MARIA-00
Securities Fraud; U.S. Stock Futures Extend Post-Fed Gains; Defense
Secretary Ash Carter Faces Scrutiny after Revealing He Used Private E-mail
for Government Business; U.S. House Backs Permanent Tax Breaks in Massive
Bill; U.S. Lawmakers Pass Bill to Lift Ban on Oil Exports; Putin
Acknowledges Donald Trump in Speech; Oil Prices Fall in the Wake of Federal
Reserve's Move to Raise Rates; Winter Storms Hit Western US; Examining the
Pfizer/Allergan Merger - Part 5>
Flynn, Dagen McDowell>
Kaminsky>
Proposal; Pharmaceutical Companies; Stock Market; Martin Shkreli; Stock
Market; Ash Carter; Congress; Oil; Putin; Donald Trump>
BARTIROMO: Well the valuation is a question.
BARTIROMO: Yes.
KAMINSKI: The ride-sharing business.
BARTIROMO: It's at 60 billion.
KAMINSKI: Look, the ride-sharing business is clearly successful and it's going to have - it's going to continue to be. My only issue with these driverless vehicles -
BARTIROMO: Yes?
KAMINSKI: -- whether I get in one or not, the traffic just seems to me - and maybe it's just a thing here in the City -- you guys, the traffic is getting worse and worse.
BARTIROMO: Well around the holidays, yes.
KAMINSKI: No, it's just every single day. I don't know, maybe because more people are using these Uber-like services and so they are opting to do that as opposed to going underground. All I know is that if the driverless cars can improve the traffic I'm all for it.
CASONE: But the thing though, what California's doing, I think is really interesting, with these proposed regulations: there has to be somebody behind the car. The big question was is that person responsible if the driverless car makes a mistake or gets into a crash, or whatever? Yes, you are. Yes, you are. And, you also have to be, for these tests they're going to be doing in California, with Ford and Google, you have to be specifically qualified and trained to even get behind wheel of these because they're going to be on real roads around Palo Alto, out in California.
MCDOWELL: Would I take a driverless Uber? Absolutely.
CASONE: You would?
MCDOWELL: yes.
CASONE: I wouldn't because -
BARTIROMO: Driverless Uber?
MCDOWELL: -- because you don't have to get in the car and say can you please turn the Celine Deon down. Please, can you roll the windows up? It's 25 out. That goes on everyday. So, a driverless Uber? I'm down.
[LAUGHTER]
BARTIROMO: Why would I want a driverless Uber driving me around? I mean, that's so weird.
KAMINSKI: You want the driverless Uber with Waze also because, you know, so at least -
BARTIROMO: I guess so.
KAMINSKI: So at least you could get around things.
[LAUGHTER]
BARTIROMO: One thing about driverless cars, I mean, I love to ask people if they would put the family in a driverless car but the truth is that a driverless car did not drink alcohol last night; did not not get any sleep, is not tired; did not text somebody while -- so there are a lot of positives around -- around driverless cars. We will see. I don't know if you could have one driverless car and everybody else driving. I mean, I think, maybe you need everybody driverless, so we'll see. It's really interesting on what's going on. Real growth story.
Cheryl, thanks.
CASONE: You bet.
BARTIROMO: We will take a short break and then, falling on the Fed, what the rate hike means for the already struggling oil sector. Oil now at $35.23 this morning. We're going to check on commodities next. Back in a moment.
(COMMERCIAL BREAK)
BARTIROMO: Welcome back. The Federal Reserve decision to raise interest rates by quarter of a point having an immediate effect on the price of crude oil. Phil Flynn at the CME Group with the details now; Phil, good morning to you.
PHIL FLYNN, FBN CORRESPONDENT: Hey, good morning, Maria. Yes, you know, oil was a conundrum for Janet Yellen yesterday. She didn't understand why prices were falling and she was shocked, but it also shocked the oil market as well. Rising interest rates mean, generally, a stronger dollar which is a negative for oil and at the same time there is some expectations that if the U.S. economies slows, just even a little bit, the demand for oil will fall.
