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Plummet; Dow Down 400+ Points; Stocks Sell Off Into Close; Oil Slides Below
$30/BBL; Oil Touches 12-Year Low; Dow Drops Below 1.6K For The First Time
Since Sept. 27th; Candidates & The Economy; GOP: Obama Wrong On Economy;
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Laffer, Jonathan Corpina, Gary Katlbaum, Gus Faucher, Foster Freiss>
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NEIL CAVUTO, "COAST TO COAST" HOST: Hello.
TRISH REGAN, "THE INTELLIGENCE REPORT" HOST: I happen to like that Broadway outfit that you had on last night.
CAVUTO: Oh, there we go.
REGAN: I thought you looked fantastic. Really great.
CAVUTO: A certain friend of ours called it a "guys and dolls tryout" and I'll leave it at that.
REGAN: It was a terrific debate. It really was.
CAVUTO: It was fun. We had a fun time.
REGAN: Lots of ground covered and some fireworks. Your.
CAVUTO: Yeah, your debate as well.
REGAN: Cruz and Trump.
CAVUTO: Here we go.
REGAN: I thought it was one of the best performances we have seen.
CAVUTO: We had to look at but, you know, people can look at the same thing and have different opinions, whatever.
REGAN: Indeed. Well, great to work with you. Great debate.
CAVUTO: To you as well.
REGAN: Good to see you.
CAVUTO: Get home safe.
REGAN: All right, we got a market everybody, that's selling off big time right now. Big sell-off underway on Wall Street. The Dow down almost well, 430 points there. You can see that we are off the lows of the session but nonetheless a lot of red on your screen.
I'm Trish Regan. Welcome to "The Intelligence Report."
We are live from Charleston, South Carolina where the Republican candidate's just hours ago laid out their best prescription for the U.S. economy. An economy that is clearly on shaky ground as we watch this market right now that has erased nearly 1,600 points since the start of the year.
All right , let's get right to it. Going in for the New York Stock Exchange with trader Stephen Guilfoyle. And, Stephen, you know, selling begets selling in this environment. A lot of fears about China and a lot of fears now suddenly that we could be heading into recession?
STEPHEN GUILFOYLE, DEEP VALUE EXECUTION SERVICES: Yeah. Oh, I think we could be heading into recession, Trish. I mean, let's face it. Oil is below 30 now. The trains aren't rolling. The ships aren't sailing. Manufacturing is in collapse. Energy is in collapse. You saw all the economic data today. Every one of them showed contraction. The only thing it didn't show a contraction was sentiment. I guess people aren't watching the news. And here we have a pretty drastic sell-off.
REGAN: Well, you know, the sentiment figure is always a tough one in that, you know, people may say they feel one way or another and yet they don't necessarily carry through with actions. So even though we saw U.S. sentiment improving today and that may be in part because they're looking at lower prices at the gas pumps. We haven't yet, Stephen, seen that translate into actually action.
In other words, people are still not spending and that has a lot of people concerned that this economy is just not sustainable and that's just market, Stephen, is not sustainable at these levels.
GUILFOYLE: Well, yeah the one thing that might save the market down the road is that you really can't make money anywhere else. So there will come a point where the trading public, the investing public will say take them. They'll buy shares. But right now they're nervous. They have been running for the hills a little bit.
One good thing also that I might say, is that we got below the August lows today, and the market has got the sell-off didn't go into "beast mode." All right, we stabilized, the VIX stayed under 30 which is kind of a big deal.
REGAN: All right, yeah I love this. You're looking at the glass half- full. So, would you get in at these levels? I mean this seems to be somewhat scary stuff, down 1,600 points since January 1.
GUILFOYLE: Well, you know, the people are going into treasuries obviously as your safe haven. They're going into gold that's your safe haven. If you're married to the stock market you've got to play utilities and stocks that have dividends. This way if the bank goes against you they're going to pay you four times a year with their dividend.
