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DEIRDRE BOLTON, RISK & REWARD SHOW HOST: In an unhappy start to the New Year for U.S. investors, so far the Dow off to its worst start ever.
This is Risk and Reward. I'm Deirdre Bolton.
Stocks around the world, around the word from China to the U.K. to the U.S., you can see the selloff. We ended the day here triple digit down.
For analysis, we have our in-house experts my colleague, Cheryl Casone, she is covering the selling from the floor of the New York Stock Exchange. Money managers, Mark Matson, Jamie Cox, they are going to be sharing their best advice with what to do with your money.
Cheryl with me now from the floor, so, Cheryl, the U.S. dropped triggered by that sell-off in China, what were traders telling you on the floor?
CHERYL CASONE, FOX BUSINESS CORRESPONDENT: Well, you know, it's funny because we're now getting closer to 24 hours that that happened overnight, and China we're getting very close now to the Chinese and Japanese marks opening.
Here's the question on what traders are telling me right now. The fact that you don't know what the Chinese market is going to do because the government has said that have taken away those circuit breakers. They only traded last night for 29 minutes.
To give you some perspective, if that happened here in the U.S., we would have to drop more than 7 percent. But really we have 15-minute halt and they shut down for the entire day. So, China is one of the biggest, biggest concerns.
I also want to give you some perspective of what traders are saying about of what's coming up next and that's the jobs report tomorrow. We're going to get the unemployment figures for the month of December. The unemployment rate supposed to stay the same at 5 percent. That is one thing. And the job of numbers coming in about 200,000, that's the average.
The estimate, but here's the thing. One little hiccup, one little nice piece of hat jobs report in the morning, that's going to send stocks here down again. Just to gain perspective some of the biggest names that we follow, actually taking the biggest hits today and a lot of them do have Chinese outreach manufacturing companies like take your Caterpillars, for example.
Let me first go with the Dow names that we're watching today. These are big hits that we saw today. GE, General Electric, losing 4 percent. Apple down 4 percent, Boeing down 4 percent, Chevron, that's the oil story, and by the way, guys, actually oil is actually trading a lower right now, so we're going to be watching that going into tomorrow.
And then, Microsoft losing 3.5 percent. That's on the Dow. S&P, again, think about China, Wyndham Resorts one of the big names that lost ground on the S&P went losing about 6 percent. And that stock is actually down substantially right now for the year in particular; and Hewlett Packard as well.
So, here's the thing with Europe and Asia tonight, Deirdre. And here is the big, big question. Can the reality of a Chinese market trading without the government intervening like they've done actually cause another panic in that country? If it does, you may see tomorrow more of a story of what you saw, Deirdre, today here in the U.S. Back to you.
BOLTON: Cheryl, thank you so much. Cheryl Casone joining us there from the floor of the New York Stock Exchange where a lot of that selling took place.
Well, with their take on what to do with your money after a day like today, our market bull, Mark Matson, our market bear, Jamie Cox. So, Mark, OK, with the day for the bears we're coming to you first for the opposite view. Why are you bullish in the face of such selling?
MARK MATSON, MATSON MONEY FOUNDER & CEO: Well, it's down markets are never what destroy portfolios in the long run. It's always panic. Remember, if you're an investor the next 100 percent move is up. You need to be in it for the next 20 years and not for the next 20 minutes. And anyone that tells you that they know what's going to happen in the next 12 minutes or 12 months, you need to run -- fire them, as a matter of fact, because no one can tell you exactly what's going to happen, and if they did, they would keep it to themselves.
BOLTON: OK.
MATSON: So, don't get high speculating and gambling on the short run.
BOLTON: All right. That's a fair point indeed. Jamie, UBS research firms, so not necessarily trading off of this, although some of their team may be saying the global bear market has already begun. Do you agree or is that language still too early to call?
JAMIE COX, HARRIS FINANCIAL GROUP MANAGING PARTNER: That was a 39-page report. It has a lot of back and forth information. I think it all boils down to what happens to the spread between tens and twos. If the yield curve flattens or inverts, I think we are looking definitely at a recession.
But to talk about the market specifically. I don't think there's any question that we've been in sort of a negative market now for about seven or eight months. So, I'm not overly bearish. I just think people need to be defensive here and concentrate on dividend and paying stocks.
I think that most investors should be there anyway. But if you have been, you know, taking too many buy of these high flying stocks that Netflix and Amazon and others, you probably ought to take some money off the table and put it in things that have good cash flow and dividends because this is probably going to be a very volatile year and you're going to need to rely on that -- on that cash flow to make money. So, that would be my advice.
