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tv   Fast Money Halftime Report  CNBC  August 10, 2012 12:00pm-1:00pm EDT

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change their minds about returning some of the proceeds from that ali baba sale to shareholders in the form of a buy back. the shares are down more than 5%. have a great weekend. that does it for us here on "squawk on the street." as we hit noontime to get back to headquarters and the "fast money halftime report." >> welcome to the hfl time show. four hours to the close. it is a modestly down day on the street. tight range and again for stocks, the s&p is looking for a fifth week of gains. take a look at the nasdaq as well. it is a fractional loser right now. here's what we are following on halftime today. solving the market mystery. europe's still a mess, china is slowing so why are stocks still within striking distance of a four-year high. facebook tidal wave. should investors batten down the hatches ahead of next week's lockup expiration? how big could the wave of selling be? and should you take cover now? trading all the big mores today with john and pete najarian,
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josh brown and steve grasso. first our top story. the transformation of jcpenney. despite a bigger than expected loss, ceo ron johnson says his plan to turn around the struggling retailer is on track. are you buying what he's selling? wall street certainly seems to be. at least for today. tra traders or you pete? >> i'm not. i'm seeing this just like everybody else, i'm very, very surprised to see it get off. but it was really getting pushed down to the downsid. we were trading underneath $20 a share. this was a bad report though across the board. and then all of a sudden you look over at somebody like nordstrom's, also look at macy's the other day and you can see drastic differences in some of the performance. so until ron johnson can essentially, you know, show us the money, i'm not buying it right now and i would think this would be a fade for sure. >> josh brown, they have enough cash to execute the turnaround according to mr. johnson, they've also seen some traffic improvement in the month of august. >> yeah, no, if you're a long, long, long-term shareholder, ron johnson -- >> how long? >> well, they have to get people
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in the stores that are younger. they have to get them sticking around. sounds like they have some really creative ideas but if you're involved -- >> free hair cutsate set ra in >> it's great. it's like kind garden. they're not giving guidance anymore. number two, you have to understand there is no retail turnaround that takes place in two quarters. even if this is successful it should take awhile. they lot of things have to fall into place and they have to get pricing right and marketing right. and so, why not just hang back and let other people frustrate themselves, and then come in a year from now when there's actual, tangible, financial evidence that this is actually under way. >> we've got steve weiss on the steen as most of you know steve has been the most bearish on fst money on jcpenney. you're not willing to give ron johnson the time josh brown says this may need. today you write the short story is as good as it ever was. >> it's actually better. i did listen to the conference call. and i will say one thing about ron johnson, he's a much better salesman than ron popeil.
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so, here's what the real story is. coach reported last week sales were up 12%, eps up 27%. they are making tons of dough, it's great management and selling at 14 times earnings. yet they took the stock down 15%. here we are jcpenney with traffic down again, the average ticket down 3%, they gave away 500,000 free haircuts, they're going to make it a million, so of course traffic is going to improve, and while johnson did say that sales are tracking 2% better in a question that he was asked, and the spin was off when he clarified, he said sales are still down 18% this quarter. >> they are down. traffic certainly the decline, at least has slowed. steve, don't you start to think that maybe he stopped the bleeding? >> not at all. the bleeding is continuing. it is continuing in a big way. gross margins are under pressure. look what he's trying to do with
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basically no experience as a ceo in a retail company, he's trying to reinvent. he said he was going to stay the course of a strategy he was into for seven months, within five months from the finish line. by the way, i've lost track. but so far that strategy has changed two times. so he's only into the new strategy by one month. then he said it will take three to four years to turn it around. so let's look at valuation. let's look at real numbers in terms of what people are going to pay. i've gotten -- 11 times with the best ceo in the business. okay. surprising to be upside with guidance. i've got coach that finished 14 times and i'm not a fan of coach. i've got these guys losing money on a gap basis which is what i care about they lost 67 cents. they're so out of touch their guidance going into this quarter was $2.13 'tis year, consensus was $1.33. now consensus has to go down at
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least 30 cents. >> understand. understood. dr. j. you're going to take the other side of this, aren't you? somebody is? >> well, unfortunately, not me, scott. i mean, you know, to report same-store sales down as big as they were, and to see that the gross margins are shrinking, and even internet sales, down some 30 some odd percent, i mean this is a company that really is hemorrhaging money. will they give him the time? my experience, and i believe yours, judge, with wall street, is the answer is no. they've given him plenty of rope to hang himself. i don't know thaty'll give him that multiyear time frame -- >> who expected this to be turned around in six months? it's not a six-month turnaround story. >> investors did when they bid the stock up to $40 just on the announcement of ron johnson joining the company. >> and how many analysts did we hear coming out telling us this is the greatest ceo ever. this guy's got this turnaround strategy. >> what retail story could be turned around that quickly that was in this sort of situation
