tv Fast Money Halftime Report CNBC November 12, 2013 12:00pm-1:01pm EST
so those numbers have to be looked at with a microscope, as well. >> the definition of "is" is. thank you. >> thank you, eamon. david, a busy hour. >> they'll close this deal in december, amr and u.s. airways, still saying $1 billion in synergies. >> all right. thank you for bringing it to us. let's hop over to headquarters and wapner and "halftime." >> thank you. knapp sacked. barclays maven on why your hopes for a big next year will be dashed. and the muni playbook. the popular investment, we'll game plan the best options ahead. we do begin with the truth about twitter. the stock has been trading publicly for four days, remains one of the market's most active names, and it seems everyone has an opinion on what the stock is really worth, including iac ceo barry diller who said this this morning. >> twitter's capitalization will turn over hundreds of times. if that doesn't tell you there's
very little investing going on, or anybody -- nobody values the company at $40 billion. that's not sane. >> well, here's a look at how the stock is trading today. it's still below the ipo-high with shares soon available to short. what is your best move now? it is "halftime," and let's play the action. josh brown, what is the trade on twitter? >> yeah, scott, in the stock market, there are very few overnight sensations. this thing has been trading for less than a business week. so the smart play here, if you want to be a long-term investor, you're probably going to get a crack at it somewhere in the low to mid-30s, at least that's what i'm hoping for. i put on a small position on the day of the deal in case it lifted off. that hasn't been the case. we have some time to hang out and see what happens and how things settle out. there's absolutely nothing wrong with that approach. and if you miss it, you miss it. but chances are, you will have access to it at lower prices. >> simon baker, is twitter overvalued? >> i mean, definitely. you know, last week on this show, you said what price would you buy?
i said, pick a number, 35. and i still stick with it. i think there's a lot of hype in the stock. you can buy it a lot lower than here. the only danger we're talking is hedge funds are looking for more beta to get more performance, and twitter is a candidate for that. it could pull back, but on pure valuation, avoid it. >> yesterday, joe, only six stocks in the s&p traded hands more than twitter. people are playing around with the name. >> oh, sure. they're trading around it, exactly what mr. diller said. they're looking to go in and make quick profits -- >> it's a trader stock not an investor. >> it is. in 2014, it might become an investor stock, if you could see a lot of the penetration they have translate into significant earnings growth. i think the one thing about the near-term trading here is you'll have the introduction of options on friday. you talk about being volatile and active, it will be even more volatile and active. i agree with what everyone is saying. if you are not in the stock, no need to chase it.
calendar it for 2014. >> is that the right play, steve? >> there's so many stocks to choose from where you can justify valuation, life's just too short and the game's too hard to mess around with twitter. there's no fundamental basis, as barry diller says, for this valuation. i'm not saying it's a faddish company. no, it's a real company with reed prospects, but the valuation, the embracing here, is a big fad. i wouldn't own it -- >> steve, i would agree you're right about that, but also counter with none of the great growth stocks throughout history were ever cheap, and by the time they were and valuations were reasonable, that's exactly the time when you -- >> okay, so instead of giving me a history lesson, go out and buy it. >> i own it. >> you own twitter? >> correct. >> but i thought you lightened up -- >> it's not a history lesson. netflix was never justifiable at any valuation. >> difference. >> everything's different! >> exactly. exactly. here's the deal. [ overlapping speakers ] >> -- netflix has a sure operating history.
