chuw wit the latest color on the markets.

>> we gained 920 some points during the span. we lost the vast majority of it, given the losses we've seen in the first half of trading today. we're down just about 800 points for the dow industrials. 31,859 and 3972 down about 116 handles and to give you an idea of the trading range. at the highs, we were down 37 points in the s&p. down rufflely 137 points at the lows to give you an idea of what's happening in the nasdaq composite. the underperformer, given some of the weakness in technology stocks down 400 points 11,500 again, 3 1/3% declined you mentioned target it's having wide-ranging ripples.

>> dollar tree is off 17% in trading right now. dollar general down roughly 12%. same thing for costco. a multi, multibillion dollar dealer and best buy is down 5%. off price retail with, tjx companies is actually up 9% on a better than exected earnings percent. watch the off price and then if you want to check out maybe indicative of the sentiment overall in retail right now, check out bj's wholesale it's down 15% right now. commensurate with the rest of retail bj's whole sale over the last year, up 11% it reports earnings tomorrow so, do you think, kelly, that there are at least scarring by traders who got burned on walmart and got burned again by target, now taking it out on other companies who have yet to report results

down 15% watch for some extra volatility around this stock after earnings tomorrow, given the sharp declines we've seen today. >> you're saying don't take it out on costco. >> i'm saying everybody is getting taken out to the wood shed, so to speak. >> we appreciate it. dom chu. and now to my interview with ledge daer investor, grantham. his warnings are looking precm i asked if he still thinks the market could have another 40 to 50% to fall, even after the declined we've seen. >> the other day we were down 19.9 on the s&p and about 27 on nasdaq i would say that, at a minimum, we are likely to do twice that

and if we're unlucky, which is quite possible, we would do three legs like that and it might take a couple of years, as it did in 2000 this bubble, superficialy, anyway, looks very much like 2000 focussed on u.s. tech, led by nasdaq, going to incredible highs. with the opening weakness in nasdaq, which started to fall along with the russell 2,000 long before the s&p it did exactly like 2000. what i fear is that there are a couple of differences with 2000 that are more serious. one of them is that 2000 was exclusively in u.s. stock. the bonds were great, the yields were terrific. housing was cheap. commodities were well behaved. in comparison, it was paradise

what you'd never want to do in a bubble is mess with housing. and we're sell issing at a higher multiple of family income than we did at the top of the so-called housing bubble of 2006 in addition, the bond market recently had the lowest lows in the history of man in 6,000 years of history. in addition, energy has pushed up metal and food prices are actually on the u.n. index higher than they have ever been before in real time so, we eare really messing with all of the assets and this has turned out historically to be very dangerous in japan they did housing and the stock market in 1989 the mother really of all equity bubbles and land bubbles and they still haven't reached 1989 prices. and these are their stock market or landmarkt and we messed a little bit like

that in the housing bubble we had the housing bubble, we had oils that had just gone over 100 again and so on. and we had high price stocks although i didn't think it was a true bubble in 2007. but the combination of stocks and housing proved really quite deadly and we would have had a very severe recession we had a pretty bad one anyway and we were saved by unprecedented government daylight >> which is more complicated now because of inflation i asked if he thought names like mecca tech and his answer, don't be so sure that these earnings estimates will mold up it's a warning he extends not just to big tech but the broader economy, as a histo of a bubbles

bursting is a problem for all profit margins >> if you go back to 1929, 2000, to japan and the housing part of the housing bubble are and you ask how did conditions look? profit margins look great. the forecast was great there was no chance of a recession. a few months ago, smart people were saying there was a 20% chance of a recession in three years. it's quite amazing and what happens after the bubbles break, there's always a recession pretty quickly and people never get it. people never forecast it and along with the recession, comes the drop in profit margins. going into the bubble's breaking, profit margins are always at a peek bubbles don't peek for no reason they peek because economic conditions are nearly perfect.