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grasso? >> here's the problem though, we've all been talking about it on the desk and i'm negative on the name but the truth is so is everyone else. so at this point, do -- for all fundamentally negative on jcpenney, does it leave us susceptible for more pops like we've seen today? >> yes i would say probably yes. >> the answer -- >> everybody was -- >> -- on rim at 50, at 40 at 30 at 15, at 10, at 7. it doesn't mean that the fundamentals aren't going to control and they will control here. >> at these pops you can save -- >> these are a gift if you're looking for an entry on the short side, or if you're trapped. >> scott -- >> you -- >> finish. >> when you're looking at this one. the numbers justify the stock being a teenager. they justify it, and it last this morning. it justified about a $15 price point for jcpenney. the fact that this thing traded up 24.50 or wherever it got to
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today, that was those shorts that grasso is speaking of. so i agree with him. i think you do get several of those squeezes, if you will, because the shorts were waiting to feast, and instead when they got skwiezed, obviously, they didn't like it, some added to positions. a lot of the rest of them threw in the towel, and even weiss, who's very bearish on the stock said he trimmed his short substantially, which was a smart idea going into this, because the stock is still higher than it was last night. >> weiss, have a good weekend. we'll talk to you again next week. >> our next guest believed in jcpenney all along despite no love on this desk. he has an outperform rating on the stock and continues to buy what ron johnson is selling. oppenheimer analyst ryan neagle joins us on the fast line with more. a lot of negativity on this desk. no one is willing to give ron johnson the benefit of the doubt. why are you? >> first of all, i've got to answer his own question. one of the big posits is the negativity that surrounds jcpenney. i look at -- i looked into your
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panel discussion, and i think most of the conversation was in the short-term. i'm looking at jcpenney from a much longer-term perspective. i look at the results today, no question they were weak. a lot of problems there, that the way i think about this is the that the weakness we saw in the second quarter results today, we saw in the first quarter, does not, that, those are transitional issues. those are reflective of how aggressive this company, this management team is trying to turn this company around. what encourages me is the long earp-term earnings power after transition takes place. >> what about valuation perspective? steve weiss talking about macy's. is valuation out of whack on this one? >> again, depends on how you look at it. i heard steve comments. if you were to line up -- look at this way. i don't disagree what you said at this moment in time with jcpenney losing money. but if i look at the valuation, take it into context, what this company has the potential to earn over the next two, three,
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four years i think the stock is cheaper. >> how long does ron johnson have to raise the "titanic"? >> i think he's got some time. look, they had their conference call. the real key message today was look, behind a lot of noise we're starting to see some positives here. they talked about the improvements. levi section. clearly the balance sheet is in favor at this point. i think mr. johnson has some time here. >> brian you're looking at this as you're talking about a longer-term play, obviously. this is more of a shoort-term group of guys with fast money, obviously. what is the best name right now for people to be focused on if it's not jcpenney because you're talking about this could take a long time for this transition to take place? >> i like names like home depot. i've talked on your show quite a bit about home depot over the past several months. i think my view, the housing market in the united states is recovering. i think home depot is a great way to play that in that what's not priced in that sthok is
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really a long-term sustained improvement. improvement in home improvement, improving home improvement demand. >> brian -- >> yea or nay, game stop another one of your coverage universe. does it go out of business or survive, yes or no? >> it's going to be a longer answer. but look, game stop has plenty of capital right now. i think the business model is under siege. i think they'll be around for awhile. i think game stop is very much a value trap for investors right now. >> brian, enjoy the weekend. >> thanks for having me on. >> we want to know if you are buying what ron johnson is selling. tweet us @cnbc fast money with your comments. we'll try to get some of those before we end the program today. also, please tune in to halftime next thursday for a cnbc exclusive interview with retail luminary allen questrom. he's the former chairman and ceo of jcpenney. still to come unlocking
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facebook's true potential as the ipo locked up period gets ready to expire. what's at stake for both facebook and investors? and reboughts going rogue. how algorithms could be jeopardizing your returns on wall street. we'll turn to a software executive who says the machines are getting faster and smarter. how do you know which ones to follow? the equity summary score consolidates the ratings of up to 10 independent research providers into a single score that's weighted based on how accurate they've been in the past. i'm howard spielberg of fidelity investments.
