your name? ashley webster. it is remarkable, a remarkable day in world affairs and in finance. i leave you with this. the dow is down 600 points. we just saw the american flag in hong kong. neil, it is yours. connell: what is a day, connell in for neil today. we're on top of it next couple hours, with all the news breaking at once. i'm connell mcshane in nor neil. with recession signals flashing that is a big thing in the united states bond market. we'll follow the tick by tick of markets. what it means for you. we'll get to hong kong live and we have deirdre bolton on floor of the new york stock exchange. the headline we wake up this morning not from the stock

market but bond market and this inversion of the yield curve. we can talk about what you're seeing, what people are telling you. the bottom line, if history is a judge this could mean recession is on the way. reporter: makes people so anxious, connell. yields on two year treasurys rising above the yield on a 10-year. first time since 2007. that date alone spook as lot of investors. the yield curve on shorter end, now as people call it inverted. the reason it makes so many people anxious, that means investors have less confident in the near term economy versus the long term economy. normally if you loan money in this case to the government for a short period of time, you expect your principle plus a small payment, you're not loaning money for that long. if you lend money longer you expect a bigger pay back. that is the normal logic of the bond market. you get paid more for lending longer. when this pattern reverses like now, it signals a shift in the

pattern, signals a problem for a lot of people. that is where we are today. in the stock market banks are getting hit hard. for lending part of their business it basically would be hurt if these conditions stayed as they were. as we mentioned in 2007, that makes investors nervous, that happens before the credit crisis. one thing worth noting connell, you alluded to it, a lot of strategists down here, traders specifically telling me, don't worry, this is just one day. if there is one silver lining, that is the takeaway, only one day. more of a pattern that makes people anxious. if you look at financials they are weakest part of the markets. money center banks moving lower. if these banks are in fact borrowing at longer term lending, short term, their margins get squeezed. big red flag, connell. yield on 30 year, super, super, safe. lowest ever. as we know there is an inverse

relationship between price and yield. it means investors are buying 30 year bonds like crazy of the they consider that a safe haven, one of the safest places to be. connell? connell: in germany rates have gone negative. it is something else to see 30 year treasury bond at 2%. it all means, as deirdre is explaining. growing fears of at least a slowdown, maybe a recession. david dietze here in the studio with us, to start off the discussion we'll have with a lot of people next couple hours. good to see you david. whether this signals mean as recession is coming. what do you think? >> we don't know but this time could be different. inversion of the yield curve indicates recession is coming, but question where is that recession? we're seeing germany, china, other continental countries are very close to recessionary conditions. interest rates are so low.

money coming to the united states, pushing down our yields. maybe people are not rushing into sovereign debt but getting out of recession overseas. it droves our interest rates now. as president was tweeting, more pressure for federal reserve to cut interest rates. does that be the right move if overseas you have essentially negative interest rates, it is not necessarily helping there. >> you make a great point. there is one key thing why you're not sure recession is coming is reaction of policymakers both in this country and overseas it puts on increased pressure to uninvert the yield curve. federal reserve has another bite at apple. 100% chance they cut by quarter point. connell: right. >> this may mean 50 point cut.

this puts tremendous pressure on policy makers in europe to create fiscal stimulus. connell: this brings up a question. we're down 650, abouts on the dow. current next second in the market. brings up question what things look like two years out from now. if you're cutting interest rates like everybody else is, that we have to catch up with the rest of the world. maybe we avert the worst. market comes back in hypothetical. we don't go into recession, then what? at some point we do have recession? you can't avoid it forever. then what? you will only have debt and deficits worse than they are. you will not have any bullet left in the gun if you're the federal reserve. then what? >> that's a great point. >> eventually a stopped clock is right twice a day. eventually we'll have recession.

connell: we're not setting ourselves up for is my.or are we? >> couple things to keep in mind. we'll lose ability to cut interest rates further if we use all the cuts now. but inflation could go lower and lower into deflation. there is more room to cut. we're seeing negative rates already in europe. of course other key argument by warding off recession now, or postponeing it maybe we build up economic strength to postpone the ultimate eventual recession. connell: i get it. sounds funny to say we allow a recession to happen. the alternative argument, maybe it is too late to worry about this, maybe we got things cleaned up now, so when it does we're in a better position on fiscal side too, not just talking about interest rates. >> absolutely. a little repair now can prevent rebuilding the whole foundation later on down the road. connell: go to hong kong in a second. what do you think what is happening over there?

not in context of what protesters want to see happen, how china respond to that. what that means for this global economic conversation we're having, vis-a-vis trade deal with u.s. and china. what is your view on china and hong kong and how important it is? >> that is a great question. what is china's response going to be. from america's perspective the biggest deal with china is the tariff negotiation. to the extent china allows another tianamen square thing to happen where they look untrustworthy and brutal on world stage, although we hate to see that happen that could play into the administration's hand negotiating tariff relief. connell: david, good to see you as always. love to hong kong and protests and that is spreading to the outskirts of city. susan li in hong kong, joins from us the airport with the latest from there. susan what is going on now? susan: we're at the airport and

state department issued a travel advisory for those looking to make their way to hong kong. state department is urging increased caution if you have to make your way to hong kong at this point. as you see here at hong kong airport is back up and running. the 8th busiest in the world. after the airport authority received a court injunction, banning anybody that doesn't have a press pass or don't have an official ticket to be here. still we have a few dozen protesters camped out here. they still have the messages put on the floor, with their, with placards and also some of the, some of the posters that they have now actually, i would say, almost permanently stuck to the ground here. now as for the actual airport, as of yesterday's scuffles and violence we saw, looks like china now said that five individuals have been arrested today for what they're calling illegal assembly. the court injunction requires you to be here either with a press pass or a legitimate ticket. five people have been arrested. but the fight has been taken to

the streets here in hong kong as well. live pictures as we show you throughout the morning. this is more in district of kowloon. this is more of a suburban area in the city. hundreds of protesters showed up there. police went in. live rounds of tear gas being fired once again. looks like the altercations have now sim herred down a bit. each and every day, it seems to be moving in different locations across the city but we'll be watching this. this is the latest here. obviously a different story here at hong kong airport than is was 24 hours ago. connell: let me focus on that for one more moment as we see live pictures from streets of hong kong as susan was talking about. this travel advisory you mentioned, this is a very important airport for the international business community coming in and out. so you arrived there yourself, at midnight i believe in hong kong, but a short time ago,

a matter of hours. what was it like at the actual airport as you arrived just as a traveler? susan: it was busy. usually busy here in hong kong because they had hundreds of backed up flight to attend too. it is interesting on the way here, my flight out of new york, i was talking to flight attendants. that is usually packed flight. half full, 50% capacity, people have been altering their plans to travel to hong kong. that is a big deal for the local economy here. as you mentioned, one of two main transit hubs across the asia-pacific is hong kong and singapore. if hong kong is losing business, imagine what that means for the local economy. imagine what that means for jobs, the seven million that live in this city. connell: it's a huge part of the story. we'll continue to follow. susan thanks. susan li live from the hong kong airport. all the major averages as susan is speaking there, continue the decline. we're down 2 1/2% across the

board. dow, s&p, nasdaq worst of the bunch is nearly a 3% decliner. there they are on the screen. all major tech stocks, almost 180 points. so the nasdaq, the dow, the s&p 500, all down by large margins today. there it is. nasdaq composite index, nearly 3%. all right, staying on the story here overseas, that susan is reporting on, looking at china's side of it. that is the big question, what does china do next what is the response to the crisis in hong kong? we've been wondering about that for the last few days. it feels to some we're building up to some sort of chinese military response. not at that point yet. former navy seal team six commander david sears is our guest. i wonder, dave, what the calculus is in beijing? they know even if there is a big-time spin on it in the stayed media in mainland china,

though know these pictures are shown around the world, they have to decide what to do next. what do you think they will do? >> what do i think they will do? they will watch as long as they can. they have prestaged, some reports i'm saying, the peoples armed police, not peoples liberation army staged across the river in shenzhen. that is a little bit different. it still falls under 2018, the people's armed police fall under xi xinping as well. they're not part of the army. their riot control, anti-terrorism, internal security. they're staging them. they are getting them ready. they will watch this, if it gets too out of control, they're absolutely prepared to intervene. connell: then what? what does that mean? we talked in the context of trade negotiations. that will be something obviously to watch longer term, but what is the response of the world community if we see actual military intervention in hong kong? >> i think you will have

condemnation from the world community. i think china's calculus, it could lead to, is hong kong as the hub financial center as well as attached to beijing too big to fail? does the world really forget about it? it wasn't that long ago tianamen square. that is largely forgotten by the majority of the people, certainly wiped from the minds of the chinese. connell: what is the play for the president if any? pressure is building internally. many allies of the president to be more aggressive protecting the protesters. is he trying to thread the needle with on going negotiation with shy -- xi xinping he has not come out in support of this protest movement. is that a mystic or what would you like to see from the president? >> no, i think he is doing the right thing. he should guard his words. we should point toward the humanitarian support. you can't allow this to get out of control.