netflix has a base of customers -- >> when it was the top-performing stock in 2003, did it have a mature trading history? people liked it. it was the best performing stock in 2003. but the best performing stock with no operating history. >> maybe i'm not smart enough -- >> you made a very sald point. i think you made a valid point. [ overlapping speakers ] >> -- i don't buy stocks with this kind of froth. >> nor should you. value stocks and growth stocks are -- >> if you're more eclectic, you can have at it. >> two different animals. you can't impose the strictures of value -- >> weiss -- [ overlapping speakers ] >> i'm going to keep buying, keep buying until my hands bleed. >> i don't remember saying that. >> these are the type of names -- there's growth investing, value investing, and momentum names have continued to work. >> i don't disagree. i capitalize momentum with facebook. there's not enough for momentum. >> well, what is twitter's true
value? victor anthony of topeka capital is the street's biggest bull, says the stock is worth 54 bucks a share, but valuation expert, nyu professor says it's only worth $18. make your case as to why twitter is not overvalued. >> the discussion you guys were having, it's a fact that twitter is growing revenues in the triple digits. so 100% growth rate, the best experience is to value the hypergrowth companies, really adjust the multiples for growth. when you do that, and i've done it, you actually see that twitter's not really overvalued. and so, on an ebitda to sell, the stock is trading in line with other internet media names as well as other technology stocks, so i see more upside in the stock over the next year. >> professor? >> looking at -- looking at twitter, i think everything that
was said so far basically reflects a pricing argument. and if you're going to invest in twitter, it's got to be as a trade. there is no way you can tell me from a valuation perspective it's worth what it's trading for. having said that, i would disagree with the statement that growth stocks can never be good investments, because i think there will be a point in time when twitter will become a good investment. it might not be that far in the future. all you need is a couple of bad earnings reports, and the crowd that's buying now will be out as quick as can be. i feel like "groundhog day," because a year and a half, we were talking about a big nemedi company, and now we're talking about twitter. and six months, we'll talk about pinterest and somebody has to be adding up the projected revenues and tell me where the online market revenue will sustain all of the companies in the same
time. there will be losers in this game. everybody can't be a winner. >> so how about that, victor? when a guy like barry diller comes out and says the $40 billion valuation is not sane, how do you compete with the argument? it's hard to compete with that, the company's not profitable. >> well, i respect him, and i do cover his stock, and it's trading at a cheap multiple. i'm not surprised he's saying that. but my point of view is that i think twitter, as well as other companies like facebook, the fast-growing companies, twitter itself is becoming more of a web platform, and you see a strong ecosystem developing around twitter. with users, advertisers, platform partners. you have the television networks. you even have comcast, nso joining the fold. a strong ecosystem is developing around them. and actually, it has the same sort of competitive moats that you would see from a facebook and google, as well, longer term. so i'm a bull in the name. i think twitter will, over time, become a significant web
platform similar to what you see with google, as well. and my only point about facebook, when you look back, when facebook ipo'd, there were two secular trends working against them. one, is that social media advertising had them improving, and second, mobile advertising, you know, really had them improving. and twitter had a hard time monetizing mobile. and so, those two secular issues are not an issue for twitter today. so i think the runway for them is both long and wide over the next several years. >> i'd like to ask -- i'd like to ask the professor, if i may, i'd like to ask you a question about valuation of early-stage growth companies and how that differs from more mature, traditional growth companies like the ones that might appear in the s&p 500. isn't there some leeway over the first few quarters -- particularly following an ipo -- where we're still really just grappling to figure out what kind of discount rate should really be applied? we don't even know what the cash flows might be. these are not companies where we have financials going back 20 or 30 years like pepsi and coke.
could you speak to that? >> that's exactly right. at the same time, though, that's exactly why these companies might be the best companies to do valuation on. because the uncertainty we're talking about is uncertainty that affects everyone. that's part of the reason you have the gyrations on the stock. we have manic-depressive reactions to the stock, where essentially a good earnings report creates a 50% jump, and bad earnings report could cause a 75% drop. i agree with everything you've said, but that's exactly why i would try to value the stock in spite of all of the uncertainty. >> guy, good to have you both on the show, victor, the professor. we'll talk to you soon. >> thank you. >> thank you very much. >> one more thing on the desk, i wonder is, is the view on the valuation of the company and the way it's perceived in the market now skewed at all by the whole facebook situation and what we went through from a market standpoint over the past year? >> it is. and my view is not not to invest in growth stocks. i believe in it. but my view is, you have to understand why stock's trading
where it's trading. this is not trading where it's trading, because the end game's assured. so this is skewed a little by facebook. i think people have gotten out, because they don't want to watch it collapse by 60%, 70%. it could work out, but it won't for me at this level. >> i think we could all agree that the success of a lot of stocks are having the marginal buyer of last resort, which is the mutual fund community come in and buy it. and i think what happened -- >> and retail. >> -- and retail. and facebook over the summer, when you got the july earnings report, that's what you saw. you saw all of the portfolio managers who didn't believe the story, that didn't think they could see the acceleration that they saw in mobile in earnings actually now and chase it. you need to see that happen with twitter over the course of 2014. they'll come in, they'll buy it if they could just pure justification in terms of earnings results themselves give them cause. >> and that's what i agree with. the inflection point. i got in late, but didn't ride down from 45, 50 to 18.