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welcome back. research in motion jumping today as speculation swirls about ibm's interest in rim's enterprise services unit. reports say ibm made an informal approach about the division, and investors are cheering the news. josh brown is forever linked to research in motion based on that stock draft pick. >> right. >> so the chatter's picked up this week. >> it's a big mistake if they try to sell one part of the company and not the whole thing. i think they would leave the rest of the company for dead. shareholders should really be vocal. thank god i'm not one of them in real life. you do not want to see them take the crown jewel of what's left here, sell it to ibm, because you have to, and then be stuck with the legacy assets. >> i'm wondering, wall street
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doesn't necessarily see it perhaps the same way you do. the stock is up, 5.5% or so. >> maybe this is a prelude to a favorite deal. i don't know that anyone riley knows thinking for sure. this is chatter on a bloomberg wire. so until something happens, i guess it's all speculation. but i think if you're long rim, you've got to be hoping for the full sale of the whole thing as opposed to piece by piece. >> you had a massive turnover in the shares today. you've almost traded the entire normal day full volumes and we're only halfway through the day. look up towards the october 11 calls, there's plenty of activity out there. maybe there is something bigger to your point. maybe there is something bigger. not in the immediate term but over the next several months where they might be able to strike some kind of a deal and maybe stop this death spiral they've been on. >> dr. j., any action on your part today on research in motion? >> no, scott. not nearly enough speculative bets that this thing goes higher at all. hasn't really been there at all since january, judge. i mean, january is the last time
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we had any real upside speculation in the stock. this just seems to be a one where people that are holding it are just selling calls, not buying them. >> yeah, well it is hard to find anybody who is optimistic, at least on this desk, about research in motion. the usda has cut its corn production outlook for the second month in a row. the drought continues to do damage as the corn crop is now expected to have the lowest yield in six years. but what stocks will be impacted the most by this. grasso, let's just let everybody know, before you do yourself, that you got that tyson call pretty good, right? >> you know, it was probably the fastest i've been as of late. it was a buy on monday, i sold it yesterday, and for me, these names, look at cf industries, look at monsanto, mosaic, all those names seem to be a little bit long in the tooth on both sides of the fence. tyson to me was just a lay-up because there was no new news there. am i willing to hold the thing indefinitely? absolutely not. had to lock in profits.