china, you have to treat people in humanitarian manner but you shine the light on it. you don't condemn, you don't intervene. the problem is, the challenge, the protesters have gone into a violent mode as well. when you start throwing gas bombs, everything else, imagine what we would do in portland, upcoming protest this is weekend. you have protesters there, they throw gas bombs, they're willing to come in arrest them. would we feel comfortable if china started to park a ship off our coast and giving aid to people in portland? you have to be very careful. you let china show whatever its truce colors are. let the world see that. the best thing the president can do, shine a light on it, here is what is occurring f there is a humanitarian disaster or violation of people's rights, you shine a light on that, let the world community know, this is the china you're dealing with when you do business. i think that is a win for us. connell: it is interesting. the question about the strategic

moves protesters have made, about whether it is beneficial to them? in other words, i'm talking specifically about moving to the airport, as they did about a week ago. now as susan li reported there, they're on the outskirts of the city of hong kong, moving out from the airport into different neighborhoods and the like. when they moved from downtown which when i was in hong kong in june in the early part of this protest movement, they were isolated in and around the legislature and government buildings in hong kong whereas if you were coming in as a international business person, going to another area, maybe your hotel wasn't near there, whatever the case would be you wouldn't be disrupted by it or noticed it that much. i wonder whether moving in this direction helps the protest movement because it adds more attention, certainly gets a lot more international media attention or has the potential of backfiring because now the people in hong kong who might ordinarily likely to support the goals of the protesters are

questioning the methods? what do you think will happen there? >> i think it is backfiring a little bit on them. it has the potential to continue to backfire. i talk to people, they're concerned about going out on the streets. they're concerned for their safety. they're watching how do they dress. do you wear a white shirt or black shirt? you have to be careful you don't get on either side. they're fearful of china coming in. as they expand it out. protesters allow china main land beijing to expand its narrative into the domestic terror piece, saying this is national security threat. under special administrative region. hong kong and macau are special administrative regions that turn back over to the maine -- main land. they have defense responsibilities for that. if they can frame the narrative, this is internal defense thing, a terrorist act, then the

protesters wandered into territory they don't want to be into. connell: couple things from u.s. government side. we mentioned the state department travel advisories that state department eschewed and accompanying statement from the state department that the u.s. is deeply concerned about the report of chinese paramilitary movement along the hong kong border. that came from a state department spokesman as the u.s. strongly urges beijing to adhere to its commitment allowing hong kong a high degree of autonomy. that is the u.s. government response. dave, to your point, you think for now, that as a final point, that is the right response in this moment, nothing more? >> i do. connell: yeah. >> we have to remember, china is a sovereign nation, whether we agree with their system or not, hong kong is part of china. so we can behind people that we want to call freedom fighters or revolutionaries but there is always a cost to that. so they have to be cautious and say we are part of china. the people that do business in hong kong also do business in

beijing. they know the system and how it works. so, it is still a part of china. connell: dave, thanks. good analysis. always nice to get your point of view. we appreciate you coming on. >> thanks, connell, david sears. back to the market we've been covering especially news out of the bond market, stock market has been selling down throughout the day. we're off the lows of session. amidst all of this, peter navarro, white house trade advisor was on fox business, saying the markets should have more certainty given what the president did on tariff delays yesterday. here is navarro's point. >> what the markets now have is total certainty how the scenario is going to unfold over the next three to six months. what we have here, tariffs are moving forward, number one. number two, we are continuing to negotiate with the chinese and

there will be another phone call within two weeks. all of the businesses affected by the tariffs now know how they will be affected. connell: the question do we really have total certainty? consumer technology association president and ceo, gary shapiro is our guest now. boy from people in your association, and your analysis, do you think we're living in a world peter navarro. >> peter navarro is definitely unique view. his views alone how tariffs are beneficial and there is no trade war. president listened. he realized he was wrong about the fact that tariffs are actually taxes on consumers. he acknowledged that it will affect the holiday season. if, this is not a great big gift for anybody. this is sewing seeds of consumer confusion. this will create uncertainty. it will, there is great concern

in our industry and other industries where this is heading. it is not getting better every day. obviously the stock market is responding to reality rather than the press releases. reality there is a lot of tariffs. some are going into effect. 1/3 of those on consumer technology industry almost immediately, rest of them 2/3 to into effect in december. those are still tariffs, they're taxes, they're harmful, they are not good policy, navarro's point is that we know that, supposedly we know it businesses like the ones you deal with can plan for it. the question is whether we really believe that, really feel as though we know that and you know something might change in half an hour with some sort of a tweet or development? next thing you know the planning you have done is for naught, right? >> definitely we're in a strange environment where the businesses in the united states, large ones, and the small ones are being hurt because the biggest challenge they're facing now is our own federal government. there is no such thing as

business certainty today. while we recognize and agree with china is serious issue, president trump is right to confront, there are much better ways to do it, trans-pacific partnership or world trade organization or getting together with our allies in bilateral partners cutting trade december. we're going on the wrong path with these tariffs. they're hurting everyone. i'm glad president trump and even peter navarro recognizing they hurt consumers, they hurt retail, they hurt businesses. they will affect the holiday season. that is what the stock market and industry is seeing today. we're heading toward as trump recession with this. it could be make america great again. it could be make america great again with a great recession or great depression which is exactly what congress did 90 years ago when thousands of economists, as they are today, saying this is the wrong approach. we shouldn't do it. connell: smoot-hawley, that was a little bit more. i understand your point. that once you start down this road, it is hard to come out of it. there were a lot of warnings before we got into this trade

dispute to say, let's learn from history in that regard, these trade wars are not easy to win. to your point yesterday was seen by many as something of an administration by the administration, china is not paying tariffs. they're paid by american importers. >> consumers. connell: the american import -- that was going to be my next point. they're paid by importers not all the time they have been passed along yet. two things could happen. eventually, the president said as much yesterday, could be passed along. or, the companies could eat that. that will cut into their profits which is not a great thing, right? >> in consumer technology world profits are very thin. consumers get a great deal. consumer prices will go up, they have to. business uncertainty, consumer uncertainty, they will be confused. tv sets, laptops, many on the list whether september or december, consumers won't know what to do. frozen consumer is not a good thing for the u.s. economy. i thing to do resolve these

issues immediately, have clarity, stop ignoring the fact that consumers will pay these, as will american businesses and american workers. companies are stop hiring. they are laying off. this is serious consequences for a lot of our economy, the global economy which is impacted. no one can see their way out of escalating trade war. if there was good news, it was modest. connell: right. >> reality these are set to go into effect in september and december. there is no clear way out of this. holiday season -- connell: bought us time. the bond market. has other ideas. we have to take a quick break. we haven't taken one yet. thanks for coming on, gary shapiro. sean spicer joins us there is political implications of all of this, we talk about the fear of recession, timing of slowdown, recession, when it hits, what it means for the president's re-election. sean spicer after a quick break with the dow down 653.

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connell: we've been talking about increasing fears a recession may be on the horizon that is the signal we're getting from the bond market. stock market selling off big time as a result of that. the former white house press secretary sean spicer on politics behind this. good to see you. it brings up the question of timing. always in presidential re-election cycles, you wonder how the economy is doing at a certain point. what is the most important time do you think for us to gauge how the economy is doing and how that might impact the president's re-election. >> i think next july and august are important. as you head into an election, one of the things i tried to explain to people over the years, the economy in terms of why people vote isn't just numbers. you can throw as many statistic as you want. if they don't feel the economy is going well. if they don't feel like they can spend extra dollar or two, save

money, go on the vacation, splurge a little, doesn't matter what the statistics say. as you head into the election season, that july-august time frame, summer months are crucial. whether or not people feel the economy is working for them or working against them. because they will want to take a vacation, get ready for the school season by buying stuff for their children or what have you. if they don't feel it isn't going well, it doesn't matter what statistics you throw at them, what number the stock market is at. we have plenty of time before it starts to sink in. but overall, there is a difference, right? so you have got the ups and downs of the market. we're seeing clearly a down day today. there have been plenty of good days. the question where does it fall out. connell: right. >> the other point, colin, you covered over and over again, how many times have we seen quarterly gdp number, employment number come up. right before it a lot of predictions are really expecting

to see slowing economy or job, wages are going to slow. we defy the odds over and over again. connell: true. >> maybe this is it. i have seen too many times lucy with the football, everybody predicts doom and gloom. connell: i know. >> if we have a couple bad days that is not the end of the world. that is not great, we're not, from a political standpoint we're not at a situation where it spells ultimate doom. you saw back in 1992 president bush started to talk about the economy. clinton said the economy, stupid. reality was, the economy was improving. it did too well. connell: too late, right? that is why i asked you about timing. came late for president bush. >> that's right. so as long as people are feeling it, that is going to be important. but there is also another thing. your last guest, it was funny. i was former assistant trade rep under the bush administration. this idea we'll let it go to the wto, that's why president trump won is because he wasn't going