REGAN: OK. All right, Stephen, thank you so much we'll going to keep checking in with you down and your friends there at New York Stock Exchange throughout the hour, everyone. But I want to go to the CME because oil is also getting hit pretty hard today, touching 12-year low, trading below $30 a barrel.
Pretty incredible when you think about it. I mean we were upwards of 150 at one point. And ever since November of 2014 we have been on the steady decline which is really kicked into full gear in recent months.
Phil Streible, joining right now at the CME with more insight into the sell-off here in oil. Is it going to continue? I mean at what point do traders say enough, I'm willing to go back in?
PHILLIP STREIBLE, RJO FUTURES MARKET AGRICULTURE: Yeah, it's really interesting too. And the thing is that I think oil prices, they still have another leg I think ahead of themselves to come lower. I mean we saw their first reaction below $30 and then a bounce up yesterday here. But this failure, the thing is, is when you got the Dow Jones down 500 points that's going to impact global growth. Global Growth, crude oil demand. Crude oil demand is going to slack as a result of that, production continues to being, you know, build on it.
One of the interesting thing that a lot of people have been talking about today has been that Brent Crude prices are lower than West Texas and the reason is because if you look far down the curve and you really got the long term perspective you'll know that U.S. production, it will get curbed, it will start to dry out, oils will start to shut down. At least we'll have some problems from, you know, the financial standpoint.
REGAN: You know, look I'm talking to a lot of folks about this. Harold Hamm is a good example, who has told me in the past, look at some level you got to say enough. And for him, at least a year ago that was around $60 a barrel. We have plunged well below $60 a barrel. And he said at $60 you're just not making any new investment.
And, so I think it's a given, Phil, right where there's no new investment going into the sector here in the U.S. And, you know, at some point to what you said you're just going to turn off production because it's not worth it from a refining standpoint to be in that business when you're trading at $29 a barrel.
STREIBLE: You know, I think that the thing is, is that the production, it's going to get shut off. When will it turn back on? And will there be companies that may, you know, end up within bankruptcy that they can't come in there and start turning these things back on. So there's a lot of headwinds ahead for crude oil. I think it goes lower. But I think the long run, I think the prospects some of it are pretty good.
REGAN: Yeah. All right. What do you think the low could be?
STREIBLE: Well, I was thinking about closer that's $25 level.
REGAN: OK.
STREIBLE: I think down at there, we've come down that's another 20 percent from $30, you know, so I mean it's just right there.
REGAN: OK. Thank you so much. Phil, good to see you. Let's get more analysis right now on the markets and on oil with Jamie Cox from the Harris Financial Group along with Gary Kaltbaum of Kaltbauim Capital.
Guys, you know, 1,600 points just since the start of the year. We got a market that's off almost 500, did touch down more than 500 just a short time ago. Jamie, are we now in a Bear market territory? And if so, how should investors be prepared.
JAMIE COX, HARRIS FINANCIAL GROUP: Well, we just did, Trish, we just don't want this global freak out to turn into global fallout. And then when you have markets that are down like this in the start of the year in particular people really get nervous and they worry about, you know, what's going to happen, you know, six months from now, eight months from now under my portfolio? I'm I going to be able to stay retired, I want to go back to work.
And, what I'm telling everybody now is look, you need to pay attention to dividend yields. You need to pay attention to things that you can control. And look at markets that have become unhinged. And look at price opportunities like high yield for example. That's a market where it is way it is way overshot to the downside. And if you've been out of high yield, now is time to look at it. Yeah.
REGAN: You're a brave man. You're a brave man. You want to venture into high yield. You know, look, Gary, walk us through the concerns with high yield right now. And the concerns about how this could be contributing to a larger problem for this market.
We're talking high yield debt, everyone, which is kind of like that junk bond stuff. You know the low quality debt that people have been buying in droves because they're so hungry for yield and now there's a fear that a lot of these issuers may be out of luck with people defaulting on some of this stuff. Gary, walk us through.