and that includes low inflation and high profit margin the first thing to go in a recession, of course with, is the profit margin. and that's very likely to happen this time. we should be in a recession mild off the beer but we should be in some sort of recession fairly quickly and profit margins from a real peek have a long way that they can decline. and if you want to get into the longer term, i think this kind of 2000 bubble we have is likely to morph into the 1970s where inflation is always a part of the background discussion and growth rate starts to dwindle away as though you have shades of stagflation like in the '70s. where commodities are intermittently scarce. as we have seen recently

well, the whole system is so strung out and borrowed, that it's lost its resilience all you have to do is cast or covid and war and the ukraine, and you see the problems ricochetting around the system it's not declined to absorb any kind of punch. last minute inventory deliberate no reserve putting all of your business with one country, fire away. no flexibility, no resilience. and now we've begun to pay the price. >> wewe will have more from that interview a little later on, inclouding where he sees opportunities. it's not all grim, although it's pretty fwrim in the market with the dow down more than 900 points let's get more on the target profit margin and similar to walmart yesterday. target shares down 26% right now. my next guest says we're seeing

recessionary behaviors mark, it's great to have you and why wasn't this picked up more in the weekly data you know, this is one question people have is how are we caught so off guard >> thanks for having me. i think we caught the discretionary spending weakness maybe softening demand, slowing that sort of thing, if you will. i think the big surprise is the overall inflationary environment and the effect of the cost of the businesses specifically gross margin it's interesting if you take a step back and look at the b broader consumer portfolio we cover consumer staples in addition to discretionary names. and the gross margins are pressured, everything you can imagine is going to be pressured and they're all taking price to offset it.

hindsight, we should have seen more coming from a retailer standpoint we did see the demand weakening a little, just not the cost. >> and for some of the higher-end names you mentioned, they're somehow able to absorb it but for walmart and target, especially, they seem to emphasis the lower-end shopper as well where they really can't take the price >> and previous guests have talked about this as well in terms of where the economy is going to go. it shows the consumer softening broadly across the u.s in fact,b with if you look at overall discretionary spending, they're negative and have been for the lowest income consumer that's clearly the biggest block point and you put higher gas prices, frankly everything across the board, food inflation, etc. and that's going to squeeze more because they have less discretionary spending and less overall income tospread

over other categories. that's probably the biggest watch point for consumers. >> you think the biggest watch point is gas prices? >> it's not huge in terms of overall spending i think we put it in total overall spendings. but it's higher if you're talking about a medium income consumer just under 60,000 in the yaus but everything is concerning you think about inflation broadly. the consumer staples companies were passing along mid to high single digit price increases some are on their fourth or fifth round for pricing. if you're talking about staying home more because of the broader macro environment. so, not just gas it's literally everything you're buying >> target, i think, surprises people because we've seen points that home depot, and target does a lot of that mix. so, why was it that they were

impacted boy the same issues as walmart? is it food, with is it that shoppers are more exposed to target than we realized? and maybe we could extend that to dollar general 's declines today. if we're in an environment where consumers are only walking in for the bare essentials, then perhaps that explains the nervousness in the stock market decline. >> we have to separate the top line from the cost side of things it's hard when you take a look at what walmart said cost koe as well today the inventory levels are bloated. and one of the biggest issues for target today and walmart yesterday was the gross marge is coming in part from promotions and markdowns on the products on the books. i was playing with numbers earlier. inventories for target are up 43% year on year if you compare that to prepandemic.