(CROSSTALK)
BOLTON: So, Jamie, I hear what you're saying...
COX: Yes.
BOLTON: ... it's also a question of value. Now, presidential candidates also taking note of this market selloff and what's happening in China. In fact, Governor Kasich spoke about the lack of a truly free market there on Fox Business.
(BEGIN VIDEO CLIP)
JOHN KASICH, (R) U.S. PRESIDENTIAL CANDIDATE: I want to say one thing about this whole China thing. You know, what we're facing there is a government that never let the markets work and the world is paying a price. They got to come clean because they're going to have to let this thing work out. They can't keep manipulating things because it just doesn't work.
It doesn't work for them, it doesn't work for the world, and frankly, it affects our companies as you well know.
(END VIDEO CLIP)
BOLTON: Donald Trump as well telling The New York Times editorial board he would impose a 45 percent tariff on Chinese goods coming to the U.S. Mark, is that realistic, or even feasible?
MATSON: Well, I'm never one for protectionism, I believe in free markets. But it shouldn't be a surprise to anybody that China is not a free market. They're communists, guys. So, it shouldn't be a surprise that their economy can suffer.
Now we have globally diversified portfolios, I think it's important in volatility like this we have less than 2 percent in China, when in 45 different countries with 12,000 stocks. Diversification is your friend in volatile markets.
BOLTON: OK. And as you said it is a communist country, but it seems like they tried to have one foot in a capitalist society. One foot in a communist society and for the moment, it is clearly backfiring.
Spending forward to tomorrow, my colleague, Cheryl Casone mentioned this. We're going to get the first jobs report of the New Year. So, Mark, back to you, our market bull. Jamie, our market bear, I'm going to ask you both the same thing. Could this data set change your outlook? Mark, to you first.
MATSON: Absolutely not. Look, all of the noble and predictable information is already in the price today. The only thing that's going to change prices going forward is unknowable and unpredictable events. No one has a perfect crystal ball about what that jobs report is going to be.
What I want investors to do if the market does go down, it's already down, is to think of it as an opportunity, but more now when the prices are low. Take some of your fixed income and buy it because what you need to be looking at the next 5, and 10, and 20 years, not the next 10 minutes.
BOLTON: All right. Thank you, both. Mark Matson and Jamie Cox with me there. We want to highlight some of the stocks that Cheryl mentioned. She talked about some of the tech names that got particularly beaten up. Yahoo is one. The stock closed down more than 6 percent. The company may make an announcement about layoffs or restructuring before or as part of its next earnings, and that would be in the next few weeks.
We are going to have special coverage on this high stakes jobs report tomorrow. That begins at 8.30 a.m. Eastern on Mornings with Maria.
Now, one factor that is exacerbating the global stock market selloff is the fall of the Chinese currency. Chinese officials wanted the Yuan to be weaker so that Chinese exports became cheaper. The government was so convinced of its plan that it spent $500 billion to influence trading in the Yuan last year.
The author of "Currency Wars," Jim Rickards is with me now. Jim, it is great to have you back. All days, but especially today. You've done business in China for decades. The strategy for currency clearly backfiring. Am I right in assuming the government wanted the value of the Yuan to fall but not by this much?
JIM RICKARDS, "CURRENCY WARS" AUTHOR: Well, they actually need the Yuan to come down even more. What they didn't want is all the collateral damage that's recent from this, you know, one of the guests said that, you know, it's a good reminder that they are communists. Putting communists in charge of a capitalist system is like giving a loaded gun to a 3-year-old.
I mean, somebody is going to get hurt and that's exactly what's happening in the global markets. So, China is confronting let's called the impossible trinity. The possible trinity is three things that you cannot have, an open capital account affects the exchange rate and an independent monetary policy.
They were pegging at 6.2 to the dollar. They want an open capital account to keep the IMF happy, and they want independent monetary policy to cut rates to stimulate the economy. But the theory is you cannot have all three. But they try. Which means you're bound to fail.
Now, what happened was they got capital outflows, massive capital outflows. Four trillion sounds like a lot of reserves until they start to walk out the door and then once they do, it's never enough.
So, they're going to see their reserves go to zero by the end of 2017 if they don't do something. They're not going to close the capital account because they have to keep the IMF happy, they want to be able to cut rates. So, the thing that's going to go is to peg and it's long gone.
So, you're going to see the Yuan get a lot weaker, and they don't care what the United States thinks.
BOLTON: They don't care what the United States thinks, but they probably say, do care, Jim, as you said about this collateral damage. So there's this real struggle, right? Between the People's Bank of China and investors on what is happening right now. What happens next?