GARY KALTBAUM, KALTBAUM CAPITAL PRESIDENT: Well, look, central banks rigged interest rates a few years ago and caused high yield bonds that should yield 9 percent to yield 4 percent and the ones yielding 5 percent to yield 1 percent. So pricing yield have been ridiculously distorted. And, now we're getting the comeuppance. I know a lot of its oil but we're seeing it in a lot of areas now. And, I believe we just started the drop in high yield and we have a ways to go.
Just remember, eventually, regardless of central banks and trillions of dollars that have been printed prices will get normalized. And, I think we're in the process right now in high yield, in stocks. You're going to see it in the housing market also. And this is a come up into of Ben Bernanke and the folly what he did with easy money policy.
REGAN: Sure, you know, OK. I mean, I think that you make a pretty interesting and valid point here, Gary. A point that I myself found myself making over the last couple years, which you can not be in a low interest rate environment for years and years and years and not run the risk that investors start dabbling in areas that they wouldn't normally dabble in.
I mean I made the comparison that, you got ma and pa out there buying things like Puerto Rico because it yielded it so much money and then Puerto Rico suddenly goes bust and they're left with nothing. I mean, Gary, what has the Fed done to people's willingness to take on risk?
KALTBAUM: Trish, you're so right, what the Fed has done is they have screwed the saver. They have taken all of the riskless investing out of play, so what did the savers do they had to reach. And they had to reach for yield because you're getting zero on your money. And they ended up reaching to things like the bond funds that pay 6, 7 percent but they're leveraged and all -- and the MLPs, the Master Limited Partnerships that were paying ridiculous amounts. And here comes to the comeuppance where it all comes down.
Just remember this is now about price discovery. For years central banks got in front of price discovery and now we're starting to get it. And it is painful. I have to tell you, I know some people are saying this is a correction in Bull market. No, this is Bear market for asset prices. And, I think we've just started it.
REGAN: Wow. So, what kind of downside are you looking at this year, do you think, Gary?
KALTBAUM: Well, think about this, the Dow was high, was 18.3. 20 percent is the mid 40's. But I think its will be more than that. I'm thinking 13s. Maybe 12s.
And here is that important point we have not had a Bear market for seven years. And that because the Fed and central banks and the rest of the lemmings around the globe, you know, interfering every time the market would drop, they would announce some more printing of money to keep things up.
So due to the fact, we haven't had one in seven years. We may get a doozy of a one just kind of like.
REGAN: Yeah.
KALTBAUM: . what we saw in '08. Hopefully not like it but we'll see.
REGAN: Yeah. I guess the flip side of it, the flip side of it and Jaime, final word to you here, is that the Fed could come in and maybe.
COX: Yeah.
REGAN: . save the day again?
COX: I hope not. I hope we've -- they've learned their lesson.
KALTBAUM: Agree.
COX: I think I agree with Gary a little bit on some of this. You know, raising interest rates in December, although difficult, actually may have kicked off what will be -- what I think will be a good decision on getting some of these errors corrected because we do need to get some of these markets that are out of sorts definitely corrected. If we do.
REGAN: OK.
COX: . then we can actually have a market. We can form a base and we can grow from it. People will actually make money in the market again. That's the important for all of us.
REGAN: All right. Well, you know, good to have both of you here. I'm going to take a quick break. We get some more topics to get to.
But Gary, I'm going to see you later on in the hour. I want to explore this some more. Gary telling us that we could see 12, maybe 13,000 on the Dow this year and this is the beginning of something much bigger.
Jamie, good to see you.
Coming up everyone, job creation, taxes, ObamaCare, they are all very much in focus right now. And they were very much a part of our debate. So which candidate has the best plan to fix this economy?
Former Reagan Advisor Art Laffer is here with the scorecard, right after this.
(COMMERCIAL BREAK)
REGAN: OK everyone, we are off the lows of the session but nonetheless, a pretty down day on Wall Street right now. It is the worst market sell-off perhaps we have seen to the start of the year. We were down 511 points right now. You can see the markets off 415.