to follow the cookie cutter traditional path that every other politician said. let's bring it to the dispute resolution body. connell: sean, just on trade in particular. there is still consequences to it, right? >> yes. sure. connell: president comes out, when he said forever, well, china is paying tariffs. they're not really paying tariffs. u.s. importers pay tariffs. maybe they do pass those along. it's a question whether you're honest with the american people and say you know what? this could be tough for a while. it is worth it in the end. we're not necessarily getting that argument all the time out of the white house, are we? >> no. i think it would be better to say for years politicians told you either. a, this is the cost of doing business, right? so that certain jobs and industries are not going to do well. you need to accept that as reality. this is as much as we can do now that china is part of the wto we need to call on them to be a responsible stakeholder with the term at that was used all the

time. or, you have trump that says you know what? i don't really care anymore. you will not get excuses, somebody stands up, uses all tools in the tool box, 301, 302s. i will fight for you. connell: economic consequences of that? >> right. but i think -- connell: they could be tough? >> i think that it would be smart, because it will be tough. connell: right you see it now. >> china is a powerhouse. the thing is, that they can withstand a lot because in a dictatorship, they can, they don't have to worry about the day-to-day polling that a democracy might have to deal with in terms of politicians. connell: yes. >> that being said, everybody those that china is uniquely dependent on our economy as an export market. they need things like soybeans big time to make their economy move. so we do have certain mechanisms and levers we can pull. i agree with you, if the president went out there, guys for the first time in either party's history stand up to china the way no one has done

before. connell: got to run, sean. >> i think that would be much more strong. connell: that would abettor argument. let's continue this, hopefully at a fairly soon date. sean spicer. back in a moment. dow down 621. let me ask you something. can the past help you write the future? can you feel calm in the eye of a storm? can you do more with less? can you raise the bar while reducing your footprint? for our 100 years we've been answering the questions of today to meet the energy needs of tomorrow. southern company

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connell: we've been talking more really about the the bond market than the stock market. with lower yields that have been signaling, we woke up to this morning, when the yield curve inverted, possibility of recession being on the horizon.

always tough to time that, whether next year, two years, whatever the case may be. that is a signal of history is a guide. we have a new interview on fox business just in, over the last hour or so with janet yellen, former chair of the federal reserve reacting, this is a fox business exclusive. here is a part of night are we going into recession? >> so i think the answer is most likely no i think the u.s. economy has enough strength to avoid that but odds have clearly risen, they are higher than i'm frankly comfortable with. connell: market watcher john layfield on those odds, whether he is comfortable with them. what do you think, are odds going up? what would you say they are at this point? >> i think odds are significantly going up. i think higher than say a 50% chance, something systemic happens in the world, hong kong, china trade war, strait of hormuz, brexit, kashmir province, india dropping out of

article iii 70. there is systemic risk right now in the world as far as macro events. but as far as recessions in the united states i think percentage has gone up. i would still put it below 50%. we're still at full employment. wages are rising. corporate profits are high, albeit slowing. that doesn't forebode a recession. we're in a slowdown period. recession is not greater than 50% chance now in my opinion. connell: okay. less than 50% or around that. comparison made whether this time is different than the last time. how do we compare 2019 to 2007. we all know what happens by 2018. moving into 2009. what is differences in your mind between 07 and now? >> differences are inverted yield curve. it happened in 2005. it took two years for that to materialize.

people are starting to worry about a recession. you know, you had low interest rates for a long period of time, that created a bubble that helped exacerbate that. financial crisis, was systemic failure which was caused by the premise that national real estate prices would never go down. you had entire derivative market built off securitization market, which became a casino. once that premise was breached. all bets are off. at least we don't have, don't know what the system i can issue is right now. there are several out there. as far as similarities that is systemic issue, not necessarily a slowdown. connell: is the trade war a systemic issue? the white house and peter navarro was on earlier. they are putting all the blame on federal reserve. the fed needs to get with it. keep cutting rates. you know the argument, they raised them too far too fast last year. others say what is really leading to this is the trade policy coming out of the white house.

how do you view that? >> i view it trade policy coming out of the white house. i think it is absolutely abysmal. we've had the trade war since march of 2018. every month you have somebody come out from the administration saying i think we'll get a trade deal soon. we're not getting a trade deal soon. eventually they will be right. whether they will drop out of the trade war or trade deal will be done but nothing's changed. you have cheerleaders go on television every single month i think a trade deal soon. we have one phone call coming up in two weeks. i don't think we're any further along than we were last september. i don't see a trade deal being imminent here. i don't think this trade team, by the way i don't think they can get a trade deal done. connell: period? >> period. absolutely not. i think there are five foot guys in 10-foot of water. i don't think they know how to get to success. they know what success is, they are going after entire structural changes in the chinese economy which china will not give in to. the china is merely killing the clock. like they're doing in hong kong. they're pushing this off. pushing this off.

letting us bail out our farmers. angst against the trade war develop. china is master strategist. peter navarro they're playing a game of chess. i think we're playing a game of golf. i don't think it is the same game. we don't understand what success is how to get there. china does. i want china to deal with this. i want us to win this trade war. i just don't think this trade team can get that done. connell: all right. well, you're down in bermuda. a nice day for golf there. >> it's a great day for golf here. connell: if nothing else. maybe that is on the bright side of things. john layfield with us today. boy what is day it has been down 2 1/2% pretty much across the board as the market selloff continues. down 650 on the dow. how about the younger generation, scared off bring swings like this? that's next. this is the couple who wanted to get away

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coming with movement we're seeing in bonds. whether it scares off investors, particularly younger investors. campus reform cabot phillips is with us, along with liberal commentator danielle mclocklin. good to see all three of you. we're on a panel talking about young people, that is a compliment. it is not just young people, cabot. this has been brought up throughout the day. when you see market up a few hundred one day, down 600 the next makes just about anybody nervous. i don't know what the view is. >> i don't think this is phenomenon are millenials are scared of stocks this is an long problem. 23% of millenials say that is good place to invest money for 10 years. that is absolutely crazy. i would hope it is larger than that. they came of age in 2007, 2018. they saw parent lose their jobs.

millenials lost a lot of money. they saw sluggish growth. the mind set market is not good. seeing legitimate signs of market recession, it has been there a while, this is disconcerting. connell: it brings up larger point how everybody handles downturns, everybody's views is shaped by their own life experience. older people, greatest generation shaped by world war ii, vietnam. if you're in your 40s, basically as an adult, people that were work being it was 9/11 and 078, if you're younger, cabot is right, own 078. i wonder how people make decisions. >> you're shaped by economy you're born into or come of age in, specifically younger millenials are dealing with crushing student debt. they are having problems with wage stagnation. they have not extra income to set aside to invest in stock markets or deposit for a home.

they're in economic instability, that really, the formative years when you're building a home, building a family, building for investments, building retirement, will shape as very large part of the largest generation basically now. connell: right. >> will actually shape the economy for years and years to come, not only for rest of them but rest of us. >> to piggyback, our generation started their relationship with the american economy almost like an abusive relationship, right? if you think about it through that paradigm, our parents came of age they knew if they took a job, they would work that job 40 years. that trust does not exist for our generation. people knew they had the opportunity to buy a home, have the home grow in value. we came out after generation where people literally watch parents life saving eviscerate, because of the stock market collapse or housing market collapse. all hallmarks basically rooted in trust of fact american economy will be always going along, going along, you will getting better with that, all

those things do not exist for our generation. people of our age overindexing with traditional savings. overindexing making sure we have cash savings. to your point that scare factor is on our mine. >> there is issue of could have boy who cried wolf situation, for last two years, a large partial of the media has been stating economy will tank under trump. it is coming. if he wins, it will tank, if he passes tax reform, it will tank. we see legitimate reasons for concern, a legitimate sign hey there might be legitimate recession, i heard that some times, why should i believe it. that could be a boy who cried wolf situation from the media where people just don't think it is going to happen. might actually. connell: sean spicer said something similar earlier. we've been warned about this a number of times, before we break i want to play a tweet the president sent out. happening in market today. interesting when we woke up this morning bad news essentially came out of countries.

germany bad. president said tremendous amount of money pouring into the united states and people want safety. so it is interesting, why is the money pouring in to the united states, danielle? weakness in economies elsewhere. >> yes. connell: how that affects other markets will be something worth watching because as it pours into the united states it will strengthen our currency and the president has been very vocal how he doesn't think that is best thing in the world. these things are complicated. >> stronger currency not so good for news terms of trade, trading partners. we're ultimately indelibly interconnected. what is bad for germany is bad for us. what is bad for china is bad for us. we have the trade wars going on right now. this is very real consequence of china and america going at it, going at it, going at it. we could have had tpp. we would have had trade

agreements with other countries. we're working on those things. connell: right. >> this trade war is really big problem, clearly we're seeing this in the market. connell: we'll take a quick break. get gasparino in here in a moment. good to see all three of you. pretty much nobody, we talked about 08. charlie covered 08 pretty much like anybody else. he will come with his views on 19. the dow is down 660 plus points. we'll be right back. ♪ introducing the all-new chevy silverado. with fifty industry-firsts. it's the strongest, most advanced silverado ever. they feel like they have to drink a lot of water. patients that i see that complain about dry mouth,