Look at what really drove oil yesterday; it was that incredible build in crude oil supplies, up over 5 million barrels yesterday. That blindsided the Market. 8 billion was in the Gulf Coast of the United States, mostly from Saudi Arabia. They are dumping oil in the United States like crazy. Now you would think with all the oil and low prices gas prices would be below $2 a gallon today. Not yet; part of that is California, believe it or not.
California prices are staying high. One reason is they can't book tankers to get gasoline from the Gulf Coast to California. The reason is, is because India is buying all the gasoline they can get all their hands on. They are booking all the tankers. That's keeping our national average above $2.00 a gallon Back to you.
BARTIROMO: All right, Phil; thank you so much. Gary Kaminski, let's take about oil. Dagen and I have been having this conversation, in terms of the implication of oil coming down as low as it is. What kind of knock-on effects do you expect from oil in the $30's?
KAMINSKI: Well, what would have been expected a year ago if we had predicted this is where the price would be, was it was going to help the economy, and it was going to help retail sales; it was going to help apparel sales. We haven't seen any of it.
The funny thing about energy, I just want to go back to Janet Yellen yesterday, was she did make one forecast. She sort of said, we think it is the bottom in energy prices. She's surprised that oil is down where it is and she basically made this -
BARTIROMO: Why is she making that prediction?
KAMINSKI: Well it's sort of like when she made -
BARTIROMO: Federal Reserve Chairman Yellen said this.
KAMINSKI: It's like when she wanted to make, earlier this year, late last year -
BARTIROMO: About tech stocks.
KAMINSKI: Bio technology, bio technology stocks. What's happening here, again, is a little bit technical but, again, when I think about the Fed raises rates yesterday and forgetting everything else, it's amazing to think what has happened to the price of crude oil and you're raising rates into this?
BARTIROMO: Gotcha.
KAMINSKI: Because when you think about the Fed tightening you think about inflation and you think about things like energy prices going up.
BARTIROMO: Right.
KAMINSKI: Here we are, with a massive correction in 2015, in oil prices and the Fed is raising rates.
BARTIROMO: Right, and the broad economy is very fragile right now. We had the Fed Ex numbers out yesterday, Dagen, and the revenue was a beat, but we were interested in the numbers because it's very much indicative of what's going on right now. Tell us what the numbers are looking --
MCDOWELL: Its holiday season, its busiest ever; and it's seeing very, very strong volumes from these online shippers. What happened was they tried to raise -- they raised prices on larger packages trying to get shippers to send smaller items and it didn't really work that well. To even pri -- people were able to even absorb price increases, about ten-percent of packages are of home deliveries are oversized packages.
KAMINSKI: But when you think about that -
BARTIROMO: That's the kind of company that would be a beneficiary to oil - -
KAMINSKI: Right, but when you think about Fed Ex, it's not the retail is expanding. It's that Fed Ex and Ups are benefiting from the amount of purchasing that's going on on Amazon.
MCDOWELL: And other online -
KAMINSKI: And other online retailers.
MCDOWELL: -- and the online -- but even Wal-Mart online and Target online.
KAMINSKI: But the overall pie of retail spending is not expanding; it's coming out of some of the other components of retail. So the numbers stay stagnant. It's just that more is going to online shipping -
MCDOWELL: Out of stores -
KAMINSKI: -- and the benefits. If you thought about --
BARTIROMO: The earnings and the revenue beat expectation.
KAMINSKI: If you thought about quantitative easing and you thought about seven years of zero-percent interest rates, you would expect four or five- percent growth possibly and you would be seeing top-line growth significantly above where it was. But in everything else being equal, yes, Fed Ex and UPS have been beneficiaries here.
MCDOWELL: And Fed Ex more - I think the stock, in after-hours trading, when the numbers came out, was up like five-percent.
BARTIROMO: Yes, five-percent.
KAMINSKI: Yes, it's up seven -
MCDOWELL: That was certainly a hot -- certainly a highlight because it said -- we were talking about it yesterday. It says that the holiday season is not going to be horrific based on -- for some based on Fed Ex numbers.