>> i would argue four days after it's public, buying twitter here is a gamble. it's absolute speculation. until they have one quarter of earnings and we can see how the street reacts to that news, we have no sense of what they're really going to value this company -- >> and just no way to know. >> and the fact they monetize half of the user base of facebook, in terms of the business model. if you wanted to actually have a proven business model, facebook, while you're -- it's earning at this level. >> sticking with social media, and continuing the conversation with yelp, getting a target boost at jeffries to 80 bucks a share. the stock is up more than 200% this year, so does it have more room to run? it's our "call of the day." joe, on yelp. >> yeah, i think yelp has done -- again, what is the track record in terms of growing the earnings, the degree of success that you as a portfolio manager, or the retail side can have confidence in? i think yelp is indicative in the social space after company that's done that. so i think that the price
target -- it's a little aggressive on what we saw today, but i do think there's further upside. >> yes. >> josh? >> yeah, you know, i'm not a fan of the name. i haven't been since it became public. i get the story. /understand why people are enthusiastic. in my view, nothing lee built has a moat. i don't see why a company like facebook couldn't come in and do a better job with things like online reviews and absolutely siphon away all of their traffic. >> the "top three trades," and first up, amr is surging on news that it's reached a settlement with the justice department allowing for the completion of the merger. weiss, you made no secret that you owned amr. great trade. >> thanks, thanks. and u.s. air, also. and i think it goes higher. look, there is a settlement here, the analyst community really thought there wouldn't be a settlement. they walked away from the stock collapsed two bucks, some pain. but this is just more of the consolidation of the airline industry. people are going to have to --
the ones that think it's an industry where you rent you don't own, you have to get over it. dynamics are phenomenal. still a buyer. >> yahoo! enjoying a nice rally after subsidiary ali baba reported record-setting sales number. >> i think yahoo! is the most exciting stock in the world to watch. the $34 level is a serious inflection point. that's resistance going back to 2006, 2007. it's not cheap at eight times sales versus google at six times. it's a 30 multiple. if it breaks 34 convincingly, this stock could absolutely get hot again, and with the ali baba thing in the backdrop, that's really the way people are going to start looking at it, as a play on that. so i've got my eyes on it. i'm not long or short at the moment. >> cliffs natural clocking in as the worst performer, joe, on the s&p today, down 3.75%. >> a stock that moved up from 20 up to 28 recently. we said at the time we didn't believe the fundamentals supported the lift you were getting. it was about short interest coming in from 35% down to 27%. i don't think you buy it here.
i think you have to really understand the importance of the emerging markets, which are now down nine days in a row. emerging markets' weakness
does not lead to the stock going higher. my next guest says enjoy the gains while you can. barclays barry knapp is up next, on why you can expect only a third of the 2013 gains next year. and wells fargo getting a nice pop after dan loeb here on cnbc revealed his stake in that company. we'll look inside his portfolio and find out what else he owns. that and much more on "the half." [ bagpipes and drums playing over ]
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>>. >> lots of stocks on the move. let's go to dom with the "market flash." dom? >> yeah, so shares of western refinery -- >> that's you, dom! >> they are spiking up and trading, after the independent oil refinery agreed to purchase a controlling stake in northern tier energy for $775 million. now, as a result of the deal, western refining will get total capacity of 242,000 barrels per day and storage pipeline, refining, other assets in
america's upper midwest. a check on other publicly traded refiners shows green on the boards, as well. take a look at names like tesoro, valero, murphy, they're all up on the day. back over to you, scott. >> you with us, dom? we're all good, right? >> yeah. >> dominic, thank you. [ laughter ] >> nice lift in northern tier. i would use it to take the chance. you have the widening of the spread in brent t.i., looks good there. but the conversation here with wnr, taking the stake in northern tier, brings you to the potential to a little bit of an mlp conversation, which investors like. refiners here, i think they're okay to own. delich is the one i favor. >> and now, turning to dan loeb, defending some of the past trades and revealing a stake in a new company at the dealbook conference. kate kelly has more. kate, interesting, you don't hear from loeb all that often, at all, publicly. so everybody was sort of keyed in on what he was saying.