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>> where are we. market sell-off pretty close to the lows. we're down almost 700 points. 675 point on dow jones industrial average. nasdaq even more percentage wise. a lot of this as charlie gasparino comes out. >> because of me. i hate to turn off the nielsen boxes here, but did you have any

guests that talked about the yield curve? connell: we might have had one or curve? >> that the difference between the 10 and the two in terms of yield? connell: inversion that we saw. >> inversion, flattening. connell: yeah. go ahead. you want to be the next guest to take it on? >> who last guy said this, john lonski? connell: layfield was on. >> thank god you had john layfield on. connell: one of the greats. >> you get all these millenials on. they don't know anything about the yield curve. the problem with the markets, when you have that type of flattening almost inverting, you have, you have on every algorithm goes out there, every trading signal signals recession. there you go, two and 10. that is nasty, isn't it? connell: right on the precipice. >> every trading algorithm signals sell. now, the question is, why? because it is, basically saying we're going to have a recession. connell: right. >> now why are we going to have

a recession? if you listen to peter navarro, and cheerleaders in the media, there are one or two, he will say why because it is all fed. anybody with half a degree in logic would understand that the fed had something to do with it, yes, when they were tightening but they were tightening amid a slowdown basically created by the trade wars in this in, not just with china, but across the globe, that is slowing down business investment. connell: by the way, what layfield is talking about. >> i like john. john is a smart guy. i'm glad he said it. that is what's going on here. it's, the fed, if they erred, they erred this way. they didn't see that trump's trade policy, trump-navarro trade policy, i say this, a lot of people in the white house don't want this to go this way. they don't want open warfare on

trade. not saying that is a given. peter should have taken the victory, got world to move on wit, move on with rational trade policy. he didn't. it became all-out warfare. that is what you see in the markets, gdp print, business investment, companies don't know what to do because of trade. connell: down 700. >> as i'm talking. the fed screwed up, clearly, because they were tightening, not seeing that the trade problems were causing -- connell: a number of people did see at the time. >> some people saw it. judy shelton saw it. steve moore saw it. connell: now what are they going to do? cut like crazy. >> "wall street journal" editorial page saw it but, but you have to be intellectually honest, why did that occur? it occurred because we're in middle of a some stupid trade war. not that we shouldn't get involved isolating china.

we should do it coherently, with other trading partners, not go after mexico and china while going after real culprit, china. connell: that is fair. >> mexico, canada. connell: i get it. that is one part of it. >> that is the main part of it. connell: so you have a different point of view, i was trying to say to sean spicer earlier, say you have a didn't point of vie, go back to intellectual honesty, listen this will be tough for a while. you can't come out -- >> i like sean, he can't count crowd size. connell: that is the not point. >> he does not know about the economy. connell: goes to the politics. goes to question of intellectual honesty, make a political argument, times will be tough, it will abettor argument. that is not what we've heard. >> we don't have to take a hit in the end, do it coherently with trading partners and not start a stupid trade war. connell: you have ruined everything, charlie.

down 700. >> thank you. connell: we'll see what happens in the rest of the day goes on "cavuto: coast to coast." we have a busy day. but i feel like you have the potential to do so much more. can we build ai without bias? how do we bake security into everything we do? we need tech that helps people understand each other. that understands my business. we've got some work to do. and we need your help. we need your support. let's expect more from technology. let's put smart to work. ♪ ♪

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connell: stocks have been plummeting throughout the day. the recession warnings have been growing and the fears are out there that the economy will come crashing down or at least slow down considerably. u.s. treasury, two and ten-year yield inverting earlier this morning. they are about even right now. that is something that has signaled that a slowdown or recession is not too far away in the past, as for china, the jobless rate hitting a record high. then we had some rough numbers out of germany as well, where we actually saw a contraction in their economy. as we speak, the dow jones industrial average down 745 points. from the "wall street journal" bill mcgurn is here, gerard murdoch and jackie deangelis on our panel.

we will stay on this. it's one of those days, it's not like we haven't been through any of this before. even in very recent history, where it starts to get going, the algorithms kick in and i don't know how it's going to end but this is ugly right now. what's your observation? >> well, you know, my observation is that this has been a wildly volatile market. the swings have been so sharp either way depending on what the headlines are. we are talking about, you know, the yield curve right now and the idea that there may be a recession coming. i urge people to think of what analysts say which is that a typical recession comes after an inversion like this, 22 months later. it takes awhile for this to really kick in, if it does at all. there's a lot of things to think about. one of our earlier guests talked about what happened in the rest of the world and how we may be the safest house on the block and that's why all the capital is coming here. connell: that guest was president trump on his twitter account. but go ahead. >> you look at china's second quarter gdp, probably inflated, 6.2%, the slowest they have seen

since 1992. they are having a problem with manufacturing firms leaving. they are having a problem with the jobless rate. you look at the data out of germany, that economy is contracting today as well. you look at here in the united states, fundamentals are okay. you've got interest rates relatively low, businesses and consumers can both borrow pretty cheaply. consumer spending rose modestly in june. it wasn't a terrible number. there's no evidence the consumer is pulling back in a knee-jerk really hard way. the commerce board actually saying consumer confidence last month was the highest since november. connell: right now. no doubt. there is concern about the future. the reason we know there's concern about the future is because the president did tell us as much yesterday, in delaying the tariffs, he said the reason was because he, he hasn't really said this before, had concern that the price increases could, could, not now, to jackie's point, but could be passed along to american consumers in the future. what's your take? >> they could be passed along. that's a worry. but i think right now we are

basically haunted by question marks. there's so much untercertainty. if we know no deal with china, we will just jack up the tariffs, that's not what i would like but you can plan, at least we won't import any chinese products. we can get a deal in a few weeks. you don't know. you don't know what direction we're going in and having questions where the trade deal goes or doesn't go, will hong kong settle peacefully or will it be tiananmen square two. will the fed continue to get rates somewhere normal or continue trying to slam the brakes on any growth. all those question marks lead to uncertainty making it difficult for people to make sensible decisions. connell: 100% agree. i think that's probably the one thing peter navarro said this morning when he was on with stuart varney, that's simply not true, that's what the president did yesterday added to certainty. theoretically, it might have, saying we know where the tariffs are going to be or we think we know, but i think deroy is probably right, we don't necessarily know what's going to happen this afternoon, more or

less what will happen -- >> if i knew that, i would be retired in the south of france looking over everything. we always know after the fact what caused something. i think deroy is right. there's a lot of question marks, the primary one being china and trade but also, jackie points out the rest of the world is not doing that well either in terms of growth. so we don't -- there's not a lot of cushion out there to drive good things except the united states. connell: there is that debate. start with you on this, bill, whether that means this time is different because we had comparisons to 2007, and there are others but that's the most recent in everybody's mind, when we do see this kind of movement in the bond market which is basically a signal hey, things are going to slow down and we might have a recession, might be a year or two from now, but if the reason things are slowing is because of problems in other countries, and the capital is to the president's point flowing in here to the united states, is that an argument that this time is different? >> i don't know. again, all these things will be clear in retrospect.

connell: of course. >> after something hits. i think the big question mark is china. it's not just consumer prices, what we may pay more for an iphone. it's also a lot of people have supply chains here in china. when you disrupt the trade there, it's a big disruption. now we think we are getting closer to a deal with china and you have hong kong. if hong kong really goes south, it's going to be very hard for donald trump to do any kind of deal with them. connell: yes. how important do you think what's happening and continues to happen with these protests in hong kong is, as it relates to bill's point, as it relates directly to the bilateral relations between the u.s. and china? >> very much. i hope this ends peacefully. i was fortunate enough to study in hong kong, have been there a number of times, wonderful place. if it ends peacefully, terrific. if it turns into a total bloodbath it makes it very difficult to say we are extending our diplomats to go to beijing as if nothing happened, keep the trade talks going. lot of people say you will slap even more sanctions, stomp on them even harder for a moral basis. that would have huge economic

re're cushionr repercussions. connell: it might unite the rest of the world against china. not sure what the effect of that might be. >> it makes it very difficult, if you remember tiananmen square, it's very difficult to have any dealings with china, anyone meeting with their officials, even things you need to do. connell: china knows that, right? >> they know that. the question is, this is all unnecessary. they could have stopped this very early on by just killing this extradition treaty that they want outright and maybe have carrie lam resign and take all the heat. this is all china's mismanagement due to this. it's pent-up mismanagement since 1997. connell: now they are in a tougher spot. if you are xi jinping you don't want to look weak, and that's how you would think he thinks about this, but at the same time, if you move in -- >> the price gets higher. connell: right. >> it's a bad price, to defuse this now requires some humility on the government in hong kong and beijing willing to do that. that's a big price. the price may be bigger.