so, this april quarter, 2022, vurlss april 2019, inventories are up 66% but revenue is only up 43% you had a situation where a lot of the retailers, given what's going on at the end of last year, were fearful of having out of stocks on shelves that they were saying we'd rather have product on shelf at a higher cost than lose the sale. now you have the consumer potentially softening. looking back at april and the quarter, march, april and especially if you're looking some of the stimulus, they weren't spending on discretionary purchases. you throw on gas and food and there's less moneyy to spend so, now you have inventories massively up i think as we sit here today an what walmart and target said is they expect thoiz inventories to be reduced in the next two quarters

the big question mark is that assumes a normal consumer environment. if we do ditch into a discretion, it's going to be a question whether it takes another couple of quarters and how much you're going to have from a markdown standpoint or inventory comparement. >> i really ppreciate the grannialator on the inventory levels we're in the middle of the retail earnings season right now. i don't think you have to time to redo the models on everything you cover. but what to you think your early conclusions are from what we've heard so far does this change price targets and rerate aings this is a pretty big change, isn't it >> it is i'd be lying if i didn't say i was looking at a bunch of other company models this morning. it makes me look at the consumer staple stocks and say i'd rather own some of those names that can

offerset what's going on in the economy. names like a monster beverage that makes energy drinks and can pass through pricing as long as people are buying stuff. it's a harder environment from a retail standpoint. >> absolutely. two really unique names as well for people looking for ones to explore right now. thank you so much for your time today. >> thank you >> you just heard him mention gas prices let's dig deeper into that as it gets worse at the gas pump americans are paying $4.57 with every state averaging $4 a gallon for the first time ever according to a new survey, a new all-time high of $5.58 and causing layoff and strain at small trucking companies is there any relief in sight or could shortages be next? i'm joined by managing director

at clear view energy partners. first of all, is the gas price higher than it normally would be based on where oil prices are? >> yeah, there's a wider spread right now, particularly if you go back a few weeks when the oil prices have reetreated the gasoline prices stayed high. that reflects dual shortages and planning capacity. >> can you explain that more >> part of it has to do with inefficiency and part of it covid. roughly 3 million barrels per day of global refining capacity shut down. of course, demand rebounded and we find ourselves short of the process to refine crude oil and gasoline it takes a while so, you won't see an immediate response, despite the shortage

inventory for diesel 20% lower than the five-year average and gasoline down8% verses the five-year average. >> are we likely to see shortages or outages >> absolute shortages, interruptions in supply are rare these days if you think of the shortage of the world, electricity from primary sources, it's all short because russian energy is going off the market it's turning into a secular shortage the more we push russian oil or gas or coal or anything off the market, the tighter it gets. >> and we're stuck because if they hang in there, then shortages could become more of a problem. it's a a lose lose you either get possible shortages or have a worsening economy. what could d.c. do about this, specifically about the refining

issue and narrow that spread so at least gas prices aren't trading higher than they otherwise should be. >> if there was an autonomous pool of gasoline to pull from and they have one and it's small and won't make a difference. then perhaps there could be something. there are changes they could make to the fuel specifications required by the environmental protection agency a. essentially year round it's a small change. there's other air wavers you can explore. and single percentage point changes in pump price at best. some of the other changes involve the jones act. allowing foreign tankers to carry gasoline from the gulf of mexico again, a big political headache. maybe ea lot of pain for not much juice the refining capacity issue

doesn't have a lot of short-term solutions. and one thing that does not help is gouging and capital investment that's where d.c. is going >> i think the concern is they could scare away sue -- so, you greatly worsen the problem in the meantime, we're stuck with a situation where prices are -- do you think they're likely to keep going higher every day? could we hit 5 or 6 there a gallon for gas >> that means if we see a real embargo for russian oil. the possibility is out there on a major outage of that sort. it also is possible because of some of the other factors in the world, we could see a refinery fire or outage it's in the realm of possibility. >> what do you think the impact is likely to be on the consumer?