RICKARDS: Well, just to segue, Deirdre, the Bank of England is that if they don't cut the Yuan they either have to close the capital account or divide the currency. If they don't, their reserves are going to walk out the door. It's going to be 100 billion a month, and, you know, you do that for 10 months and there's a trillion dollars out the door.
So, that's what's going on. Which means it has to break. They're smart enough to see that. They don't want to lose another trillion. They're down almost a trillion already. A trillion is a lot of money. So, they're going to have to keep dividing the Yuan. Because they don't want to raise rates.
The other solution, Deirdre, you can raise rates to 15 percent to try to keep the capital at home but that will kill the economy. You can close the capital account. But then, that will anger the IMF. They are just playing nice with the IMF, it's like joining the FDR and putting the Yuan in the FDR, it's joining a club, you know, fancy club, and you show up the next day and come up in some flip-flops. And that's -- you can't do that.
So, the only thing, the only tool left is devaluing the currency, they are going to do it more. So, the U.S. should get ready for that. And, you know, Governor Kasich was talking about in your clip how China is manipulating the markets. Well, of course they are. But it's probably calling the coda block (ph), nobody manipulates more than the Fed.
BOLTON: All right. Nobody manipulates more than the Fed. But based on what you're saying the dollar is going to go higher. Jim, I know we're continuing the conversation in just a minute. Jim Rickards back with me.
We're going to be talking more about how stocks got crushed around the world. Investors fear showing up in, proceeds safe-haven assets, gold, treasuries soaring. Our commodities panel will tell you if it is the right time to buy either or if it is already too late.
Plus, a dollar for gas may be around the corner. Oil dropping to a 12-year low. My next guest says energy will keep moving down, and he's been right so far. We want to hear out his reasoning in just a minute.
(COMMERCIAL BREAK)
BOLTON: Oil prices are at their lowest level in more than a decade. The market turmoil in China one of the biggest pieces of the sentiment of selling.
Jeff Flock with me now from the CME. So, Jeff, China is the world's second biggest oil consumer. So, how much is that dictating sentiment?
JEFF FLOCK, FOX NEWS CORRESPONDENT: Yes, walking around these pits on the floor of the CME today, you really did feel that and particularly in the oil. Because as you point out, this is -- these are the guys that consume most of the oil and, you know, certainly they're going to continue to consume oil but the fear is that, you know, it reduces.
And I'll tell you. The early bets, 32.10 is how low we got today, and if it recovered another dollar, it would have been really ugly.
BOLTON: Thirty two, ten, what does this do to gasoline prices, Jeff?
FLOCK: Well, I guess that's the silver lining. You know, we are now at about a $1.99, and we've been there for a while. Even if you go back a year, we were at 2.19. I mean, consumers have gotten a real, you know, a kick in the pocketbook. A good kick in the pocketbook on this, and if we go even lower, you know, the last time oil got this low -- the way people are betting around $15, $20 was 1946. That's how low is the oil.
BOLTON: All right. That's a big contextual point for us. Jeff Flock, thank you very much. Joining us from the pits of the CME.
Well, speaking of commodities, copper falling along with oil. Fears showing up in higher gold prices. Our next guest, he might have a crystal ball because David Kutok told us on this show in August that oil would hit $20 a barrel.
(BEGIN VIDEO CLIP)
DAVID KOTOK, CUMBERLAND ADVISORS CHAIRMAN: It's the marginal cost of lifting that barrel of oil that's going to set the bottom price of oil in many of those instances that's in the teens or in the 20s. We could see oil in the 20s, it's very possible.
(END VIDEO CLIP)
BOLTON: So, David Kotok back with me now. David, glad to have you here again. Jim Rickards with me, too. So, David, you gave investors a chance to make money on that prediction. Do you still think we go to $20 a barrel? If so, by when?
KOTOK: Happy New Year, Deirdre, and it's always a pleasure to be with Jim. We had dinner together not too long ago in New York. So, it's nice to have this trio. Twenty bucks, we went to 14 in heavy oil in Canada because the storage is full and there's no place for that oil to go. So, we're there.
And what the actual final spike down price will be doesn't make a lot of difference now. My own view, we are now stabilizing at a lower level, we may spike lower, but the time to nibble in the energy patch is now, and we are doing it in our firm.
BOLTON: OK. So, the time to nibble is now. Jim, do you agree with David as to what happens now with the energy trade?
RICKARDS: Well, it's always a pleasure to be on with a brilliant guy like David. And, yes, I agree. I think there, you know, you may be closer to the bottom. The only thing I would add, I don't work on the fundamentals as much as David does. I'm more of a top down macro analyst.