The economy, very much in focus right now as people worry about the U.S. slipping into recession. That was one of the things that we talked about last night on stage both in the first debate at 6:00 p.m. and again in prime time at 9:00 p.m.
Here's what Ted Cruz had to say about his plan.
(BEGIN VIDEO CLIP)
TED CRUZ, (R) PRESIDENTIAL CANDIDATE: Art Laffer, Ronald Reagan's Chief Economic Advisor has written publicly that my simple flat tax is the best tax plan of any individuals on this stage because it produces economic growth. It raises wages and it helps everyone from the very poorest to the very richest.
MARIA BARTIROMO, "MORNINGS WITH MARIA BARTIROMO" HOST: Thank you senator.
MARCO RUBIO, (R) PRESIDENTIAL CANDIDATE: But that's not an accurate description of the plan because first of all, you may rename the IRS, but you're not going to abolish the IRS because there has to be some agency that's going to collect your VAT tax. Someone's going to be collecting this tax.
In fact, Ronald Reagan's Treasury, when Ronald Reagan's Treasury looked at VAT tax, you know what they found, that they were going to have to hire 20,000 new IRS agents to collect it.
(END VIDEO CLIP)
REGAN: OK. Does Art Laffer really think that this is the best plan? We're going to find out. Art is right here. He joins me right now on set. Great to see you.
ART LAFFER, FORMER REAGAN ECONOMIC ADVISOR: Good to see you, Trish. Thanks.
REGAN: Good to talk to you.
LAFFER: Great job last night. I loved watching.
REGAN: Thanks.
LAFFER: . you guys do that, much better in the second part. Yes.
REGAN: We won't tell Neil, right?
LAFFER: Please don't tell him. Maria, or Neil, no.
REGAN: Anyway, I want to ask you about Cruz's tax plan. There are elements of it that I know you like a lot. And, you know, some things like Marco Rubio brought up, the VAT tax which may not be as positive. But what are the things that you like about it?
LAFFER: Well, let's talk about a VAT tax. Let's just get right to it. There is -- the total amount you can tax in the U.S. is GDP, it's the total production of goods and services. You can tax it at different stages. You can tax it at the income level or you can tax it at the spending level in retail which is the FairTax or you can do it as you collect them along each stage of production which they want to call a VAT. I mean, that's a net sales tax. It's not a European one but they are the same base.
So, anyone who says this is a bad VAT they're just, they're just trying to get one up on you. This is -- what you wanted to have is the lowest possible rate on broadest possible tax base.
REGAN: Let's talk about the whole. So do you like, you like Ted Cruz's? You think it's the best?
LAFFER: I like Ted Cruz's a lot.
REGAN: He said, Art Laffer says, "mine is the best."
LAFFER: When he's got the highest rate as, what 16 percent, that's pretty good, Trish. I mean, and that's what you really want to do is the lowest rate on broadest base. And that's what he's pretty much done.
Rand Paul's tax was great. You know, Ben Carson's wonderful. Rubio's goes a little too high, unfortunately and it's got all these different rates in there which means it's confusing, it mean it's ripe for game playing, it's ripe for.
REGAN: And Donald Trump's?
LAFFER: Donald Trump's tax is great. It goes right back to Ronald Reagan's tax rates basically is what he does.
REGAN: Is that what we need right now? Or I mean we're watching this market, everyone. And you can see, we're off 430 points right now in the Dow. A lot of fears about China contributing to this about the slow down, obviously, throughout the entire global economy as well as here at home. Oil hitting a 12-year low today.
Art, what is it that we need to jump-start us?
LAFFER: I'm going to tell you I don't think oil is the reason why the market is down. Low-priced oil is not bad for the U.S. economy. I mean, when you really think of high prices of oil is not good for the economy, when we had the price of oil dropped from $32 a barrel to $8 a barrel under Reagan, it didn't stopped our boom, now did it? If -- that we really.
REGAN: Well, you know, consumers have extra money but, you know, think about the difference between now and then. Back in the Reagan days, we didn't have as big in energy industry.
LAFFER: Now we're getting.