because they're still below where we peeked in 2008. but wore getting closer and closer to every passing day to what could end up being highs in real terms and what people are spending here? >> so much of gasoline demand con consumption is elastic usually the lower income foeng folks have to attend in person and z less flexibility we're at about 3 and 3.1% right now, which is up a lot from .85%. and we think of it a as a tax on consumption rate at large. it's well below where woe with were in the late '70s. you could say it's not so bad but it is. the rate of change has been so fast and so many peopleal had government money in their pockets. they're now having smaller

pockets and bigger gasoline bills. >> thanks for your time today. joining me from clear view speaking of gas and diesel prices, the transport stocks are getting hit pretty good today. frank. >> you see they are down today obviously the entire market is down but transports really impacted by several things. the price of gas and two, some of the earnings we've seen from companies like target and walmart. some of that is weighing on the entire sector. we're talking about ups. fedex. ch robinson. those are two of the largest truckers in the united states. you're seeing ch robinson down 5.5% down even deeper earlier that's the biggest freighter from chooirn a lot of concerns about increased fuel cost. and j.b. hunt, from long beach

even though it may not completely impact them but slow down their freight coming into the country a. you look at truckers that address big box stores, like a target, a walmart, a lowe's or home depot, you see their shares are down farther and dominion help companies with different size loads fit into one truck. if there's not as much demand for that service, different companies putting different lows in the truck, some of the other truckers for big box companies if you're not going to home depot, you're not going to lowe's as much obviously less demand for their services overall down transports. because a lot of concerns about consumer demand which fuels transports and gas prices. even though they can pasalong increased gas prices to their customers. back to you.

>> almost 7% drop in the dow transports and stocks are at session lows with the dow down more than 600 points and the nasdaq is down to 11,500 consumer discretionary and staples both down about 6% energy relatively holding up better and inindustrials both down only 3% the mega cap names all lower tesla's down 7% to 708 and apple down almost 5% some of the worst pain after the target miss, it's down 26% walmart down another almost seven% bath and body works at 52-week lows as well not all red though the off price brands like tjx,b are the names leading the xrt. up almost 9% burlington and ross stores positive as well

retail e ttf is down in may and the longest monthly losing streak since 2007. i have to mention that crypto is slumping with bitcoin down to 28,000 in change coin base micro strategies are suffering. coin base trading below $64 a share. with rates on the rice or the move, we did see the 10-year briefly go over 3% and now it's back to 90. rick >> yes it is unbelievable when we consider prior to the latest news regarding the war in ukraine and covid issues, we remember well that the big hedge against equity prices was always to get more on treasuries. then we went through the nasty time where the fed did its pivlt, was more concerned about inflation and rates went up and

prices went down maybe that's changed look at a two-day start at 10. round 2.96% is where the 10-year yield was when the chairman started talking at the wall street journal conference. what we learn second degree interest rates popped on that but didn't last long whether it's a two year or 10-year note, they've dropped below those levels and gained speed as the equity markets have continued to drop. first of all, our high inner day trade was 3.20 on the day. and our high yield close is five basis points below that. to think we dropped briefly above 3%, only to be pushed back down by an influx of buying may change the doynamic and it's relevant that there's a two-way trade as the increased volatility and equities is

becoming more permanent ipgsue back to you. >> thank you very much now let's get to tyler matheson for a cnbc news update within the last half hour, a ceremony to mark the official presumption of opraugzs at the u.s. embassy in kyiv they are returned after they were evacuated as russia invaded in late february reopening theembassy has meant to underline russia's failure to capture ukraine's capitol in the first phase of the war and tox chemical pollution continues to cause around 9 million premature deaths every year that's roughly one out of every six deaths annually in the world. report says more than 90% of pollution-related deaths are in low and medium income countries. and president biden's daughter has tested positive for covid but it is not considered a close contact right now to her parents.

the white house says ashley biden's diagnoses forced her to cancel plans to travel with her mother, jill biden, on a foreign trip tonight on the news with shep smith, why the midwest is running out of dirt. >> running out of dirt now >> running out of dirt who knew a dirt shortage. everything is in short supply. baby formula, cat food, dirt >> i guess dirt's not an option to feed this little one. we'll see you soon still ahead, jeremy grantham says inflation is not going away on its own and the fed is hamstrung. the nasdaq's down more than 4% and the dow's down