But one thing I would say this tension between Saudi Arabia and Iran. A lot of people assume that when you have tension in the Middle East, that could cause the price to go u. The fact is, as the history says the opposite. When people are sort of gearing up for war, which is we're seeing version of that, they actually pump more oil to get money to pay for the war.
We saw that when oil hit $9 in 185, 1986 during the Iran and Iraq war. So, I would be paying attention to something keep a little in prices. But, look, everything has the bottom and I think for the major oil companies -- somebody like Exxon, look, Exxon isn't going away. They're going to be in the position to pick up a lot of assets cheap. So, that might be a way to play it.
BOLTON: All right. We are going to talk about copper, a seven-year low, gold, another time because we do have breaking news to talk about here. Container storage shares dropping sharply. It is reporting a fiscal third quarter loss of 4 cents a share. The street expecting 5 cents a share. So, that is what is going on right now in a big retail play.
You saw Macy's trade lower today as well, cutting jobs and looking for a buyer for its flagship New York City store on 34th Avenue. All right, 34th Street that is.
A triple digit declines front and center. If you are close to retirement you may be worried about your accounts. We will give you details of a new survey that is, that shows that more than half of Americans cannot afford to retire right now.
My next guest says going all cash might not be a bad idea.
(COMMERCIAL BREAK)
BOLTON: With today's global stock market selloff, you may be worried about your 401K or your pension. With reason, Gerri Willis is with me now. So, Gerri, there's this new survey that more than half of Americans cannot afford to retire, is that right.
GERRI WILLIS, FOX BUSINESS REPORTER: That's right, they can't afford basic things, like, what are we talking about here? We're talking about food, we're talking about housing, we're talking about health care, and this is really concerning to a lot of Americans. I want you to hear what John Sweeney, who runs Fidelity retirement business had to say about this study.
(BEGIN VIDEO CLIP)
JOHN SWEENEY, FIDELITY INVESTMENTS EXECUTIVE VICE-PRESIDENT: Fifty five percent of Americans who are not on track today to cover their essential expenses. It's important that they take action. People are thinking about social security as a component of their income and retirement.
But really they're going to have to make changes to their current lifestyle whether that's saving more or planning to work longer.
(END VIDEO CLIP)
WILLIS: So, people are going to have to make changes to their lifestyle. But I want to show you savings rates. Different generations, the boomers saving at a 9.7 percent rate, gen XERS 8.2 percent, millennials 7.5. percent. Look at that, so the people closest to retirement it makes sense, they are saving more than other folks.
I was also interested in Fidelity's report on what age people think they're going to retire at. Can you guess? What do they think?
BOLTON: They think probably for people now like, 75 or 80. Most people tell me I'm working like dead, right?
WILLIS: Well, they say 72 is the number they say. And remember when we used to retire at 62.
BOLTON: Right. And I noticed, Gerri, with your reporting all of those numbers are less than the 10 percent that most financial advisors would tell you too, which shows you, just underline your point of how strapped people are.
Bob Rice is keeping us company here as well. So, Bob, with this market turbulence for people to plan of any age, it's just more daunting, right?
BOB RICE, TANGENT CAPITAL MANAGING PARTNER: Yes. It's a lot more daunting. But you have to remember one of the important rules about comfortable retirement is start with don't lose what you already have. And so, I think that there's some -- some need...
(CROSSTALK)
BOLTON: We think but sometimes overlooked, right?
RICE: Well, yes, exactly. You know, we got caught up in the go-go years -- of the last several years and people think it's going to grow to the sky and as we've learned since the beginning of the year, that's not necessarily true.
BOLTON: All right. So, talk about protection. Portfolio protection. What should we do?
RICE: Well, one of the most underappreciated investments is cash. And people kind of scotch at you when you say that. But when the market is fully valued doesn't have a long way to run, which this one probably doesn't, cash is an interesting investment, because it's not just defensive, it's offensive if the market falls significantly and it continues to fall, and you can buy in at much lower prices and that's how the real smart money makes money.
BOLTON: What do you think, Gerri?
WILLIS: Well, I really respect Bob, but I've got to disagree with you here. I don't want to be holding onto cash. I want to be buying things that I think are on sale right now. I'm already shopping and looking for things...
(CROSSTALK)
BOLTON: And Apple's under a 100, right?
WILLIS: That's right. So, I think a lot of things out there, even companies that are well-respected, well-regarded, high dividends out there on sale, it's time to start looking.
RICE: That's -- I do agree, it's time to start looking. However, I wouldn't say there are bargains just yet, and I would say that another way in, that's interesting and it splits the divide here, that it let you to have one foot in in both can -- yes, they're trying to be diplomatic, is alternative mutual funds.