>> you're absolutely right, scott. it's so rare to see him on camera, and we got a rare treat with that today, and a really detailed, packed interview. probably the surprised disclosure was the stake in fedex. he mentioned that to andrew ross sorkin, and we've seen the stocks at intraday highs, coming off that now. but based on what he said, the bullish sentiment, obviously a lot of investor enthusiasm. let's listen to directly to what loeb said about fedex. >> we had a very constructive discussion about the company, and we had some ideas, we shared them. he disabused us of some of our notion, life goes on. it's a normal part of the process. >> are you an owner in fedex? >> we are. >> and you like the stock? >> i do. >> you like fred? >> i do. >> you won't be trying to oust him? >> no, absolutely not. >> you can hear andrew asking the sort of $64 million question, are you going to try to oust fred smith, because even when dan loeb likes a stock, he often goes after the ceo or the management team. he's indicating he's not doing that here, saying he met with
smith recently. one interesting trade on the longside. >> yeah, fred smith very well respected ceo, kate. that was interesting in and of itself. herbalife, even comments from dan loeb regarding herbalife and bill ackman a bit. >> we did. he talked in some detail, actually. andrew asked him, was it personal? was he going long herbalife, because he was trying to cause pain to bill ackman, who is reported to be sort of a frenemy, if not an out-right enemy, he said, look, nothing personal. he did some due diligence. he took time from a winter holiday and came from mexico to meet with company management last winter. he is bullish. he doesn't think it's a pyramid scheme. he had a price target of 55 to $70. and he said usually they go out a year, but in this case, the stock made good money, so they got out of it in the february, march area. you reported that at the time. so you remember that. >> i do. >> but he basically said, look,
no pump-and-dump here. this was a good, old-fashioned investment idea. >> he addressed comments by george clooney, as well. people are waiting to hear, if anything, he would say about that. remember, it was clooney who sort of, you know, verbally attacked loeb after the sony letters were written to the ceo there. >> he did. and that was a funny moment. so he talked a little bit about clooney's reaction, said he thinks basically clooney may have misinterpreted what third point was trying to do vis-a-vis sony, they had constructive idea, greater accountability, greater transparency, and obviously they wanted a sell-off of the entertainment unit, which clooney opposed. but he -- to use a hollywood term, he basically said he'd like the two of them to hug it out. they probably have more in common than not. if i segue into japan and sony, he basically said he'd bullish on sony, even though his initial attempts to kind of help restructure the company have not worked. he said it's not an "us against them." it's more of an ongoing
dialogue. he's obviously still long the stock. he said for what it's worth, he had breakfast with kaz hirai, and they're having the first investors day, and he's a fan of prime minister shinzo abe, and he thinks there's more to run in that economy, and he's bullish on that. so a couple of trades there, one is the sony long, and the bullish macro japan bet. >> yeah, very bullish on japan, all right, kate, thank you so much. >> thank you. >> kate kelly. let's trade some of these. let's do fedex. >> i mean, i like fedex. mr. loeb, a lot of the hedge funds will be filing the top ten positions and you'll see fedex in the top five of a lot of these. announced 32 million share buyback, 10% of the flow, which gives us a nice floor, and the earnings, $20 in cash over the years, so fedex will be a big winner. >> i like fedex and i like u.p.s. better. you can own both of them. there's something curious about the calendar, this year's
shopping season, between thanksgiving and christmas, five days shorter than last year. it's the shortest since 2002. that means a ton of late, last-minute orders and a lot of shipping. i think both of the stocks can work into year end because of all of the cyber orders. >> what about sony? >> i'm a buyer of whatever dan loeb a buying. >> yeah, he's a good year. >> unbelievable track record. wait for the 13-f, wait for teppers, and buy it and don't ask any questions. i'm being somewhat facetious. >> i know you are. >> he's one of the guys, when he says he owns something, you have to take a look at it. >> dan loeb also told andrew he's still bullish on the u.s. market, a view that's not necessarily shared by our next guest. barclays is out with its 2014 outlook, and while the firm says stocks will end next year higher, the gains won't be close to what we've seen this year. barry knapp is barclays head of u.s. equity strategy, joins us live from new york city. barry, welcome back. >> good afternoon. >> so it's fair to say you're positive on where stocks go next year, but it's not exactly