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>> you know grasso is going to give himself a shout-out if i didn't. >> i did it already. if you're not going to do it, what am i supposed to do? >> you're breaking your arm, man. i hear you brother, i hear you. >> there are certain names that i just continue to be in love with and one of them continues to be mosaic. i love monsanto because they've got all kinds of diverse product lines. mosaic has performed the most recent earnings, that was strong. like a cf disstris, potish, maintains itself. the ownership being all the folks from cargill, this is a name that has a limb bitted downside. >> dr. j. what's your ag trade? >> well i was more or less with grasso on a lot of those protein plays like sanderson farms, pilgrim's pride. and i think you wait for them to come back in now, then, judge, because they had their pop, now you wait for them to come back in, i think you'll get another shot. >> i think tyson might still be a buy. you know, these are really smart
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people, this is not news to them that there's corn drought. i think they understand how to hedge the stuff. there was some big insider buying in the stock. so i agree there could be a pullback due. but i wouldn't be afraid to get in here because you would have to be priced into a corn drought every single year forever to be negative on the stock at that's levels. >> all day next wednesday, cnbc is covering the financial impact of the drought. of 2012. which businesses are feeling the heat? the impact on tourism, and so much more. that is on all of the networks by the way of nbc. let's go pops and drops now in midday trading. expedia dropping 3%. >> this one is on the backs of basically priceline. and if you're thinking that global growth is going to continue to slow, then it's got to affect these high-flying travel names. i wouldn't be a buyer if you're tempted to buy it here. it's got to hold at 52.10 level. >> yahoo! dropping 6%. >> surprise surprise. the new ceo wants to hold on to some of that ali baba cash rather than just give it out to shareholders. very to believe the big hedge
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fund owners of the stock already knew that this might be a possibility. so maybe today is an overreaction. >> big lots dropping 6%. >> getting hit pretty hard right now on the jpmorgan downgrade, specifically and talking about moving that target to 41 to 34. the market contraction, all of the rest of it. i think at some point here, this is a pretty overreaction, i think there's going to be an opportunity almost at these levels presently. >> dr. j., cfn getting a nice pop today. take a look at what the stock move is. >> care fusion. >> it looks like it was going to break to a 52-week high. a lot of squeezing going on because the earnings were great, and the guidance was extremely positive. so it had a nice lift, almost to 27, i wouldn't be surprised to see the squeeze carry it to perhaps 28 next week. >> and a pop for denny's. the next time you go to the popular diner you may want to bring your tux. denny's has announced its newest restaurant located in vegas will include a full-service wedding chapel.
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couples can complete their grand slam wedding with a wedding cake made from, you guessed it, pancakes. >> that's a great slam. >> great for america. >> i'm just so proud now. >> coming up. bracing for a tidal wave of selling in facebook shares next week. plus no guts no glory. manu nighted's ipo off to a pretty good start. some answers when halftime report moves ahead. looking for a better place to put your cash? here's one you may not have thought of -- fidelity. now you don't have to go to a bank to get the things you want from a bank, like no-fee atms, all over the world. free checkwriting and mobile deposits. now depositing a check is as easy as taking a picture. free online bill payments. a highly acclaimed credit card with 2% cash back into your fidelity account. open a fidelity cash management account today
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♪ facebook shares have been under intense pressure since going public back in may. down 40% or so. now the stock could see a new wave of selling when its first lockup period expires next thursday. heat you're in the stock. you be worried about the lockup expiration? >> yeah, i probably should be. this one has been a frustration to me for a long time. however i think at these levels and we've seen some buying, some insiders who have actually made some positions in here recently. >> who are repasting? >> that i thought was pretty big. that gave us some support. that was something encouraging. some of the numbers recently.