when tiananmen square affected beijing, beijing is just another city. hong kong is a world class financial center. you lose that reputation, people invest there because it's not china. it has a rule of law and so forth. you mess with that, you can't build that back in a few years. connell: china, because of their system which is far more closed even if you argue they have opened up over the years, is reliant on hong kong. >> absolutely. i'm not sure they appreciate how much they rely and if xi jinping wants to be a world power, it's going to be hard to do it with second and third rate cities like shanghai and beijing. they are wealthy cities but they are not a world class financial center. connell: they don't have the open financial system. >> and the trust and good faith that the world -- united states has more than $80 billion invested there and we have something like 25,000 americans living there. we've got a lot of interest there. connell: real quick. >> briefly, one thing we can do in the trade area that would help, if we can do a deal based on what areas we do agree.

deal part one, get that settled, signed, passed and perhaps the second term, deal part two, with the more difficult parts. that would be a real show of confidence. connell: let me get back, jackie, and bring in keith fitz gerald, frequent fox business network guest in on this on the telephone on the markets today. we will get back on the broader discussions as well. down 723 on the dow now. obviously the bond market's been the story of the day with the stock market reacting to what it's seeing there. what is your read? are you one of these hey, this time it's different, or the bond market signaling recess, let's take that into account, what do you think? >> i think there's a little bit of both at work, frankly. things will be different this time are some of the most dangerous words in the english language. i think what you've got to do is look at the data. the s&p 500 has risen an average of 34% to a peak in each of the prior three interest rate cycles that are most similar to what's happening now. recessions typically don't arrive for 25 months.

which means despite what's happening in the markets today, the more profitable decision to be making is what do you buy, not what do you sell. connell: what are you buying? simple, right? >> well, it is, to me it's companies with strong balance sheets, strong cash flow and strong earnings. right now, that's defense, certain kinds of medical technology companies. believe it or not, that's even a company like boeing. that's hard to imagine, keep that on a tight leash, but the big techs are very appealing because they can add a few lines of code and top $1 billion on the income statement. connell: look at these retailers. boy, macy's is probably driving a lot of this but i wonder, because we talk all the time about the quote, supposed health of the consumer, whether the outlook is changing on some of that. macy's, its own story, maybe, because of its earnings. >> the earnings were a miss but they talked about competition online. they talked about the rental clothing companies giving them a run for the money.

they talked about being able to work through their inventory. it did seem company-specific. of course they said they were cautionary on the china story. that's what a lot of companies have said. they are all watching it very closely. but to deroy's point, we don't know exactly what's going to happen here. everybody is just watching this. that's why the knee-jerk reactions in the market are so dangerous. these are all a list of stocks, retail stocks, yesterday that were up because of the announcement the tariffs would be delayed until december 15th. today across the board, they are all down again. connell: that was something, i don't think anybody looked at yesterday and said you know what, all problems are solved or it makes it even more likely there's going to be a deal between the united states and china. but i do think some people thought well, you know what, this buys us a little time, or maybe it gives us a little bit of certainty. clearly, as i said earlier, maybe the bond market had different ideas. >> well, that's always the dilemma, right, because growth is all about stocks and borrowing money is all about bonds. so if you are going to take your foot off the gas, you got to

figure out how to place your bet. to me, borrowing money is the riskier proposition. that's why you are seeing such volatility. you are seeing global funds where you are $15 trillion, $20 trillion negative assets around the world coming to the united states because we are the best-looking horse in the glue factory. again, i think you need to go for the upside, right? connell: the best -- i'm still caught up in that one. you really want to refine that analogy. >> thank you. connell: deirdre bolton on the floor at the new york stock exchange, where i'm sure it's a nice calm day. this is one of those days. i said to jackie earlier, one of those days where you don't know, do we rally into the close? we very well could. or does the floor kind of come out from under us? reporter: yeah, it's always that last hour, right? we have been on such a roller coaster ride, especially this week, right.

it's that last 90 minutes we are always focused on. right now we are showing our viewers, the dow is down more than 700 points. this is a huge drop. i was looking at the s&p 500, there is no safe space. it's only a question of which groups are falling the least. in this case right now it's utilities. but it's energy, consumer cyclicals, consumer staples, technology all just selling off like crazy. you have been talking about it with your guests but it's really the signal that is coming from the bond market, the inverted curve on the shorter end really bringing back memories of 2007, the fact that historically, this has the signals that recession's to come. the silver lining or little bit of measured optimism i'm hearing is fine, this is one day, if the yield curve were to stay inverted as it is now, and go on and on days and weeks, then perhaps the selloff is worth taking a little bit more seriously. not that it's not being taken

seriously but there is this contextual point that we had been edging towards these levels for awhile, the sky hasn't fallen yet. but when you look at the dow down more than 700 points, it's hard to make an optimistic case. connell: you almost half wonder if people are expecting a federal reserve official to come out and make some sort of comment. reporter: you would think. we know the president tweeted earlier, i copied it down -- connell: we know what he wants to hear. reporter: yes. we have known for awhile. it's not really particular to today. but he says you know, the fed is the central bank of the u.s., not the central bank of the world. that was the idea. yes, of course we know that the fed or at least the president would prefer the fed cut more. we will see what the fed does with this information in september. we know fed funds futures had already been pricing in a cut, 25 basis points. by now it may become 50. but i think a lot of people are just nervous, especially with the data we have gotten from germany. you were speaking with one of your guests earlier where they

are in a negative yield and this idea that we are all in this sort of race to the bottom so we will see what the fed does with this information. 30-year, too, connell, i mean, 30-year at its lowest ever, ever, ever, right, to the extent that people are showing their willingness to just be in something that is perceived as extremely safe haven. that's another thing people from here are talking about. connell: you guys want to jump in on this chicken or egg conversation we had? gasparino got into it last hour. the administration, whether it's the president or peter navarro, is coming out and basically trying to pin all this on the federal reserve. then charlie's point was like what does the federal reserve react to? and that in large part, his view is the president's or the administration's trade policy. all right. well, we weren't in the midst of this trade war. my point to sean spicer, if you are, just make that argument. say you know what, it is going to be tough for awhile. you ought to know that going in. >> the bigger argument is have a little modesty and say we don't

know. i think the trade part is the biggest question mark. i think one reason is whatever the president says, yesterday he gave a little more positive note, you know, some relief on some things, so people are happy about that. but it fluctuates what he says. it's also the danger of those who live by the dow can die by the dow. he's been touting it and all presidents want generally the federal rates to be low, right? that's what they want. he's more vociferous about it. >> just one point on navarro's commentary. i don't think it added any certainty to the market in terms of what they decided to do, treasury delaying these tariffs but it is part of a larger negotiation. that's what i think people need to step back and look at, that the administration has sort of held back some of its ammunition just as the fed has held back some of its ammunition. it didn't blow it all with the first cut. there are still places that this chess game can go. i think the jitters that the market are experiencing really

just come from not knowing exactly what's going to happen and not willing to sort of sit back and let it play out. i think a lot of people said the president sort of looked weak yesterday because -- connell: didn't get anything out of china. >> right. he didn't get anything out of china and had to give them something by delaying these tariffs. it could have been part of the larger plan. they weren't supposed to go into effect until september 1st so he's pushing it off a little longer on some of the goods. connell: that's not even a joke. that's assuming there is a plan. we don't know. >> great comment by milton friedman, who said something more or less like the federal reserve accurately predicted 13 of the last five recessions, something like that. the fed always increasingly seems to have this desire to get in the middle of everything and become a national stockbroker, national economic psychologist and all this sort of thing. connell: now the president wants them to, right? at this point. >> they shouldn't have raised interest rates last year when they did. the sense is oh, my god, the economy is growing, people are paying their bills, going back to work, we need to put a stop to this. i wish the fed would get away

from this notion if growth is bad, if things pick up and people become more prosperous, that has to have cold water put on it. we are in the trouble we're in now because of that attitude. >> i think one thing yesterday's remarks did do, the president sometimes actually quite often gives the impression that there are no costs in a trade war. that we are actually making money off the tariffs. i think what you are seeing is there are costs and there could be a very big cost. so the idea that tariffs are paying for themselves -- connell: or being paid by china. >> yeah, being paid by china, it's just putting money in our bank accounts is kind of silly. connell: the part about china, that's just factually inaccurate. the tariffs are being paid by an importer. the question is always what happens after that and who is absorbing the costs. are they being passed along. in many cases, not yet. but to the president's own point yesterday, potentially they will be but if not, someone's eating them. that's only going to slow