you're a raging bull. >> no, i think that's -- that's fair. we've obviously had a tremendous year, and to some extent, we spoke about this earlier in the year, we expected that there would be a fed policy normalization-related correction that would occur most likely in the fourth quarter, like most people we were expecting them to taper in september. so in essence, what happened, we immediately increased our price target after they took a pass on that to 1,800 from 1,600. and so, what we think basically happened is they pulled some of the returns from 2014 into 2013. now, you know, if you think about the last three fed normalization-related cycles, it matters a lot where the market is in terms of valuation for how that forward year goes once you've actually gone through that process of getting the fed to take the first step to normalize policies. so, for example, you know, in the early '80s, 1983, the market
traded nine times earnings, stuck in a range for five quarters after they normalized policy. in 1985, the market went up 27%. it was 37% in 1995. but in 2005, when the market was trading a little bit richer than where it is today -- but definitely on the high side -- we had single-digit returns in 2005. >> right. >> so valuation will matter once you get to the other side of the inevitable taper. >> you're saying it's inevitable. >> you're saying essentially the taper is the biggest impediment to the stock market's move in 2014? >> well, that's absolutely fair to say. we've been getting increasingly optimistic on the economic outlook going back to may, really. we started scaling out of what we'd been telling people to do at this time of year ago, and through the first part of the year, staying in the sweet spot of fed policy, stocks would bomb like characteristic, you know, overweight in tech and
industrials. those are the two overweights, and those are clearly pro-cyclicals, leveraged to cap ex, leveraged to global growth. we upped the earnings estimate when we brought it down, as well. we're optimistic on the economic outlook, but think the fed event will cause a pause in the run. >> so on the industrial side, barry, this is simon, what name do you specifically like in that area? >> well, i haven't quite gotten down the path of having a recommended portfolio, but i have to say that scott davis' universe, which is the big multiline industrial guys, really, these are companies that fought a really difficult battle for a lot of years, in essence, you know, looking at much lower labor costs through the rest of the world. they are the beneficiaries of, you know, the decline in the inflation-adjusted decline rate, cost equalization, so they're really the cleanest way to play that. there's others. >> barry, let me ask you. we're showing on the screen now, you said to avoid financials. if you think that the taper is coming, and there is a view out
there that higher interest rates are better for the banks, why not buy the financials which have lagged of late? >> so that's a -- that's a very -- i think that's an excellent question, actually, because it's a complex situation in as much as you think about the assets that have been added over the last couple of year, they've been floating rates, things like c&i loan growth have been created rapidly. when you get to the point of raising short-term rates, you know, lower for longer process ends, and you actually are raising the fed funds rate, the curve is already steep. you'd need things to move on the front end. that's point number one. point number two, we think the mortgage credit channel, so impaired this year, some serious policy steps have been taken. and for regional banks that are much more loan book sensitive, mortgages are half their loan books. if we get mortgage credit to start to loosen, that could help the midsize and smaller regionals, so that's a point of
differentiation. and the final point i would make is the regulatory environment is, you know, you guys talk about this all of the time, but there's a precedent for it in the 40s and 50s. ru return on equities. at 10% for 15 year, relatively horrible for the bull market, so for the big banks, until we're convinced the regulatory environment is improved, until you get short rates to come up, i can't see my way to being bulled up on the big banks. the smaller regionals, maybe a trade there. >> gotcha. barry, thanks a lot. >> all right, thanks a lot. >> barry knapp over at barclays. d.r. horton getting a boost, putting it near the top of the s&p, but still in the red for the year. we have a bull and a bear on a heated homebuilder debate coming up. and then, we'll talk to the manager of a $12 billion fund who says to hang on tight. he is forecasting a 15% drop in stocks, and we'll find out why later in the half.