BARTIROMO: Yes.
KAMINSKI: Yes.
MCDOWELL: UPS has been struggling more than Fed Ex, in terms of trying to manage the heavy package volume this year.
BARTIROMO: All right, so Fed Ex is one stock to watch today.
MCDOWELL: UPS was scrambling.
BARTIROMO: We want to watch financials, right? The banks up five-percent in just two days. A lot of people were expecting that investors would get -- file back into the banks once the Fed started raising interest rates, just because it's going to make them this much more profitable; a 1/4 point.
[LAUGHTER]
KAMINSKI: This is - the one -- the thing that everybody was waiting for, for the Fed to make the move was net interest margin, --
BARTIROMO: Right.
KAMINSKI: -- you know, whether the banks will actually be able to bring it to the bottom line will be a good question.
MCDOWELL: You saw Wells Fargo; they don't raise deposit rates but they raise --
BARTIROMO: The prime rate.
MCDOWELL: Yes, exactly.
BARTIROMO: So right after the Fed raise, Wells Fargo raising the prime rate. So the banks were up. Banks are probably going to be up again today. Fed Ex going to be up again today; so we'll be watching those.
We'll take a short break. Coming up, it is the end of an era; we'll take a look at what the Fed's rate increase means for your money specifically. Stay with us; back in a minute.
(COMMERCIAL BREAK)
BARTIROMO: Good Thursday morning, everybody; welcome back. I'm Maria Bartiromo; it is Thursday, December 17th. With me this morning, Fox Business Network's Dagen McDowell, and "Wall Street Week" Co-Host, Gary Kaminski.
Your top stories first on 6:30 AM on the East Coast. We have lift off. The Federal Reserve raised interest rates yesterday after seven years of being near zero, Janet Yellen and company explaining that the move reflects confidence in the U.S. economy. In her post decision news conference yesterday, with one layer of uncertainty now remove to the markets, global stocks rallied across the board and we continue to see money moving into stocks this morning. The Dow climbing more than 200 points in yesterday trading session and this morning expects to open about 84, 1 1/2 percent, the NASDAQ and S&P 500 also looking firmer.
Check overseas, market's there rallying as well this morning on the Fed decision. In Europe, a major averages up better than the 1.5 percent across the board, best performer the DAX index in Germany up 3 1/4 percent right now.
In Asia overnight, here's what we're looking at the gains across the board there as well. Shanghai Composite in China up nearly 2 percent, Nikkei average in japan up 1.5 percent.
Meanwhile there's this, Defense Secretary Ash Carter, facing scrutiny this morning after he revealed that he use private emails for government business. The Pentagon saying that Carter was -- has discontinued the practice, but this could be even more problematic than Hillary Clinton's private use of e-mail. According to the Wall Street Journal, the Pentagon is one of the top targets for international hackers.
A missed opportunity in Belgium, authorities there admitting that they had the opportunity to arrest one of the Paris attackers but unable to do so because of laws limiting raids on private homes.
The newest class of rock-and-roll hall of famers announced. NWA, Chicago and Steve Miller among the artists in the 2016 class, they will be inducted into the rock-and-roll hall of fame in April and ceremony in Brooklyn.
Take a look at the markets, futures pointing to a higher opening this morning after the Federal Reserve finally ended nearly a decade of zero rates, hiking the interest rate by quarter a point. Joining the conversation right now, Federated investor chief equity strategy, strategist rather, Phil Orlando, and Wall Street chief economic correspondence, Jon Hilensrath, good to see gentlemen, thank you so much for joining us. Jon, I'm going to get to you in second, because I know you predicted it, they'll going to raise, they'll going to raise, you were on the air yesterday. What's your take on this, Phil Orlando?
PHIL ORLANDO, FEDARATED INVESTORS: We're in a quarter point hike camp. So, we are fine with that and we also thought that the market response, the equity market responds would be that stocks would rip with the market at 2,000 in the beginning of the week, we felt a move up to 2200 was possible, we got 4 percent of that here in the first three days of the week. So, we think the market could continue to grind higher over the next couple of weeks.