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nasdaq is down more at this hour i speak to jeremy grantham, the chair and chief investment officer. as concerned as he is about a collapse in stocks and housing,

he thinks inflation could stick around for the next couple of decades and we're running out of labor. here's what he told me >> the fed, as everybody knows, are completely hamstrung if everyone is worried about the economy, they are even more worried about inflation. inflation has always been the great fun fest of society in general. and it takes precedent over everything else. and you can hear that. they have to put that at the top of the agenda. and that takes away, pretty well all the ammunition they had back in 2000 with greenspan and in the housing bust with the '90s they just don't have that flexibility. rates are still very low debt levels are unprecedently a high and the combination of that

with inflationb , it's very tricky they have to tread more carefully in terms of stimulus than they could before >> it sounds like what you're saying is if inflation takes precedence, then they should solve that so that they can rescue the economy in the future if they need to. it doesn't help at all to let the inflation problems stay as bad as it is you're saying if they have to pick one to focus on, they should make sure they can bring inflation down unless you think it's going to come down on its own >> but i do think the federal reserve sees that point. the question is they recognize the problem. have they dressed it and i would say in a way much too slowly there used to be something called the taylor role which said what kind of rate you would need to deal with what level of inflation. and if you look back at the old role, they suggest that you

should have nine or 10% interest rates and we barely have one in comparison way down below any historical normal this is starting way behind. so, there's a lot of catch up to be done. i'm sure the federal reserve guys are waking up in the middle of the night sweating about this one. we're running out of labor every country in the developed world has been having fewer babies for the last 15 years woe know basically, for the next 15 years, there will be a scarcity of labor cohorts, 20-year-olds entering the market every developed country, except israel and the reason we had this goldy locks 25 years is because there

were 500 million eggs for chinese who went from the farm plugged into a very efficient industrial system. and now, 25 years later, they are short of workers coming in each year. as we are. and if you're short labor, it is going to push up wages which is good for them because they've been squeezed in america for 30 or 40 years and you're short resources this, to me, guaranteed that inflation will be around for a long 250i78. and when inflation is around for a long time with, you have be to reconciled to lower pes. that's what the history books say. perhaps combined with lower profit margins they went 40/sgift 50% above the level they averaged the previous hundred years. there were special goldy locks factors. everything was perfect for a while in the capitalist world.

and now a lot of that perfexz has begun to fatd away >> again, that's my conversation today with jeremy grantham the nasdaq dropping more than 4% more on the sell off, the chief market strategist at national securities i'll quote again from what we just heard you have to be reconciled to lower pes. what would you say about that? and this market today? >> kwloyou know, it's interestig we decided to react and likely over react, we get the massive lows today's another example of that. so, i don't think that jeremy's wrong in saying that we need to think about pesser are i would argue if you look at the multiple contraction we've already done this year and take out the top five names trading

between 24 and 28 times, going forward right now is about 15.5 or 16. so with, to the extend that multiple contraction in times of inflation or rising rates makes sense. i think it's not as likely as mr. glrantham is making it out t be i think we're figuring out how toget back out and about during a pandemic >> and to your point, we've seen a massive reset already in valuations the s&p 19 times it has fallen if you strip out those names, 15.5 leave them in, maybe around 17 does that mean we're at risk of getting stuck for some time? >> the financial course of events away from monetary policy actually brings inflation back

and get to the terminal rate can we still generate the kind of mean gdp growth rates above me in growth rates and probably mean growth rates next year the natural inclination to run around with when your hair is on fire because walmart had operational issues and target did too and i just think we need to stick to this and remember the consumer is actually still pretty strong. it's a function of what the consumer has done. >> from consuming goods to services is that right? >> goods to services and i think that is in fact what both walmart and target stuck in the wrong footing where they finally got inventory. this is going to be a bumpy road