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i know one of the analysts we were looking through some of the notes had some encouraging numbers as well. it's not all as bleak as it stands. but i'm still not so sure that i would look towards the $30 numbers any time soon. >> i wonder if there's any reason to even think about getting into a name like this now, ahead of such a highly anticipated lockup. >> probably not. >> if you would think that that would force the stock down, a bit. better entry price, right? >> yeah, yeah, absolutely. and i think if you were in this name you'd probably be looking to either buy some protection or use some of the volatility of the option to sell some upside while you're waiting for the stock to recover. >> dr. j., what's your view, 21:55. >> basically, scott, when it got down to 20 i like pete decided it's cheap enough, and i bought the stock and did a one by two spread. now, at the 22.24 strikes i like the stock to play the same way that pandora did. everybody sells ahead of these lockups, judge, just like they
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did in pandora. the stock was down huge, and then after the lockup, pandora was actually up, i think, mid 20 percent after the lockup. in other words, people racing ahead of the insiders that are going to get that first opportunity to sell. those folks profited all the way down, but they better cover quick, i think the same sort of thing is true in facebook. >> josh it seems as though maybe the metrics are improving a little bit. yeah, there's the unanswered question about the monetization of mobile and that's going to remain for some time but at least according to july numbers, time spent on facebook increased. i mean they still have a lot going for them, don't they? >> yeah, no, there's no question that facebook will be a dominant internet company for a long time to come. but we're talking stock. and i guess i'll say something positive about the company for the first time ever. since it's gone public. if this thing does not get rocked below 20, on this expiration, it might be the all-clear that you can own this into the fourth quarter just like you would any other
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internet stock like an ebay, a google, things that typically do well. that would be something that maybe would be encouraging if you're looking for a reason to get in maybe once that safe of selling passes if you really want to be air shareholder. >> brian was among one of the first analysts to put a sell rating on facebook. he later changed his rating to a buy. welcome to the show. >> thanks for having me on. >> is this overdone about the expiration or is there really something to worry about if you're there the stock? >> well, there is real risk. i think there's much less risk in this lockup exspiration that's happening next week. there's three major shareholders that will account for the vast majority of the shares that w l will -- whose lockups are expired this coming week, and the rest of the flow that gets added should be pretty manageable. >> how far down do you think -- there is risk, as you say, where does the stock go, do you think? >> well, you know, again, i don't think that this coming
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expiration will have a meaningful impact so i think the stock might just trudge along for a little while until more demonstration of the actual operating success of the company is put out into the market. >> do you feel as though that's improving? >> oh, yeah, no, i mean the underlying operating trends are doing really, really well. the market does not understand it. the introduction of the facebook exchange, the introduction of new mobile advertising units are going to cause meaningful acceleration. we'll see a lot of it in the fourth quarter. >> grasso, you have a question? >> when does facebook get added to the index? we've heard so much dialogue about it coinciding with the lockup expiration, that was a huge source of contention from a lot of guys that wanted to short the name. when does it get added? >> you know, i'm not srn certain when that happens. there could be a number of others that allow investors to come in. there are a lot of them sniffing around and looking for the right entry point, as you guys mentioned earlier. so i think that may be a bigger factor whether or not they're
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added to the index. >> the stock has been traded for a few months. how do you go from a sell to a buy in such a short period of time when there are still so many remaining? >> our fundamental view of the company actually improved from the time of the ipo to, you know, two months later. at the same time, the stock cratered. so it was a pretty easy valuation call. we never had a negative view of the underlying business. we always had negative view on the price perfection level of the ipo. and that's why we put a sell on it. but you know, going from $38 to $20 is a pretty big fall. whereas our stock prices, you know, vacillate between $30 and $33. >> good to talk to you. enjoy the weekend. brian from pivotal researcher. manchester united one of the most anticipated ipos since facebook is not getting off on the right foot. shares are trading right around where they priced about $14 a share. that was below the expected range, but that's not stopping one of our traders from making a move on that stock.