So, these are funds that have built-in hedging strategies. You're in a mutual fund, you've got your foot in the game, but also you have built-in downside protection and that's a really interesting way to play things right now.
BOLTON: And Wilshire is one web site, which makes really no money from selling.
RICE: That's right.
BOLTON: It is a resource. So, if you're not sure if there's one for you, it's sort of like the morning star, right?
RICE: Yes. For alternatives.
BOLTON: Yes.
RICE: Wilshire has a really great resource for people who want to look for these kinds of funds. There are many of them out there and many of them are actually up this year, not down.
WILLIS: Well, and before I go, I just want to say really quickly. Look, this is not the time to sell and get out. This is been the stake that small investors make...
(CROSSTALK)
BOLTON: I was just going to say, that's the emotion, right?
WILLIS: ... over and over. That's right. So, if you do that, you have locked in these low prices.
BOLTON: All right. Well, thank you, both. Glad to have you. Gerri Willis and Bob Rice. Good conversation there. Good ideas for you, for your retirement no matter what your age.
Well, worries about global growth affecting energy trades for the Middle East that has serious economic complications on top of that. Iran is claiming that Saudi Arabia hits its embassy in Yemen. We will bring you an update on that.
We also have more information on the two Guantanamo Bay terrorists who were released recently. One worked directly with Osama Bin Laden, the mastermind of the 9/11 attack.
Retired four-star general, Jack Keane with me next.
(COMMERCIAL BREAK)
BARACK OBAMA, U.S. PRESIDENT: Do you really think that this verifiable deal if fully implemented, backed by the world's major powers is a worse option than a risk of another war in the Middle East?
DEIRDRE BOLTON, RISK AND REWARD HOST: President Obama back in April on the Iranian nuclear framework deal. Now tensions higher than ever between Iran and Saudi Arabia, Iran saying that Saudi Arabia led war planes attacked its embassy in Yemen. With me now Four Star General Jack Keane, Chairman of Institute for the Study of War and a Fox News Military Analyst, General, always glad to have you here. What is your take on Saudi Arabia or first of all, Iran blaming Saudi Arabia for that strike in Yemen?
JACK KEANE, FOX NEWS MILITARY ANALYST: Look, the reason why tensions are rising is simply this. Iran has been on a 35-year march to dominate the Middle East and they've had success with that. They want to acquire nuclear weapons, and actually the Obama deal with have nuclear weapons in their hands in 15 years, and they want to use ballistic missiles to deliver them. This is a geopolitical struggle of domination of that region. People who characterize it as the struggle are oversimplifying the issue.
The real issue is Iran's assertiveness and aggressiveness. Saudi Arabia has none expansion desires whatsoever. They are our ally. And what's driving them is if paranoia over the reality that they have finally accepted -- and I have spoken to them myself, that they believe that President Obama and the United States no longer has their back and would not defend them in the event of a war with Iran. Quite the contrary, what they believe will happen is the United States will try to mediate the conflict as they are tempting to mediate the dispute. That is what is at the heart of the problem.
BOLTON: General, you're coming across clear as a bell. It's not about a 2,000-year or older argument. It is about power and money and influence, which makes a lot more sense. So what do you think the Obama administration should be doing at this juncture? Do we need to reassure based on what you said Saudi Arabia?
KEANE: You put your finger right on it. We absolutely have to reassure Saudi Arabia plus our other allies in the region. We should go to the U.N. as a result of the ballistic missile test firing at the Iranians, which is a violation of the U.N. resolution. We should lead the effort to renew economic sanctions, tough economic sanctions on Iran. And despite the fact that ballistic missile testing was not a part of the nuclear deal, if it was me I would -- I would go put that right back on the table with the Iranians and tell them that I want to verify that this ballistic missile program is not going to exist, and we're going to hold up giving you that 100 to $150 billion until you're able to convince us of that.
This administration wants no part of that. They're going to cuddle and nurture the Iranians over this, and that's what's driving the fear of Saudi Arabia and why they will likely make some bad decisions when you have that kind of paranoia and fear.
BOLTON: Yeah, General, as you rightly point out there is a lot of people who think the U.S. lost way -- too much power in that nuclear framework by not having any ability to reinforce. We know we're talking about sanctions, but only against individual businessmen, not necessarily against companies. The Pentagon as you well know, General, has started its transfer of 17 Gitmo detainees. So the first two are going to Ghana, but we are learning more and more about these men. So we're just going to show our viewers, you can't see this information right now, General, but you know it anyway.