but i don't think it's quite as the sky is falling as we've seen ahead. we're almost halfway through the year it's what the appropriate midlevel is closer to 230. if you were to but a 19 multiple on that, we're up 15%. and that would be a fairly multiple >> all right saying relax everybody it's going to be okay. thank you very much. as the nasdaq leads declines, everything is under pressure again today and my next guest is looking for opportunities to potentially short the chip makers and warn

she doesn't see a lot of near-term tech opportunities director of options at simpler trading. let me put it this way as a general principal. at what point do the charts look so bad that you want to start buying some of the names or is the opposite that you have to see better trading behavior before you can start turning bullish? >> i would have to see better trading behavior what we've seen over the course of especially the last six weeks or so, every single time we've seen even a shred of hope to the upside, that hope has been crushed. we've seen one day short squeeze rallies. last week we had a strong day on friday but there was absolutely no follow through so, for me,personally, i had t stick with the direction of the trend. which is down until something substantial changes. >> and to the extent you would

think of shorting the semiconductors is that right? >> yes, and the reason is we've been shorting the names, the very aggressive names that have massive rallies and what we've seen this year is they haven't been able to hold up in earnings at this juncture, we're having a complete valuation reset, even with the major large cap tech names. and those names have been holding up the market. at this juncture, we're seeing tesla and nvidia, amd get completely crushed and when you look at what you can trade in the market right now, that's where liquidity is and so, i hate to say it but i feel like these companies are continuing to lead the way lower and sticking with that direction is what makes the most sense even though i'll note it's a little aggressive of course. >> and you said you're not going to sell the core tech stocks but there are ways to protect yourself ore be opportunistic.

>> that's correct. >> you're confused, you're holding your amd stock but yet you're shorting it that's because it's import frbt incresters to have a long term and short term impact. i do sell covered calls against that i'm not going to drop that and you can sell those covered calls and trade it to the down side, especially in the options market i like the invest in inverse etf. so, i have xoss. that's the inverse semiconductor etf that helps with down side. and also i like to invest in the inverse qqq. the sqqq you know, especially, it does help alleviate some that we've

had long-term tech portfolio that you don't want to get out oftopporous for. >> the dow's down more than a thousand points. that's kind of the theme of the show today i want you to tell everybody about a stock like home depot that looked better and it seems like a walmart execution problem bringing down its own shares now everything is being reconsidered what's at the trader's take here >> when you've looking at something like home depot, i think this is again one of the major harrowing events in the market they had a decent report the stock rallied and there was a chance where investors could have said okay, let's buy home depot e. it could turn around but that's not what happened it rallied for one day, hit resistance and rolling over. you have the housing market overall this week and i have

been shorting homal depo to the down sited i wanted to wait to get through lowe's earnings because i felt like there was a potential for lowe's to be strong. but after lowe's and home depot, i'm going to continue shorting this to the down side because the way it gave up the earnings move is not a positive sign. >> let's talk about specks of green on the screen. even video gaming name said were holding up relatively better is there anything that excites you and you think this could bea port in the storm as the market sorts itself out >> we had some of the strong names. i shorted roblox and they went against me there's been a cup of the names that have been what i call honey badgers where they're up with when the rers of the market is down because they don't really care i think it's fine to come in and try to trade some of those names just on an interday basis.