BARTIROMO: Why, why did the market ripped on the news?
ORLANDO: Well, because I think investors, they were fearful of the Fed hiking for the first time in nine years and finally cooler heads prevails. Then they said wait a second, if the Fed is tightening policy, doesn't that mean that they are finally confident enough that the U.S. economy is healing, than they can walk without this extraordinary accommodation and I think on that point they started to price better, better things.
GARY KAMINSKY, WALL STREET WEEK HOST: Well, on the economy healing, we will bring in Jon Hilsenrath. I'll just say, Jon, I want to ask you this question, but you know I got the most utmost respect to you and I just want to ask you.
(CROSSTALK)
KAMINSKY: Jon, you know I have tremendous respect in everything you do, but the legendary investors used to say, we don't have an economist in our parliament because we have an economist without to pay the economist so we find a one to listen to the economist. Why should anybody, when you reflect back on a last five years and they did raise rates and they did it based on an economic forecast, think that the Fed is going to get it right this time when they haven't predicted any recession in the last 30 years?
JON HILSENRATH, WALL STREET JOURNAL CIEF ECONOMIC CORRESPONDENCE: I think that's a perfectly legitimate question. I mean, the Fed has got lots of its forecast wrong in this expansion, you know, they thought that inflation was going to come back and it didn't. They thought growth was going to be stronger every year than it has been. So, I think that's the total legitimate -- you know, there's a perception in the market sometimes that the Fed knows more than the market knows and you know, I think the lesson of the last decade is that we're all kind of walking around in the dark.
DAGEN MCDOWELL, MORNINGS WITH MARIA HOST: It's a problem that they talked to all, they basically inbreed group of buddies and they all talk to one another and people in the academic world and they don't talk to enough people on the outside who have descending opinions. The point being there was not one dissent on that decision yesterday, right Jon?
HILSENRATH: Yes, I will make two points on that, Dagen. One, I like this phrase about inbreed issue.
MCDOWELL: I mean, that's from my.
HILSENRATH: They are mostly PhD economist but they got a problem, because when they talked to guys on Wall Street, then they get attacked for being too close and too cozy to Wall Street for giving away inside information.
BARTIROMO: Richard Fisher always was in touch with business people and it made him smarter and made him more in touch with what was going on. And that is why he always had the right call when Fisher was the president of the Dallas Federal Reserve, right.
HILSENRATH: They probably need more people like that but not page.
BARTIROMO: Exactly.
HILSENRATH: But one other point, Dagen talked about how Yellen got a unanimous decision. I think, Janet Yellen is the big winner today, you know, she has a great December and a terrible September. You know, we have good jobs numbers, she went into this thinking she could get some dissent from the people working right down the hall for her, she got everybody on board and the market rallied, you know, it was telegraphed pretty well and this was after they really, really fumbled the way they handle things in September. There was a lot of confusion when they didn't move and you know she was kind of not talking for literary two months at times. I think she walks out of this experience with the stronger hand.
BARTIROMO: Guys, can we talk about 2016 for a second, because what is most important right now is what the next year looks like in terms of Federal Reserve increases, isn't it, I mean, it was pretty indicative yesterday by her commentary and her move that they going to be gradual. So, what does 2016 look like in terms of interest-rate increases and how impacts -- how many are you expecting?
ORLANDO: We agree with the Fed that this pace will be gradual. We're expecting three more quarter point heights next year with the first 3 presser's.
BARTIROMO: So, you're taking about 1 percent by the end of September.
ORLANDO: One percent by the end of September. We think, the Fed then pauses, how does the market and economy respond? Then, I think they want to leave a little room for the election in November.
KAMINSKY: So, you said that stocks were ripped yesterday after the announcement, because the Fed is saying they believe in the economy.
ORLANDO: Right.
KAMINSKY: Jon disagreed that, you know, they're taking a guess, everybody was taking a guess. I see the way the industrials trade. I look at many of the energy stocks. I looked at what happened with lot of the companies that have been great total return stocks paying dividends and they're saying we're going to hit a recession next year. So, who got it wrong?