growth. >> it could be both. the producers could lower prices so they don't lose market share because of the higher costs. it could be both. the point is there's a lot of damage in tariffs. connell: either way it's not -- >> it's not a clean thing, just one side. everyone kind of suffers. >> part of it, it's a euphemism. a tariff is an import tax. i tried in my writing and commentary to call them import taxes. when you hear tariff it sounds like something paid by people over there. it's their problem. no, we suffer. these are import taxes. any time you raise tariffs, you raise taxes on american consumers. this is a tax. connell: whether the cost is worth it is a different question. >> correct. maybe if this gets the chinese to -- these are import taxes. >> it's hurting china as well. that's why they have to strike back and make different strides with this so they try to weaken the currency and go that route. their economy as i tried to state at the top is in a very fragile place right now. they can't afford this trade war

as much as we can. so at the end of the day, it's in everybody's best interest to come to the table and negotiate. we are really focusing on what's happening here. i don't think anybody is looking at the breakdown there. that's why they are worried about it. connell: let me bring phil flynn in on this. deirdre is here. you guys can jump in and ask questions as we walk through this as well. 723 to the downside. thing is, phil, jack aups right, the chinese will admit this, the trade war is hurting them. the question is whether it's at a point where they are going to somehow wave the white flag and get in and just about nobody thinks they are at that point. that's why there's a big bet, maybe the best bet we aren't getting anything until a week after the election in 2020. what's your view? >> you know, i think they may get something out of this deal in september. i think the pressure is really rising on the chinese right now. you look at what they're dealing with with hong kong, you look at the rest of europe right now and they are seeing the slowing and the funny thing is is that the

market seems to be reacting so quickly to headlines, it's absolutely unbelievable. this is algorithm trading going crazy. yesterday we reacted to the fact that there was a delay in the tariffs, stock market takes off, oil prices go back up, we got some weak data with european data overnight, the chinese data and all of a sudden, you know, the yield curve inverts and all of a sudden everybody's yield curve trader and trade has gone down. connell: you see an inversion and boom, that's the selling is going to happen automatically, right? >> it is. computers don't think. they don't look at the big picture of what's going on. they don't look at interest rates in other parts of the globe that are actually negative right now. they don't look at the fact that the federal reserve basically is the most aggressive central bank in the globe right now even though they are in a weakening moment right now, they were raising rates when the entire world was lowering rates. it's funny, the algorithms are

saying hey, the inverted yield curve is flashing recession, i look at the energy inventory numbers today, it's flashing a boom. these are totally opposite from what we are seeing in the mood of the market. we saw product supplies for oil in the united states at all-time high. more people drove last week in the united states than ever before. so if we are a consumer-driven economy, and i see those kind of numbers, i have to believe that right now, some of this doom and gloom is being overplayed. >> you mentioned driving as a metaphor. i think about algorithms, they sound a little like cars on cruise control. to what degree has the market have human intervention? the algorithms take over and run things by themselves? can stockbrokers grab the wheel and pull it before it smashes into a tree? >> i think that's what we do see. i think at some point, the market hits a sort of level and that's what we have seen really

over the last five days in this market. if you really look at the chart, we look at these fantastic moves, the dow is down 700 points, we are down 2%, then we are up 2% and then you actually look at the daily chart, we have gone nowhere. for the last week. day traders are loving it, you know. but that's what i'm saying. that's why i want people at home, please don't panic. take a deep breath. don't throw the baby out with the bath water because too many times i hear from people that see a day like this, they sell everything and tomorrow, they are beating their heads against the wall. connell: i don't want to lose what phil said at the beginning. that there might be, again, i think this is kind of a counterintuitive or against the grain prediction there might be some sort of deal as early as september because the conventional wisdom, which can be wrong but usually most people think it and many times it's right, is that boy, we are pushing this thing off. i said until after the election in 2020 but that would be a huge

surprise. markets would probably be off to the races we get something in september. >> i agree. look, i think the analogy, first i want to pick on something jackie said. china is suffering. yeah. the point about tariffs is you don't know all the costs of it. they are diffused out and you really don't know in china because it's not a free society. you are more likely to know in america because a hog farmer in iowa will complain. in china you don't really know. the analogy i would use for the tariff, i think it does hurt both sides. they both have an interest, is the war of the roses. remember the scene where danny devito tells michael douglas, douglas is really happy and danny devito says, he was his lawyer, there's no winners in divorce tlsh divorce, there are just losers and michael douglas says i have more square footage. i think that's the kind of thing, i think china is hurting

but it will be hard to come to a deal and we won't, even after it's done, we don't know, won't know where all the damage was. connell: good point. >> if you were to move your supply chain to vietnam, there are a lot of costs -- connell: we talk all the time about deal or no deal, a lot of th this, i think a lot is fair, a lot of this is permanent. that's why a lot of get into these conversations about decoupling. whatever deal we end up in at the end of the day, a lot of changes we're making are here to stay at least in the medium term, don't you think? >> -- consumers often pay, no, i agree with you. i think the worry is that consumers pay, right, businesses pay when we impose tariffs, it's not some nebulous hard-to-define, we know who pays, people and company. if you look at consumer activity which is two-thirds of our

economy which is obviously why there was this kind of delay because i think even the president as much as he wants to pressure china, doesn't also want to cause consumers so much -- it's as close as he has come to admitting that consumers actually do pay for these differences in goods, especially if manufacturers decide to pass them along that way. so that's as close to admitting the larger system as possible, i guess. but i will highlight, of course, retail stocks are absolutely getting killed. aside from macy's saying this year is just going to be a very difficult earnings year for us and whether that's macy's, whether that's macro, whether that's the president of amazon.com, we just have to assume retailers are under pressure. it's a rough time in their business cycle for many reasons. tariffs have not made it easier. i do see your point as far as yes, some of this trade war will be long-lasting. we don't know exactly which

component but yeah, it destabilizes investors. connell: we have come a little off the lows of the market. want to get to the politics of this. you want to say something quick? >> real quickly, we have been focused on u.s. and china. there's another possible deal in the making, the u.s./uk trade agreement between president trump and the trump of great britain, boris johnson. talking about a possible u.s./uk trade deal that would kick in november 1st which is the day after great britain is supposed to leave brexit, either in a wonderful exit or perhaps a "war of the roses" divorce. that could buoy the markets. >> i was in ireland last week. i vacationed there. paying very close attention depending on how it goes on the border with the backstop and whathave you. 665, 656 to the downside. karl rove joins us now. karl, good to see you. we have been getting, obviously we are focused on the market, on days like this. we get into the tick by tick but bigger picture, it does have this political element to it.

sean spicer was on last hour and he said probably, i think he just by july, next july is really the time to watch in terms of how it affects the president's re-election. you know, what do you think? the one issue where this president has not gone under water in all the big issues has been the economy. even with his approval rating at whatever it is, 43% on average, the economy, he still rates pretty well. obviously can't afford a recession. what's your take on what we are seeing today? >> well, look, the president always likes to have the economy better rather than worse. you're right, the president has had an approval rating on the economy that's generally been anywhere from eight to ten to 12 points ahead of his overall job approval. now, the conundrum for incumbent presidents is that good economies help you less than a bad economy hurts you. so while sean's right, attitudes are going to sort of firm up next july or august or september, the president needs to have the economy as strong as possible for as long as possible

in order to win re-election. so having the markets, markets are not necessarily the entire economy but they can be a harbinger of bad news or a drag on the rest of the bad news that's actually happening in the rest of the economy. connell: forget about the stock market for a moment. today we have talked about the bond market and the signal it's giving that at least things are slowing down in the economy and we might be heading into a recession. so if the economy is not as much of a strength for this president, what is? by the numbers, doesn't he have to get that approval rating on average, as i said a moment ago, at 43, up to at least around if not above 50? what are his other options to get there if the economy is slowing down? >> well, that's a simple way of putting it and it's the normal way but this is not a normal presidency. remember, on election day 2016, president trump's disapproval rating was 56% and hillary clinton's was 54%. so he won despite being marginally less popular than her

but both of them were very unpopular. therein lies the president -- another alternative way for the president to get there, is to be less unpopular or -- than his opponent or to be marginally different, marginally the same in approval but representing better policies and a better prospect for the future. we are likely to see the president contrast himself heavily with his opponent. you may remember this is the same strategy that was followed by barack obama. in 2011 his numbers were soft and they knew there was a limit on how fast or far they could move their positive numbers, so they decided to discredit mitt romney, did a damned effective job of doing so over the next 14 to 16 months, and i suspect we will see a lot of that this time as well. connell: a couple other issues before i let you go. one is trade. what's the political angle on trade for this president? if you are just thinking