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rose cliff capital's mike murphy is on the fast line. murph, do you have an appetite for the highly publicized ipo, first facebook now this? >> yes, scott looking at the way this deal was priced really it wasn't -- the reason i wanted to be involved with this deal wasn't so much to do with manchester united's prospects going forward, it was really watching how the ohio market was working post-facebook. so if you see on wednesday a deal came out bloomin brands which owns outback steak house they brought the deal from $15 to $11 and it traded north of $14 earlier today. so manchester united the high end of the range two days ago was $20. it came all the way down they priced it at $14, and it seemed to me like you had very little downside, and you really had a lot of upside because nobody wanted to be part of the quote/unquote facebook. i thought the upside would be a lot more than two pennies. >> syndicates are out in force supporting it, right? >> and i got a question for you, murph. you're buying in at 14 and i agree with you i like this valuation level far better than
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those upper valuations 16 to 20 dollars i mean we were talking north of a $3 billion company. talking about a sports franchise. what's your short-term sort of target or longer-term horizon as far as this stock? where do you think manchester united could go and why? >> well, honestly i don't have a real long-term thesis on it. i wouldn't be a long-term buyer of it because i think too much of the price or the value of the company has to do with the performance of the franchise so i wouldn't want to invest in that. that would be too much of a gamble. this investment to me is more on the strength of the deal from a pricing perspective. i do have a long-term thesis. i'm in it because i think it can trade well because of the way it was priced. >> when are you out of it? it sounds like you could pull the trigger at any moment. it's a pop, right? >> i could get out quickly to the upside but also scott i don't want to be in this thing if it starts to roll over. so we all know the syndicate bid is there. i'm not going to sell it at
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$13.99 or $13.95. if it rolls over and looks like the deal is broken i'm gone. >> it's 70 times earnings. why would anyone ever want to own this unless you were a fan of the soccer team or the football team itself? like there's nothing going on here. you don't even get voting rights. the family that's selling their stake retains all the voting rights. >> they'll get 50% or so of the proceeds. >> what you're seeing today is jefferies or whoever the lead is supporting the stock. talk to me this time next week. >> it's obvious the stock hasn't gone under $14. murph, thanks for calling in. >> i think you could actually, i disagree with you on one perspective which is there is growth there. if you look at sports franchise, just don't go back too far, go to the dallas cowboys, jerry jones was looked at as an id not. now he looks pretty brilliant with a $2 billion company. man-u has some upside and the growth of the soccer league, and if you look at the sponsorships, the dollars that are going in to
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this franchise, this is actually something that really could grow and if they can get the asian markets involved, which they are already, this actually does have some potential to the upsi >> we asked what you thought of this morning's man-u ipo. seema, what have you found? >> scott, not too many bulls when it comes to manchester united's ipo. the big question on the twitter sphere is when to actually short the stock. i see a hungry pack of shorts licking their lips. money managers will hold at 14 bucks today like facebook. and the next one, a question to the fast money traders what stock would you rather own facebook or man united? he said his money is on the social network. both have a strong following. where do you put your money if you had to pick? zbliem getting the feeling from talking to the guys that at least josh brown the answer would be neither. >> if you have to pick let's answer the question honestly. facebook is a more reasonable valuation, a much better shot at
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developing some unbelievable web properties and mind space. this is a sports franchise, the first one to go public in the decade. why haven't there been more? because they do terribly for shareholders. end of stories. yes, there's huge wealth and maybe soccer takes off in the u.s. how much of that iseing reflected at 70, 80 times earnings. i think it's obscene. no voting rights. institutions are not going to get behind this thing. i would ignore it. >> more halftime up after the break. are the supercome pewters taking over? >> getting smarter because we are not simply quick enough. these algorithms are learning to read the news. this is a world where machines read the news and know more about it than you do. but they're probably also going to be writing it. is this your world anymore or is it the world of the machines? >> all right we'll hear more from the kid dotcom founder on man versus machine on wall street. what it all means to you the
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top three trades. data storage company fusion-io soaring after the company projected strong growth over the
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next year. dr. j. take this one. they call this the was trade because of apple co-founder steve woz knack he's like the chief technologist or something like that. >> it does. and it has an awful lot to do with the technology and the flash, and how fast they read versus the spinning hard drives for these big data centers and so forth, scott. but i think the fact that they were able to put up such a big number, blowing out the upside of earnings estimates, the revenue number also better. and then to have top line growth perhaps at the 40 to 50% range, that's tremendous. the stock has been off. everybody, including ours until just recently. so now with the stock back in the 20s, in fact, pushing to 27 today, i think a lot of people it will be back on the radar. >> and scott, i've got to add to that the fact that the gross margins jumped from q2 to q4 unbelievable from 51% to 57.5%. that's something you're not
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seeing in a lot of these reports. as people are looking into this report and digging a little bit deeper, woz and the guys at fio are starting to pick >> they have facebook among them. monster beverage, down 9%. it is dropping after disclosing its name sake energy drink was being investigated by a state attorney general. the probe related to ingredients and advertising. pete take this one. >> they smashed this one yesterday. they're smashing it again. it's almost returning to the lowest levels in the premarket where it had traded down towards $53. unfortunately you start releasing this kind of news, everybody wants out and it looks like everybody's getting out. yesterday and they're adding to it today. >> busy week for monster beverage. take a look at fairs of chesapeake energy. that xp says it's the kubt of a government antitrust investigation related to the purchase and lease of oil and gas properties in michigan. grasso the stock is down about 3%. this is exactly the kind of headline risk we talked about was still in this stock earlier this week when we talked about
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their earnings at aubrey and everything else. >> right. now it seems like there's an escalation of the investigation now with the doj involved. now the stock is up today, because chesapeake is selling assets. they said they were going to sell 3.5 billion in assets in the third quarter. this was a company that was nat gas trying to get more oil but they're selling off those oil assets so it's a huge dependency on the price of oil at this point. i think too riissy, even to buy it now, because they have too many assets to sell and i think it's just a declining story with the doj involved. >> josh a thought on chesapeake. >> until there are some serious changes made with the board, the cronyism, and maybe mcclendon stepping down i don't see any reason why you would want to wade into controversy here unless you know something the rest of us don't. i've consistently said steer clear of red flags and look at something like conoco where the story is a lot more straight forward.