REGAN: We now thanks to frocking have a tremendous amount of growth in that sector here at home. If oil continues falling, that sector is in jeopardy. Those jobs are in jeopardy.
LAFFER: But just imagine, imagine for a moment, a $500 of barrel oil or a $2 of barrel oil, which one would be better for country? The $2 of barrel oil.
REGAN: But that's means we're -- do you think we eventually wind up more and more dependent on the Middle East? I mean, here we are, you know.
LAFFER: No. I don't think we're going to be dependent in the Middle East at all.
REGAN: . building up our own energy industry in part because it's profitable to do so.
LAFFER: Yes.
REGAN: . if it's no longer profitable to do so, we're not going to do it and then we're looking back at Saudi Arabia.
LAFFER: But if you imagine how what it was like building up our energy industry with all the regulations, restrictions and requirements starting with Eisenhower. I mean, these guys have all been pounding on oil from the very beginning. They have all these tariffs and quotas on oil from the very beginning by America programs, oil programs.
And now, we're finally developed into where we're almost self-sufficient in oil. That's spectacular. And imagine what we do if we didn't have those regulations, I mean, it'd be just, it'd be crazy good.
REGAN: Let me ask you about another tax proposal.
LAFFER: Sure.
REGAN: The one that we heard about in the first debate. And if we have some sound from this, it would be great, of Governor Huckabee.
LAFFER: Yeah, I know that, Trish.
REGAN: . on his consumption tax which he calls a "FairTax''. Do we -- perhaps we don't have that.
LAFFER: Well, I know the plan well.
REGAN: . could be a little bit later. But, you know the plan. So, he calls it a FairTax but, basically, he'd be taxing everything we go out and buy as opposed to everything that we produce. What do you think about that?
LAFFER: If you look at all the taxes, there are three of them. One, you win and when you earn the money. One, when you spend the money which is Huckabee's fair tax, exactly. Or one, when you collect it from each stage of production, which is the net business sales -- business tax.
REGAN: OK. If you.
LAFFER: Either one of those they're the exact same taxes they'll all work really well. They get all excited to each other but, it's like three -- my three daughters arguing which one is the prettiest. They're all three gorgeous.
REGAN: Oh, I am sure they are. Here is Governor Huckabee on the tax plan, everyone.
LAFFER: OK.
(BEGIN VIDEO CLIP)
MIKE HUCKABEE, (R) PRESIDENTIAL CANDIDATE: And I still support strongly that we get rid of the 77,000 pages of the monstrous tax code, pass the FairTax. Supercharge this economy with the rocket fuel that happens. But the consumption tax and we don' have to cut social security to any senior who has worked their lifetime for it.
UNIDENTIFIED FEMALE: Thank you, Governor Huckabee.
(END VIDEO CLIP)
REGAN: You know, this is his thing, the VAT is Ted Cruz's thing, you know, Rand Paul and his flat tax. We have heard so many innovative proposals. I don't know if any of them are really going to stick, necessarily.
I mean, you will probably see lower taxes as the platform of whoever succeeds. But the fact that we have so many different things being talked about. That's got to get you excited.
LAFFER: It's very exciting.
REGAN: . for a tax guy.
LAFFER: Yeah. Because taxes, I mean, you can't tax an economy into prosperity. That doesn't make any sense at all. I mean, you know, if we tax speeders who speed.
REGAN: Right.
LAFFER: Why do we do that, to stop them from speeding. We tax smokers who smoke. Why do we do that? To stop them from smoking. Why do we tax people who were in income? Why do we tax people who employ people? Why do we tax businesses that make successful product? We don't do that to stop them from doing it. We do it to collect the money we need to run the government.
REGAN: Well, you know, Hillary Clinton just recently said she's going to add on a surcharge. A tax that would be a surcharge to anyone earning a lot, I think it's $5 million. So, it's a narrow group but, just the idea of a surcharge.
LAFFER: Every time we raise tax on the rich, every single time, revenues as a share of GDP are going down and the economy has suffered, every single time.