logically, better get a deal with china, that will help him. i'm not sure that's necessarily the way to look at it unless of course, the market forces him into it or something else. is there an argument to be made that the president is better off in putting this off because then he doesn't give the democrats an opening to attack him on being soft on china, he still has that? what's the politics of trade? >> well, look, no matter what he does, the democrats are going to criticize him. let's not kid ourselves. the question is what is the best position to be in with the american people. having said he's going to get a deal with china, the best place to be is to actually get a deal with china that ordinary americans, enough of them would look and say he stood up for our country, we are going to do better under this than we have done before. that's the best. if that doesn't happen, then he's got to be in a place where he said i'm the reasonable guy, i have been trying to make this happen and the chinese because they don't want to be fair and they don't want to treat us as they agreed to treat us when they joined the wto in a fair

way like the rest of the world does, they're the guys who are keeping it from happening. but let's not kid ourselves. he gets a deal done and the democrats are going to criticize him the next day. that's the way it's going to be on each and every thing until november 2020. connell: tied into all this, of course, protests going on in hong kong. some have been critical of the president for not speaking out more forcefully in favor of the demonstrators. if you were advising him how to handle that situation given what we talked about with trade, what would you tell him to do? >> well, you put your finger on it. that week in ireland must have done you some real good. this is the conundrum because the president wants to get a deal done with china. on the other hand, there are lots of people in his administration who recognize that what the chinese are attempting to do is fundamentally against the interests of the united states and our allies in the region, that is to say, to wipe out the democratic system that exists inside hong kong. so he's got to temper these two things. i think the difficulty was he sounded like he was like it's up

to the chinese to decide what they want to do about hong kong. he didn't need to necessarily come to the defense of the protesters, though i wish he would have, but he didn't certainly need to come to the defense of xi and the chinese regime by saying it's up to them. this is a difficult place to be. i think the best advice would be to say mr. president, don't lean towards china, express concerns about what is going on there, temper those remarks with recognition that xi is very personally thin-skinned about anything that reflects on his leadership and if you want to get that job done in september, you got to be clear that you are concerned about what's going on in hong kong but don't reflect upon xi personally or his regime in your comments about what's happening in hong kong. connell: karl, always good to see you. week in ireland will do anybody good, by the way. except for the weather. >> as you can tell, i'm in a green place right now. a little bit hillier than

ireland, as i recall. connell: right. i don't think those are the cliffs behind you. thank you, karl. good to see you. karl rove with us. we will keep our panel, keep discussing this market day. we have come back a little. down 700 plus, now at 630 on the dow. another alarming signal we haven't seen since the financial crisis. u.s. mortgage debt hitting a new high. how about the housing market? we will talk about that when we come back. it's a breaking news day. we'll be right back. our 18 year old was in an accident. usaa took care of her car rental, and getting her car towed. all i had to take care of was making sure that my daughter was ok. if i met another veteran, and they were with another insurance company, i would tell them, you need to join usaa because they have better rates, and better service. we're the gomez family... we're the rivera family... we're the kirby family, and we are usaa members for life. get your auto insurance quote today.

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this was an effort to stave off what could have been a lot of tariff pain for american shoppers come september 1. that's put off now. what do you think? >> we have all been worried about the economy. and the markets, and their reaction to the idea of an additional tariffs on $300 billion worth of chinese goods. they've got to be careful about how much tax burden we put on american companies and consumers

by the application of more and more tariffs. connell: that was just yesterday, tom donahue from the chamber of commerce talking to neil, obviously expressing some concern about the president's trade policy. edward lawrence joins us now from the white house. no one knows more about reporting on trade policy than edward lawrence. here we go. reporter: you can see these tariffs showing up in new numbers coming out of china today. china released numbers that it was weaker than expected growth for the month of july. we are talking about china for their factory production, the consumption and property investment, all weaker than expected in july. now, their jobless rate did rebound slightly but again, the fallout of the call that happened yesterday between the two trade delegations is continuing to be seen in the market today. there was no progress towards a trade deal in that phone call, although they did agree to come back and talk again in two weeks. the u.s. also, as you mentioned, agreed to not impose tariffs until december 15th on a number

of items. so september 1st, you have one batch of items. on december 15th, you have another batch. the delayed batch is right here, in 21 pages. in here is mostly gifts that you can see during the shopping season. also back-to-school clothes there. white house economic adviser peter navarro said the president did not want to upset the holiday shopping season and that's the reason for the delay. listen. >> we heard two things from businesses that were going to be impacted by this. first of all, for the holidays, they had already bought the stuff. they had dollar denominated contracts. there was no way based on those contracts they could shift the burden of the price of the tariffs back to the chinese and on that basis alone, there was no reason to inflict harm on ourselves. reporter: consumer spending in the united states has remained strong and that's something the federal reserve chairman jerome powell also said that they remain solid. the federal reserve sees that

spending continuing as we go on. consumer spending is 70% of the economy, according to the federal reserve. before i go, i should mention one thing on huawei. zambia and uganda, reports out of the "wall street journal" say that huawei employees in both of those countries helped that government spy on political opponents. the "wall street journal" reporting that those employees helped them crack encrypted communication for those political opponents as well as track the cell phones of those political opponents. the u.s. for months now has been warning other countries about the spying concerns related to huawei. now the "wall street journal" reportedly saying that it started to happen at least within certain countries. back to you. connell: glad you brought that up. that's some story. worth reading, in the midst of all the craziness today. the "wall street journal" today on huawei. all right. down 600 on the dow. let's get back to the consumer which edward also brought up. macy's has been a story stock to put it mildly. near a decade low in the stock

market after the earnings miss and the guidance we saw earlier. kristina partsinevelos with some details on what macy's had to say. >> what a day for macy's. you are seeing the stock down 13% but it was actually the low today, down 16%. why is that. you had profit 48% but on the conference call you had the ceo speak about potential tariffs. de s he did say in may tariffs increased on houseware and luggage but going forward, what we might see on $300 billion worth of goods in december, he said that's manaabl manageable not planning on raising prices because he believes prices should not increase. people do not want to pay more which is why he's going to try to eat the 10% increase in tariffs whenever that does happen on december 15th. but we are talking about the earnings woes for macy's. what went wrong this past quarter. you had the fashion miss in

their private label, slowdown in international tourism which is also a big key. we are starting to see a global slowdown. the strength in the u.s. dollar makes things much more expensive here and that leads to too much inventory which they did have to sell off and that eats away at their margin. macy's even considering some new avenues, looking into selling used clothes as well as the rental industry. i want to focus on the broad retailers. you are seeing across the board, look at those huge drops for kohl's, which not too long ago paired up with amazon to try to ramp up sales, down 11%. nordstrom down over 10% at the moment. with nordstrom, you saw same store sales for the last quarter -- sorry, total sales down 3.5%. kohl's, jc penney, their same store sales last quarter were also down. the entire industry, more specifically the department stores, are facing pressure. what are the major concerns? you have strength coming from tj maxx and ross, the bigger discounters. you have amazon doing quite well or improving their clothing. then you've got walmart and

target that are increasing their designs, their fashion when it comes to clothing, so that's taking away from some of these bigger department stores and then last two things i want to mention, you have international tourism that is slowly starting to slow down, the global growth that we keep talking about, that's starting to weigh on retailers and these looming tariffs. even though macy's's ceo is not planning on increasing prices any time soon, it's having an effect. walmart out tomorrow. connell: that's a big one. we will watch what walmart has to say. they are almost like an economic report when it reports its earnings to some degree. like the american consumer is holding up and -- for now, and now clearly some concern about the future even if macy's has some company-specific issues. thank you. from retail we move to gm and ford for a moment. those companies are saying they are now planning for the possibility of an economic downturn. let's see what the plans look like. grady trimble joins us with the details. reporter: hey, connell. this news came before we saw what the markets had been doing today. but the trade war has just been

bad for the auto industry for two reasons. the first, those tariffs driving up the cost of the goods that it takes to make the cars. the second is just generally what we have been talking about all day, that we have increased fears that a global economic recession might be right around the corner. that's why ford and gm, the two biggest auto makers in the united states, are preparing for that possibility. cfos for both companies say they are stashing away cash in the event of a recession. ford putting away $20 billion as a buffer. gm, $18 billion. as you know, gm benefited from a government bailout during the 2008 recession. they have changed their business model since then and that was a unique situation, but this time around, they are also planning for a downturn. the cfo saying at a conference yesterday it's something we continually keep watching and updating to make sure that we are all set for when the downturn does come. notice she says when the downturn does come. in other words, they are expecting it. we know it's coming.