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the valuation makes sense and you don't have probes and the justice department, and questions about self-healing and all these things that you don't want to get involved with. >> if you thought competing against high speed computers was nearly impossible now our next guest says the battle is getting more one-sided. sean burly is a co-founder of he says the real problem with high frequency trading is the algorithms are getting faster and smarter than you. thanks for joining us. >> nice to be here. >> so investors are left out in the cold? >> if you're a human, yeah, it's kind of tough to compete. >> how are they getting faster, smarter? >> faster is things like you know, better access to data with colocation facilities. flash based memory for storing and accessing the data. that will make them smarter. so that will make them faster.
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they're getting smarter because they're now starting to read not only the quote prices but also start reading news. >> do you worry about the world of machines taking over wall street and what the implications are for investors after many high profile events? the flash crash, the fast ipo, the facebook ipo, the knight software glitch that nearly caused that company to go out of business and i'm sure there are thousands more incidents that just simply don't get reported because they're not that big? >> right so you know i think it's beyond kind of worrying whether they will take over wall street. they have taken over wall street. and the ones that you talk to, facebook, knight and so on, they're the ones that we sort of come to public consciousness. there are 18,000 of these that happened that are microcrashes or ultrafast black swns and they're happening every day. >> i'm curious what your thoughts are about this concept where we have to get used to the fact that the machines aren't leaving, the exchanges went for-profit and these are their best customers.
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doesn't it make sense under these circumstances to recognize that your natural advantage as an investor is to lengthen your time horizon, pay less attention to short-term intraday moves? >> for me? >> yes, sir. >> yes, i think that's exactly right. you know, the machines do the high frequency trading and let the humans do the low frequency trading. at the moment the machines are, the algorithms are fairly stupid. they're basically betting on simple price fluctuations. as humans we can kind of see global macroscale. >> sean one of the traders on our panel jon najarian has a lot of thoughts on this topic. we're surrounded by humans here who are trying to make their living competing against machines. it's becoming all the more difficult. dr. j. what's your question for the professor? >> thanks for joining us. question to you would be don't you think some of the problems could be addressed if you made the increment.