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all right. let's send it over to dominic chu. dom, can you hear me now? >> i can hear you now loud and clear as a bell, guys. how about this "market flash"? check out what's happening with men's wearhouse, and also joe serve a. bank, because imnesn capital, a 10% shareholder in, again, men's wearhouse, the single largest shareholder, has sent a second letter to the board asking them to conduct, again, a full review of their strategic options and simultaneously engage joseph a. bank in possible merger talks. this note, remember, comes on the heels of the first note saying they have a fiduciary responsibility, scott, to explore all options. so men's wearhouse and joseph a. bank in focus. gold in focus, too, falling to a one-month low today. let's get more from jackie
deangelis and the "futures now" crew. >> that's exactly right, scott. gold dropping for the fourth straight day and lost $80, so, anthony, what is the problem for gold? we've been discussing this for a long time. what will finally put the floor in the market? >> jackie, you've had the safe haven status for gold out the window all year long, with the equities up 20%. a couple of weeks ago, we failed miserably at the 1,660 technical level, and the strengthened dollars, which also put pressure on the gold. the only thank that will save it if the fact that inflation ramps up and people look for it as a hash. >> 1,278, a key technical level, we've broken through that, will we finally find support? or do we go lower from here? >> it's a well-defined trend line. i think for me to call it totally broken, i'd say even down to maybe 1,270, because sometimes it's not an exact
science. normally, on a trend like that, i would look at it and potentially buy it for a bounce. but you have to ask yourself, if interest rates are potentially going up, and i believe interest rates are going up, is gold really going to rally, as weld? at the end of the day, the answer is, no. i think it will settle below the trend line and head lower. >> all right. lots more on gold in our live online show today, where peter schiff is going to tell us why he's still bullish on the yellow medal, not surprising, and what could drive it higher. find out at 1:00 p.m., futur futuresnow.cnbc.com. >> jackie, thank you so much. up next, we'll reveal the stocks with the most short interests and the short sellers are backing off of, but first, barry knapp is predicting a 15% drop in the market. find out what he thinks will smack down stocks and how you can protect your portfolio. iran sloan is coming up.
orders are down 2%. what is the trade here? we debate it now. simon baker is the bull, joe terranova is the bear. you have 09 seconds. >> an easy one to beat up. the homebuilding stocks have been horrible. interest rate guessing up. i get the argument. okay. this stock is starting to look much, much better. the earnings are positive. the positive points that came out of it, year on year, orders are up. yes, cancellations are up, but house prices stayed stable. it looks good. the reality is, in terms of the pent-up demand, potentially the demographics, is huge. the reality is for every one house that is being built, there's a demand of 1.7% on it. i mean, there just isn't the pent-up demand. i like the names like yelp, and this stock is massively underperformed, came out with good numbers in terms of buying a valuation stock moving forward, and it's good buy here. >> okay, well, you cannot dismiss the move in rates. and clearly, the stock has gone down significantly as rates did
move higher. that being said, and i think rates go higher in 2014, you cited the earnings themselves. good margins, strong profitability. how are they doing it? they're keeping pricing, not giving in to the incentives. conference call, what do they come out and say? they're going to have to consider incentives if demand weakens in 2014. i think you're seeing that. and they're not really getting themselves out of this isolation to the first-time home buyer, so homes greater than $500,000, okay, 3% of their sales this time last year were homes of $500,000. only 5% now. they're not gaining any market share, and they're going to need to -- >> you're talking again this year of interest rates going up and going higher. and the pent-up demand -- >> there's more to it than the interest rate argument. it's the business model itself in which d.r. horton doesn't seem to be really hitting on all of the metrics, except dismissing the notion of offering incentives, and now telling you they may have to do it. >> they have a quarter with
earnings up 32%, how can you say they're not -- >> i said the margins and the earnings were strong, but the margins are going to contrast. the minute you hear on a conference call the mention of having to offer incentives -- >> let's go to the desk. josh brown, who made the compelling argument? >> joe wins, this is last year's trade, and higher rates do not go well for future home starts. >> tell us who you think won, tweet us @cnbcfastmoney, and use #bear or #bull. and will rising rates kill the taper? the next guest is bracing for a pullback, ron sloan, portfolio manager for invesco's charter fund, and has $12 billion under management, and been in the market for over 40 years. great to talk to you. >> good afternoon, scott. >> i see central banks around the world fully engaged, $10 billion to $20 billion a month will make that much of a difference? >> there's no doubt, a lot of liquidity sloshing around in the