but the fact of the matter is really the market has been weighing down all shifts what i'm doing is looking for tickers that are bouncing directly into resistance because, with the market on those, it can be difficult to get good short positions on. but when you have moments in time like the home depot trade going into resistance yesterday in rallying, that will give you a much better opportunity to short something along with a trend. so, i mean, i'm not going to buy any of these tickers that are up on the day, especially if they're in an overall down trend. >> and the really bad trading sessions that we've seen now we picked ourselves up for a few sessions repeating that all over again. what tells you whether we have capitulation or not? >> you know, we don't think we've seen capitulation because when i'm following the price action on a daily basis, what i

see is regular and consistent selling. i like the fall though tape, this follows buying verses selling pressure i like the follow volume in and out. what woevl seen is low bleed and what's rrb most important is it hasn't been a poor stock like microsoft and apple in the way it's hit others. i don't think we ecan capitulate until you see apple down i hate to say it, 20 even 30%. the nasdaq has fallen already 30% and the fed is not blinking an eye so, how much lower do you think they're going to let it go people will hold on as long as a a apple can remain strong. and it really starts to break and we'll see capitulation >> do you think that's how much more down side apple could have? >> for me, it all depends on

what the fed and what happens at these lows because right now week we're not seeing any buying. what has to happen in order for the market to correct the upside is for investors to feel confident and for investors to come in and want to pick up apple and microsoft. but all year we've seen a slow bleed. i absolutely do think it's possible we see a 20 to 30% down in apple, especially because the fed has pretty much said they have no interest in saving the stock market at this point in time and investors are accustomed to the fed coming in and saving us. i don't think it's going to happen this time my question is at what point will they save us? i don't know that it's going to happen >> fair enough and we will leave it there really appreciate all your time today. thank you. joining me from simpler trading. dow jones industrial average

down 1,049 points. 3.2% 4.3% now for the nasdaq, down 1900 points. and they warned the fed tackling inflation would not be pleasant. so, david, is a day like today a sign of progress >> i think riit's a sign of the process moving forward it's not a pleasant place esas you and i discussed now for many months and we just have to get through it it's a painful withdrawal of stimulus we're all very used to stimulus. stimulus is fun. stimulus is nice it cushions us and when we take it away, markets get a little jittery and that's what we're tealing and i think it's very much to be expected. things can go wrong and right.

it's a tricky time for the market i think there are some silver line aings that maybe we should talk about but generally speaking, this is sort of what you would expect for qt >> give me silver linings because we could certainly use some now >> i thought that would be fun and inflation is being distributed. it has a lot of potential benefits we look at debt to gdp ratios. last year grew at 12%. the highest since 1983 which makes our debt sustainability look a lot better we enormally grow 4 or 5% a year we were at 7 inflation and 5 this year we may be 5-3. 6-2. we could be another 8% down.

that really makes debt get devalued, which is positive for balance sheets it also changes asset valuations the buffett statistic is the total value of the equity market divided by nominal gdp. nomina gdp when it is growing very fast, everything looks easier on the eye because the income and the nominal income to support that valuation >> i don't want to get anybody too excited about yay, inflation is great there are some things that inflation does especially for the declining level with the united states and a lot of debt and a lot of focus on assets that can be quite an elixir as long as the fed keeps long-term inflation expectations under control which they had done when we went through through the break even mark. >> what you brought up as a silver lining because they worry, what if d.c. thinks to

itself, maybe we don't want to tackle inflation because that would send the economy into recession and if we let inflation go a little bit it would be easier to pay down the debt and look at treasury receipts this year that's a dangerous game to be playing, isn't it? >> it is as i said, i caveated the end of that and very correct, and this is a very -- there's a fine line that you're drawing here the fed has to always maintain the credibility of its commitment to long term inflation around 2%. to the extent that it gets these big jumps up and maintains credibility, that's actually a really positive story, much better than a disinflation or deflationary outcome where a highly indebted society goes into a deflationary period starts to squeal as we've seen for 30 years in japan. we don't want to do that the fed has to maintain the long term credibility

it has done it it will continue to do it. jay has done a great job of warning of how tough this is going to be, but we may get through this with inflation expectations well contained and particularly five-year and long-term inflation expectations and the kind of elixir of higher inflation than usual to make the balance sheet issues go away. >> final question. does what we just heard from target and walmart change this kind of rosy view at all when it appears in some ways that the lower income consumer is especially under pressure with higher gas prices or maybe, is it just this reset from goods to services spending. what do you think is going on there? >> i think it's a big reset story. it's tough on the news retailers and it is consistent with what you would expect as the fed goes into this tightening cycle the good news in the bottom end of the income distribution and the bottom end of the workforce