ORLANDO: We're actually not in a recession camp we think.
BARTIROMO: The industrial sector of the economy.
ORLANDO: Well the industrial sector. So, you would think the industrials are the most attractive area of the stock-market then, because it's trading is all going to be -- if I'm looking out and I'm taking a one year view, I mean, I'll say that energy and industrial stocks right here are very cheap. Now, we may not see them bottom until the first half of next year, there may be some more weakness but we think there's going to be a turn and that is part of our thought process.
BARTIROMO: And you don't think just because the industrial side of the economy is in recession, that the rest of the economy goes into recession.
ORLANDO: Well, the industrial pace is about 15 percent of the economy. Now, energy has -- the collapse in energy in crude prices down by two thirds over the last 2 years. That cost about 75 percent of the miss earnings that we've seen over that time period of time, the strength of the dollar by 15 percent. We happen to think that energy prices are bottoming in here. We think that dollar strength is probably topping, if that's right, the head winds from those ought to receive over the course of calendar 16.
MCDOWELL: Can I raise an issue.
(CROSSTALK)
MCDOWELL: I want to ask you a question, but go ahead Jon.
HILSENRATH: Well, Maria asked about 2016. I think, what we got to be looking out for in 2016 is bubbles. You know, let's not forget the housing bubble that happened last time, took place during a Fed rate increase cycle from 2004 to 2006, that was raising interest rates and we got housing bubble, you know. I think, were seeing a lot of thrive in this a commercial real-estate, we're talking about stocks ripping, interest rates are still very low. I think, we are talking a lot about asset price.
BARTIROMO: That's the fiscal time, broke down with the interest rate increase means for your money, and we talked a little about the banks. But, I just want to get into this, because this is really interesting what the fiscal times get, health premiums expected to rise 4.1 percent, groceries 2-3 percent. Take a look at the graphic that we have here, even dinner out should jump 3 percent, so you have all these costs that are expected to move up in 2016. One of the reasons that people are not spending money is because of the cost of health care. Let's face it, they say that the gas pump as Dagen has correctly pointed out over, over again, but they had more expense when it comes to their health care.
MCDOWELL: That's the reason to hurry to hype those, that's inflation. Talk about the decline in oil prices but then you have inflation across these parts of the economy, that would be in the camp -- the reason that of they moved up.
BARTIROMO: Right.
MCDOWELL: Jon, I want to -- I just want to point this really out really quickly, that something that -- privately I was speaking to people last night, their concern about the mechanisms that the Federal Reserve will be using to actually get the rate up, to drain money to set up four per rates and basically control the movement in interest rates. They're worried about the impact it's going to have on the banks and on the bank lending. Because we just don't know these are uncharted waters.
HILSENRATH: They're using a whole new set of tools. I think, it wouldn't be surprising to see some volatility of short-term interest rates in at least on the first few weeks, especially as we get into year end. They said their confidence that this things will work, but the truth is they've never used them.
(CROSSTALK)
KAMINSKY: Jon, I got to ask you one other thing. She also gave a comment yesterday, Ms. Yellen, about the Third Avenue fund, and why she said it was a one off. A week ago and earlier this week many people in the industry were deeply concerned that there were similar funds, not holding all the same tops of paper, but there's -- you know, there's a real concern about this high-yield market and the freeze. She said it was a one off. Should viewers of this program unleash funds? Saying OK, the Fed reserve said that we shouldn't be worried about any other funds putting up gates and locking us out.
HILSENRATH: The fact that Janet Yellen was prepared to give such as specific and detailed answer about Third Avenue, tells you that is very concerned about what's going on in the junk-bond market and about what particular, what's going on in junk-bond funds and junk bond ETFs. So, you know, she plaited down, the SEC is looking at it but the Fed is very concerned about this being an area where we could see runs.