world, and where does it go? and so, so far we've -- they've all gone into financial assets. but the trick is -- i mean, the real world that we live in is a nominal world, really. it's not a real world. it's a nominal world. and the fed's job here is to transfer the beneficiary of that liquidity from financial assets to real assets. and that's -- that's what their long-term goal is. the fed is always going to be successful. so this transfer is going to occur, and when it does occur in that process, rates will normalize at higher levels, and it's going to be about earnings growth that you're going to have to participate in, and not necessarily a free ride on a broad range of liquidity-led valuation move. >> let's say you're right. let's say we do have this sizable drop in stocks. where do you want to be? if you're still trying to pick winners in that environment, what do you pick? >> well, i think you picked the winners. companies with a lot of pricing power. they're on the more cyclical end of the curve, because that's
really where pricing power is. away from the consumer, because the consumer will ultimately push back from higher prices. so you want to be in businesses that basically sell vital components or subsystems to larger customers where they have -- where the customer is indifferent to price. >> ron, it's -- >> but the need is critical for the product. >> it's josh brown, and i wanted to follow up on that. if you're bullish on the areas where it's more of a corporate rather than a consumer, and it's a little bit more cyclical, don't you by extension also have to be bullish on the global growth picture, especially the brick countries and europe? >> oh, i think we -- yes, i do. now, again, this is nominal growth. the key word is "nominal." let's forget real for a second, real is irrelevant to most central banks. it's a nominal growth story that
this really is? yes, you do want cyclically driven businesses that play higher into nominal growth. >> cameron international, hca, parker hannifin? those are the three ways you want us to play it. >> yeah. and i think you got -- you got healthcare with hca basically, the big, bad debt reserves that have been consistently on hospital's books, basically go away in an aca environment. you have cameron, which is basically reinvesting in their business. they missed the last quarter. deliberately to reinvest in this joint venture with shum ber jch, which makes them much, much more competitive, and it accrues to them. of course, it's a no-no in the market, so they took it down 15%, here wa15% hooray, wonderful buying opportunity. parker hannifin, ultimate company selling lots of skews critical to their customers, and
which they have a lot of pricing power in. >> ron, great to have your views today. thank you for coming on "the half." >> pleasure being here. and the emerging markets, joe. what have you noticed? >> it's important. they've been down nine consecutive days in a row, the currencies are experiencing the weakness they experienced back in august. why is that happening? you're seeing a rise in yields domestically. you're seeing better economic data, which leads us to believe the taper is coming sooner than we expected. the question becomes, what does it translate into for the s&p? i am not a believer overall of a deep correction for the market, but the market right now is vulnerable. the cost of the nine days of row in weakness, and the s&p is about to have a minor correction. >> for me, this is why you stay away from emerging markets in terms of any type of bulk in your portfolio. sure, you can have a small weighting, but we saw russia cut the growth rate in half, and continuing --
>> it did a precursor to what we could see for the s&p, right? >> okay. to me, at any moment in time, marking the trade down 3%, 5%, great -- equity markets go up when rates go up. that's happened every year for the last 63 years, except for 1969. so i'm not worried about the market. i think it's going higher. >> the hedge funds are heading into seemingly unchartered territory, so should you be following the smart money? plus, we look at the short stocks sellers love and hate right now, and how to play them. ♪ ♪
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good afternoon, everybody, coming up on "power lunch," the u.s. is on track to overtake saudi arabia as the top oil producer, so how should you play it? the best energy stocks to buy now. you take vitamins? the $9 billion industry could be at some risk. we're going to talk about the stocks in that sector that could be hit the most. and it's being called the art auction of the century. century's young, but it's still the auction of the century. the chairman of christie's joins us for a preview. >> all right, ty, thank you. time for the "playbook" now where we get the xs and os. today's focus, munys, a $7.3 billion hedge fund market. john is president of ibo asset
management. welcome. good to have you on. >> thank you, scott. >> what's the view here? the headline says chicago debt downgrade, rates rising, that would seemingly be a bad for munys. is it? >> i think the important thing, scott, we do have to divide the municipal world into two categories. even that might be too broad a brushstroke. you know, there's an article in today's paper about hedge funds getting involved in distressed munis like jefferson county and harrisburg, and that's one area. but it's separate from where most investors have their money, which is the investment-grade sector, where you are correct that we have to worry about interest rate risks going forward. there, we're advising clients to keep duration on the short end, three to four years, to protect against rising interest rates. today's article on distressed debt is a little more interesting. should we talk about that a little bit? >> please do. >> okay. well, i think many of the investors, and certainly, scott, you know about jefferson,