is that we have two job openings for every person looking for a job. it used to be back in my day when we were starting out earning minimum wage, we'd sometimes get two jobs, kelly, to get a little bit further ahead. maybe we'll go back to that a little bit maybe it's actually not so bad that people are going to be looking at some of those jobs that we need in the service sector and the leisure and hospitality sector and maybe we'll stop creating these jobs like mean librarians or whatever it is to keeping people occupied and maybe tanks that aren't as productive >> that was my dream job so thanks for crushing my dreams. >> this is the silver linings playbook thank you for joining us with it >> david zervos of jefferies quick programming note, kansas city fed president esther george will be on "squawk box" tomorrow with more on how the fed is handling inflation at 8:30 a.m.

eastern time with the dow now down 1100 points let's get to michael san ttoli this note. mike, what are you watching? >> watching it all and getting disorderly this generally has been relatively orderly this entire decline. it's mostly been about attacking high valuations and reconciling them with a higher inflation and higher yield and financial tightening-type environment. we are some distance along that path i think what happens today is the shots and really the severity of the market reactions to walmart and target and having that blast and expand into consumer staples shows you things are getting messier, maybe that's good longer term and it gets more indiscriminate. last thursday and friday the rally off that low, i thought it was good enough to actually support a further bounce a lot of people seem to agree with that, but good enough was not good enough and you need to

have further extremes, apparently when you basically get walmart and target decline as much as they did in the crash of 1987 i think you have to look across your entire portfolio and ask what did we think was safe what can we do to get past the moves? >> nothing the s&p 500 is still above last thursday's low we are still kind of chopping around this area i feel like this bounce that we got for a couple of days which i was saying bulls and bears alike, yeah, we should probably bounce here, but everybody thought you should sell the bounce, and why not sell it now? i think that's the loop that we're caught in right now. when it comes to the specifics of target and walmart, the macro implications and what it might mean for disinflation with the high inventories and the market doesn't have the luxury at the moment, or feels it doesn't have the luxury of projecting ahead and saying this is all part of the pendulum swinging in the

other direction and ultimately it is going to help the fed and not hurt, because that seems to be too nuanced in the point like this >> any misconceptions. that is always great to clarify. to your point and it's what danielle shay was saying a moment ago that the market is in a predictable way which doesn't feel like capitulation i don't know if we'll get there. we might not >> you might not you don't always have every single thing line up as i said, last friday when you got this 90% of volume in the upside after you had a flush to the down side you even had people saying yeah, but maybe we weren't oversold enough and maybepeople are over anticipating it and the nasdaq got to 19% from the peak i talked about the odd history of 19% declines, not 20% declines throughout history when you didn't have a recession in the offing and maybe the

machines were programmed to play for that so i think all of those things right now are in the mix >> one interesting thing you get treasury yields down so bonds have a bid today bonds are not projecting ahead to know we have something new about inflationary pressures and what they're going to do they're acting in a way that they ought to be acting. >> in a classic way. >> we'll see you soon. mike santoli at the nyse "power lunch" picks up our coverage on the other side of the break. i'll see you momentarily with tyler matheson (mom brown) ours were busted and we still got a shiny new one. (boy brown) check it out! (dad allen) so, wait. everybody gets the same great deal? (mom allen) i think that's the point. (vo) iphone 13 on us for every customer. current, new, everyone. on any unlimited plan. starting at just $35 all on the network more people rely on.

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well, folks, it is one of those days welcome to "power lunch. i'm tyler matheson the sell-off is intensifying this afternoon the dow dropping 1100 points or thereabouts, the inflation threat looming you can't talk it away it looms large over corporate profits now and economic growth. this hour,