(CROSSTALK)
BARTIROMO: Third Avenue, they shut the gates, people were not able to get any money and we should point out that wasn't anything exotic, that's a mutual fund, Third Avenue capitals that closed its funds, I mean, the mutual fund. So, do you worry that the credit funds out there we're going to see more blowups and that's going through?
ORLANDO: We discussed this very topic at our policy meeting yesterday. Our junk-bond guru, Mark Durbiano made the same conclusion, what's studied, what is in their portfolio, this is a one off, and this is low quality distress stuff. And he said, he and Steve Auth of CIO said, we would hope that Janet Yellen will address this topic specifically.
KAMINSKY: Why do I hear you say that? And I'm sure you feel the same, Maria. I remember people in 2007 saying that the Bear Stearns hedge funds, were one off funds. When those funds collapse in the summer of 2007, it was a one-off.
ORLANDO: The foremost dangerous word in the U.S. language in this time is stiff.
MCDOWELL: It gets down to people betting on oil not falling. And they levered up to bet on that or to invest in oil, so they assumed oil wouldn't fall. Oil is not the same thing as housing. It doesn't hit mom-and-pop, is not as widespread, will it hurt, yes. Will it be the catastrophe? Because a lot of this oil leverage is not in the banking system. A lot of this junk-bond is not in the banking system.
BARTIROMO: It's an energy space.
(CROSSTALK)
KAMINSKY: A lot of the individual investors owned.
MCDOWELL: Not that many.
KAMINSKY: Well, they own a lot of these high-yield credits.
(CROSSTALK)
BARTIROMO: You like stocks and you're happy about the economic, sort of story.
ORLANDO: So, we like the stocks that are economically sensitive.
BARTIROMO: OK.
ORLANDO: And I think there's an important point that we haven't discussed here, that some of the inflation metrics, not just core PCE that Yellen is looking at. You got labor cost, the employment cost index, wages, etc. have been picking up and one thing we got to remember is that the utilization of monetary policy to adjust the economy, if not -- it's like turning a battleship in the ocean, it takes six to nine months for one half of the effect of the rate change to hit the economy, it takes 12 to 18 months for the full effect to be felt. So, what the Fed is doing today is really not going to have a material effect until we get into like the mid- 17. The Fed got to be making this change now, in anticipation of what they think is going to happen 18 months from now.
BARTIROMO: Alright, we will see that effect. Phil, good to have you on the program today.
ORLANDO: Thanks for having me.
BARTIROMO: Jon Hilsenrath, always a pleasure, thank you sir.
HILSENRATH: Thanks a lot.
BARTIROMO: Will see you soon. Jon, Phil Orlando, we will see you soon as well. Have a great holiday gentlemen. Coming up, the day is finally here, Star Wars fans rejoicing worldwide as the force awakens makes its grand opening, back in a minute.
(COMMERCIAL BREAK)
BARTIROMO: Welcome back, a shocking moment for the prime minister of Spain yesterday, unbelievable story, Cheryl Casone with the details and the other headlines now, Cheryl.
CHERYL CASONE, FOX BUSINESS NETWORK: That's right Maria. This video is something else. Prime Minister Mariano Rajoy, was campaigning in the city where he grew up in northern Spain, when he was punched in the head by a young man. You can see the video, we would loop it for you. Sucker punch, right? This kid was 17 years old, he was sitting next to Rajoy on the street while he was talking to the crowd. People who are back he delivered the left hook to Rajoy cheeks, get this, Rajoy was not seriously hurt and yes, the kid arrested. But the video has gone viral.
Also have this for you. We are talking about, Maria, about these hover boards raising safety concerns. Now, it's the U.S. postal service getting involved. USPS grounding shipments of hover boards by plane, effective immediately due to potential safety hazards of the lithium ion batteries, of course in cargo hold. So, hover boards are now going to be travel be at ground transportation.
And finally this, we got to give you Star Wars, starting to kick things off here. Taking London by storm, celebrities walked the red carpet to mark the European premiere of the Force Awakens, last night. Daisy Ridley joining Mark Hamill, Harrison Ford and Carrie Fisher for the big night, Oscar Isaac complementing director J.J. Abrams.