REGAN: That is.
LAFFER: You can do it in the 30's. The rich didn't pay anymore either. They didn't. Revenues as a share of GDP by the rich went down. Then, you've got the Kennedy tax cuts where we cut taxes on the rich.
REGAN: Yes.
LAFFER: Revenues went way up we had.
REGAN: And probably it doesn't have to be political, right, Art?
LAFFER: No, it's not at all. I voted for Clinton. I'm a Kennedy Democrat and I'm a Reagan Republican.
I mean, it just so happens that this round, the Republicans happen to have grasped under the better ideas than the Democrats but I loved Hillary's husband. I voted for him twice.
REGAN: Art Laffer.
LAFFER: And I was everywhere, I was, you know.
REGAN: Hey, look, this is just economics.
LAFFER: But she is not.
REGAN: And you can prove it out with the Laffer curve.
LAFFER: Thank you.
REGAN: Thank you so much.
LAFFER: That's my profile, by the way. Thank you, Trish.
REGAN: Good to have you here. All right. We're going to take a quick break. As we watch this market now off 450 points. The loss is accelerating nonetheless, off the lows that we saw earlier down 511 points at one point in this market.
This is turning out to be a pretty rough start to the year, off about 1,600 points. We've got full market coverage, right after this.
(COMMERCIAL BREAK)
REGAN: OK. Here we are watching a pretty steep sell-off on the streets. I mean a lot of concerns about China and a lot of concerns about the U.S.
Oil, really taking a hit today and that's causing additional concerns. Let's go to NYNC where we find Liz Claman keeping an eye on all of it.
Liz, you know, look, we're off the lows of the session but 440 points of a loss right now. That's pretty steep. It's been a tough start to the year.
What are traders telling you in terms of the momentum they're seeing?
LIZ CLAMAN, FOX CORRESPONDENT: I think I actually heard one of them singing that song, "Nowhere to Run To, Nowhere to Hide". I mean you could argue gold maybe. But it's still up. And I only say only $17 because it can't reach 1,100 on the ceiling. It's at 1,090.
So, the markets are on absolute mess on this Friday. And what we're looking at is the fact that we're about 32.5 minutes before the top of the final hour of trade.
I will be here, but Trish, I'm hearing from traders that we may see some pretty dramatic moves. They just don't know which direction.
Not very helpful at the moment but it's that kind of day where oil seems to be the big story even though China and its stock market fell more than 3.5 percent.
But oil, at the moment, as we see, it is looking very, very ugly. At the low of the session, it was down 6 percent. It's barely off that poor right now.
We know that over the weekend, Iran will get the flashing green light to start conducting business. The sanctions will be lifted. And they are expected to add 500,000 barrels per day to an already chokingly glutted system where too much overproduction is really adding to the supply and then we.
REGAN: Yeah.
CLAMAN: . need to say that there isn't that much demand, Trish.
REGAN: Look, you know, Liz, I think one of the real concerns that underlying all of this is whether or not we are in a real crisis mode. In other words, Allah 2008, clearly different but nonetheless, some kind of debt oriented crisis when you look at what's happening in the high yield market.
How much chatter do you hear from traders on the floor about that?
CLAMAN: Well, you're not wrong, certainly, because if you look at the clock, if you look at the calendar, the Dow is on track for the worst month since February 2009. You and I of course covering the markets back then know that the lows were March of 2009.
So, we're looking at a very ugly time that seems to be mimicking that type of thought behavior.
The traders here are way more calmed because they've seen this before. And this place has been around since 1792. So, they have seen bad times, they have seen great times.
But Trish, I think you are right. And certainly coming off what was just the terrific debate on behalf of you and Sandra, Neil and Maria is that I think today, people care about their 401(k)s, their pensions, their 529s for their kids. And there's a huge question mark.
How much worse is it going to get? We just can't give you that answer right now.
REGAN: Yeah, I know. Well, I know you're going to be continuing to watch it here, this market which is now on a 455.