harrisburg, and detroit, as far as municipalities that have gone into bankruptcy recently. and hedge funds, like they do with corporate bonds, are playing in the space. they see the opportunity to pick up bonds that might be worth 60, 70, 80 cents for 30 cents, 40 cents on the dollar. funds. hedge funds have the legal expertise, they have the time to wait out the liquidity and a bond for a distressed or bankrupt issuer is going to be tied up in the courts for quite some time. it's not for the faint of heart. >> one more quick question about straight munis, right. because i think a lot of our viewers who watch this network are invested there. the last sell-off we saw proved to be a great buying opportunity. >> yes. >> this time could be different, could it not? if a taper does happen and rates are on a more prolonged trajectory higher, that matters. >> it does matter. so let's -- we're talking about two different risks there. you're talking about interest rate risk and you're absolutely right that we believe we're in a rising interest rate environment. of course we get no return on
cash so it makes sense to have some maturity, some duration if your portfolio. we think the three to four-year duration time frame is the right one for investors to balance between rising interest rates and yet they're getting no return on cash. with regards to credit risk what you're talking about really with the prior debacle one being 2010 with meredith whitney and then earlier this year with what happened in detroit, for the vast majority of investment grade municipal bonds credit worthiness is really not an issue. we just worry about interest rate risk. >> jim, good to talk to you. thanks for coming on. >> thanks for having me on. >> munis? >> you are asking excellent questions throughout the show and i know someone already told you that but you are. the question is this time around is it different? it was a tremendous opportunity over the summer. this time around, you're going to have a longer time horizon because once yields get going they're going to go and focus on
duration like jim said into thank you. up next, we take a look at the most heavily shorted stocks in the market. should you follow the crowd or trade the other way. that is next on the half. you really love, what would you do?" ♪ [ woman ] i'd be a writer. [ man ] i'd be a baker. [ woman ] i wanna be a pie maker. [ man ] i wanna be a pilot. [ woman ] i'd be an architect. what if i told you someone could pay you and what if that person were you? ♪ when you think about it, isn't that what retirement should be,
we always talk about parts of the market people are buying. let's get the latest on what investors are shorting. dominic chu has the new numbers. >> you talk about the times where people are shorting more stocks. take a look at what some of the sectors people are starting to short more, betting more
against. take a look at the retailers, look at names like jc penney, radio shack, abercrombie & fitch, those stocks have their interest increasing on the rise, more are betting against those stocks. you have other names on the other side, says cliffs natural resources, u.s. steal, some of the coal and steal names across the board, investors are starting to pair back those short bets. at least you're seeing at least one industry, one group that seems to have at least a little bit of a bullish tone to it. >> thanks. weiss you're pairing back your short bet on jc penney a bit, right? >> i've just about had it. i have the smallest tag in. shorting has been the most difficult part of the market for every hedge fund man. they've given up so much performance, pushed out for long only funds. i have to wonder such a crescendo if now is not the time to start shorting again. >> if you want to do a compare on that trade, that's a pair on
the hedge funds. a lot of the industrials and pair that off with the shorts. consumer confidence has gotten hurt. >> what about cliffs? >> i think on the material side it's interesting to see those short bets closed out. it coincideses without performance in the names on a short-term basis for the first time in like three years. if you look at iron ore, record month in september, most important ever in china, last month 43% jump from australia to china. ore stocks are hot again. >> give me ten seconds on cliffs? >> i own walter. walter is a much smaller position. i think the time is right. emerging markets has preyed on those stocks. >> final trades after the break as well as who won the debate. and just give them the basics, you know. i got this. [thinking] is it that time? the son picks up the check? [thinking] i'm still working. he's retired.
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on that note, as the loser, simon, make your final trade. >> well, i'm not going to deal with the housing stock. cme group. >> quickly, joe. >> moreup side in rig. >> pfizer beasting to break out. >> quickly weiss. >> ubf short bonds. >> "power lunch" starts right now. >> "halftime's" over. the second half of your trading day begins now. >> scott, thank you very much. biggest names in business have been talking at one serious po power conference all day long and it is only on cnbc. on the list and makes news today, dan loeb, barry diller, ken griffin and elon musk. that's a musk shot right there. oil in the usa, watch out saudi arabia the u.s. is expected to overtake you in oil production faster than anyone thought. so what? so a lot. from pump prices falling to jobs to politics, full coverage of th
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