just when that is, is the question. sales for both car makers have already been slipping. ford, you see, down about 4%. gm down 1.5% compared to this time last year. then industry-wide auto sales have been going downward as well. down about 3.5% since the peak back in 2015. here's a look at what both of the companies are doing on the stock market today. both of them down and we put fiat chrysler up there as well for you to see. they are down but stocks down across the board today. so probably not attributable specifically to what we are talking about, but just that sign of a potential recession is having investors worried in general. connell: grady, thank you. grady trimble in the chicago bureau for us. fun panel working overtime with us throughout the panel. back to bill, deroy and jackie. one of the things i was thinking about, sometimes we in the media get this blame but it's probably true for companies, too, that you wonder whether you can talk yourself or plan yourself into a

recession sometimes. you're getting ready for it and all of a sudden you stop spending and one thing leads to another. >> i don't think there's much you can do about that. i want to go back, the last couple reports, all we hear is tariff, tariff, tariff. in some senses i think it's good because i think the president has given two contradictory signals on tariffs. sometimes he says the goal is we are going to reshape our manufacturing and kind of skew the economy to the industries he favors. other times he says we just want a fair deal. one of the things we would be in a stronger position with china, china does cheat. i lived in hong kong ten years. a lot of people in hong kong think china needs a punch in the nose. not sure the tariffs are the way to go. but we don't have those trans-pacific partnership. those people have the same complaints about china. if you look at japan, i'm old enough to remember when all the things we say about china, we used to say about japan.

connell: one of the people saying it in the 1980s was a real estate developer named donald trump. >> right. what hurt japan? the international economy grew a lot more competitive. if we had tpp in place, that would put pressure in a positive way on china. the same thing deroy mentioned offhand an agreement with britain. i have been writing about this for two years. what the president should do, we don't have that many disagreements with britain. a clean agreement where we treat their products the same way they treat ours, then say anyone who wants the same deal, it's open to us. that would put a lot more pressure in a positive direction because the pressure, then more efficient american and global markets rather than trying to tariff our way into fair treatment. connell: -- we have to take a break in a second but to go back to bill's point about tpp, which by the end of the last presidential election, i remember being on the convention

floor in philadelphia with the democrats, there was so much opposition, nobody was in favor of it. they were screaming -- >> outside there were a lot of protests. tpp was one of the big signs. mrs. clinton had a flip on it. connell: she was in favor of it, one of the architects of it if you think about it, ended up going against it. obviously president trump is not in favor of it. maybe the only person would be joe biden but at this point, if he wins, but that's not a very popular -- it's popular in circles like this when we have this conversation, because people say well, we can line up everybody against china. but as a political reality, not sure we are going back there. >> very politically unpopular but what it would have provided is a place for other asian countries to go with us and say all right, we don't want to be in the chinese camp, we want to be in the tpp camp with the united states and other countries but that's gone. that isn't an option. i don't know if it will come back. >> the british agreement is still a big lever to put that out there. >> absolutely. >> that to me, first, would help britain. second of all, push europe into

better behavior. and if you make, if donald trump says all we're after is a fair shake for our goods and services, anyone who wants to make the same deal, we are open to it, i think that would have a tremendous effect. >> a model for other deals. right. connell: that is something we could look at in the shorter term. down 607. we will come to jackie when we come back. let's get in that break. we talked about housing earlier briefly, about how that's at a high as well. we know the stock market today is in declining mode. we are down 606 on the dow. we highlight the nasdaq percentage-wise with all the ebbing t tech stocks down. is the worst yet to come or one of those dwrays where we head bk the other way tomorrow? we'll be right back. ♪ ♪ ♪

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connell: so talked a lot about rates tumbling throughout the show today. a new survey show 12% of adults say they plan to buy a home next year. 12%. national housing conference ceo is here and david, thanks for joining us. our panel is also still here. bill, deroy and jackie will probably jump in with some questions for you as well but i will ask the first general one. tell us what's going on in housing right now. >> you know, we have an unusual housing market where, despite the expansion in the economy, we are still not building nearly enough houses and prices are going up, houses are less affordable and that really shows no sign of turning around. >> david, mortgages actually hit $9.4 trillion and some people are saying, you know, the market and everybody needs to be really cautious here, that potentially you are building up another bubble, although there are others who say, you know, there

are homeowners out there taking advantage of these low interest rates, they haven't been delinquent in their debts and that it's a red flag, but it's not, you know, necessarily a major hazard sign. >> i think those are really good points. we have a bad habit in this country of learning all the right lessons from the last crisis and not the next one. before we had a demand-driven crisis where irresponsible lending really caused a big overhang and blew up the bubble. this time, what we have is a supply-driven problem. with the lack of supply, housing prices are going up, it's less affordable but the home ownership rate continues to go down and when you look at millenials, one in five of them are living at home with their parents, which is not great for them and not great for their parents, either. connell: the poor millenials, we are always taking shots at them. that is at least the data base. i want to talk a little, i don't want to run out of time, and talk a little about policy and what the government's role is because deroy was saying let's

get the government out of housing butabsolutely. i'm trying to control my rage. jackie handed me this "wall street journal" article. it was announced the federal housing administration will make loans available to people for condos, only 3.5% down and they will lower the credit scores required. isn't this exactly what got us into the massive economic disaster about 10, 11 years ago? aren't we forgetting lessons of the past and setting ourselves up for another bubble that's going to explode and hurt us again? >> sure. well, fha loans actually performed much better than subprime loans during the last crisis. even though there's a low down payment, i understand that, we still see pretty good performance out of fha. we want to have a large number of first-time home buyers to be able to be homeowners because they are often paying less than the rent, and we want to be careful about how we underwrite mortgages. but we don't want to be so cautious that we end up really

constraining the economy. in a recession, with the yield curve numbers, it's reasonable to expect something's coming. we usually count on housing to get us out of recession, not into it like we had last time. we don't want to end up with a stagflation situation in housing, where prices keep going up but the economy keeps going down. >> why does the government have to do that? we have private sector, private lenders, private banks. shouldn't they take care of this rather than have the taxpayer ultimately on the hook if something goes wrong? >> i think that's a reasonable argument except that it doesn't actually work in the economy, and you end up with a very pro-cyclical situation where housing actually becomes a drag on the economy rather than a help. so you don't want the government doing it all. but having a government role, it has been important to making sure that housing kind of in normal circumstances, not this last one, but that in housing

ends up being helpful rather than harmful. connell: good discussion, david. as always, thanks for coming on. david dworkin, thank you for joining us. let's spend the last few minutes with our panel talking in broad terms about the story of the day and that's whether, david brought this up, we are headed into an economic recession. the former head of the federal reserve, janet yellen in a fox business exclusive interview, made some comments about that on the show, "wsj at large." the question was asked about a possible recession. here's what janet yellen had to say earlier today. >> are we going into a recession? >> so i think the answer is most likely no. i think that the u.s. economy has enough strength to avoid that, but the odds have clearly risen and they are higher than i'm frankly comfortable with. connell: so earlier, bill, i was talking to i think it was john layfield. he said he thinks it's still below 50% but even that's not

great odds, if you are talking about an actual recession. the second part about it is not only whether we get a recession. at some point we will. it's the timing. is it coming in six months or three years. >> right. look, i think it's a matter of a dart board thing. i don't know. i would certainly not want to be the person predicting a recession, right, to hurry it along in some way. connell: talk us into it. >> yeah. talk people into it. connell: down617 on on the dow. that takes away the 100 point gasparino cost us. >> we might have the recession. we're only growing 1 1/2 to 2%. going into election year president said i was able to get 2% obama growth up to three. if it is two or 2 1/2, you didn't really deliver on the promise that will make additional political difficulties. connell: that would be dealt in second trump term or a new term a new president would have. what do you like like after all

this? what will happen over the next few months, right? we probably, whether it is policy, federal reserve, congressional policy, more spending, i don't know could we put ourselves in a situation where deficits only get worse, right? that is only way they going no matter which party is in power. could you make the argument, jackie you don't have the tools to deal with it. the recession is coming at some point. the question is when. are we prepared to deal with it? >> connell, we're in little bit over 10 years of a bull market. you ask how long can it go? we've seen cycles it goes 20. no one knows which one it is. when you take rates down so low, it gets dangerous and having a conversation about negative interest rates in this country we have negative done before, what is happening around the world. it is a tough spot to be in. if he get as china trade deal, he looks like a hero, volatility

doesn't,. connell: the question is there is time? that is my question, deroy, do employment -- connell: do you think actually that would happen? >> i don't know what would happen. i would urge the president to get it done. a lot of us thought it would be done sometime last year, early this year. uncertainty doesn't help t would be much better for certainty after deal, even part one deal. do easy stuff now. agree entirely with destroy. the president is very good at talking with, jobs, lowest black unemployment, latino unemployment we have had. he talks up the market. should talk about growth a lot more than the market. i think people would relate to it more. they would see benefits more. he should talk about not growth, not just in jobs, but what at that does for the average

american workers household income. fair enough. great panel. it's a busy day. appreciate all three of you. i will see you guys back at 4:00 p.m. eastern with melissa "after the bell." we'll see then. charles payne, it is yours. charles: going to have be one heck of a cp effect. i'm charles payne. this is "making money". stocks are lower after treasury yields are flashing warning signs of recession. we know the economy is still strong. we'll break down all factors weighing on market. think about it, global recession, trade uncertainty and how investors might navigate these treacherous waters. protests at the hong kong airport. this is the third straight day. police are clashing with demonstrators. we have an update with susan li. we h