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at the same increment that the rest of us have to trade at. in other words don't let them break a penny and then two, how about addressing the cancel orders, instead of stuffing the pipe, quote stuffing or whatever you want to call it, how about if you charge them for making too many to more or less put up a manipulated idea of liquidity, without truly offering it. >> right so the cancel order is a huge part of the volume of the information that goes through these exchanges. and actually what's creating a lot of the problems that we're seeing within things like facebook. now one of the reasons the cancel orders are so important for the high frequency trade is because they're kind of like little probes like little sonar signals that ping out into the trading floor to kind of look and try and understand what the other algorithms are doing. so they're very, very important as an algorithm to figure out where you lie in this kind of dark world. >> you're being diplomatic. i mean they're trying to gain the system. that's what they're trying to do, right? they're trying to have an unfair advantage over everything else
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with the stuffiness going on. >> judge they're trying to extend that unfair advantage. they already have an unfair advantage with colocation, breaking the pennies and the speed that they can trade at. now the fact that they are adding in these cancel trades, which as the professor accurately says are really just probing for where the orders are, that's the bvlt s. that has to stop. >> good to have you on the show. you want the last word on that? >> yeah, it's not really about humans versus machines anymore. it's about machines versus machines and that's the thing to remember. the humans are already out of this game. >> we appreciate your insights. josh, humans are already out of the game. >> i think we win for two reasons. number one, they're already leaving. they're moving into currencies. they -- they're now fighting with each other like he says machine versus machine. that's no fun when predators have to pick off other predators. i think we sit back, lengthen our time horizon, for most investors they should be looking at weekly charts. not even intraday let alone daily or anything like that. i think we win
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>> that doesn't help you even if you need it extended. you don't want to get sucked up in a day trade where it's a mini flash crash. trade with limits. trade through some of these high frequency guys and force them, jon and i do this all the time, force them to stand up to their bid or offer. >> agree. >> still to come, one top money manager is keeping his poise in this moody market environment. why it pays to have some patience.
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coming up today on "power lunch" the terrible cost of this year's drought. we'll add up the damage and talk to a farmer who is trying to save his business. new polls mean new worries for the romney camp. we'll look at whether it's vp choice might reverse that slide. and the big money behind today's big ipo. we'll profile the second out behind today's man-u debut. now back to scottie. >> all right, sue, look forward to that. where should you be putting your money in an economy of 2% growth? our next guest says to go big or go home. let's get our slow money trade from the portfolio manager at fidelity's four-star rated mega cap. thanks for coming on >> hey, scott. how are you? >> good thanks. apple is your top holding. so you like a little bit of tech. wells fargo, jpmorgan. you like the banks. >> i do.
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i like the mad cap financial in general. i think if you look at the financial sector we have some of the highest capital ratios we've had in decades. highest reserves we've had in a long time. some of these large cap financials have made very accretive acquisitions at the bottom of the cycle and have generated very strong earnings power since the last peak. i think as we get closer to a basel 3 capital ratios these companies will be able to return more of their free cash flow to investors and we're starting to see that happen this year. >> so you look past some of the negatives that most people talk about when they look at the financials? whether it's, you know, regulation, earnings, revenue, growth going forward or certainly an issue? >> i think that actually provides the opportunity. this is a very underowned sector. i think when you look out, my entire investment philosophy and process is geared on 18, 24, 36 month earnings power analysis. and trying to look at the way the market is valuing that earnings power.
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and yes, there are a lot of headwinds out there. but some of these companies have been able to actually grow through this crisis and i think we're actually seeing long growth pick up this year. and i think when we think about some of the earnings pow irof these companies, we companies we are getting these financials at incredibly attractive multiples. >> not surprising to see apple, one opinion number one or top holdings at least on the list we got so i'd offer to him that i'm just as bullish as he is on the stock and i'd ask him what is his upside target with that 12 and 24-month target your fund more or less out there in the time frame with. >> yeah. i'm not going to speak to any stock specifically but when you look at the top ten holdings in general, i'm favorably inclined to all of them. i see upside in the mega cap space in general. >> yeah. you know, let's talk markets in general. we seem to have this melt-up for
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no apparent reason, if you will. yes, there's a feeling that the central banks around the world are going to provide stimulus to economies around the world and goose the market. sort to speak. but what's the deal with the rally we have had? why do you think we've had it? does it continue? >> i think we're in an underowned, underinvested up-market right now and i think if you look at different asset classes mega cap -- mega cap market cap spectrum offers very attractive yields. you can get a yield when you're looking at treasuries at a 1-6 and looking at earnings and free cash flows of 7-plus so i think we're starting to see investors slowly understand and appreciate the income characteristics of some of these mega caps, as well as the optality they have to put their balance sheets and free cash flow power to drive earnings growth over time. so yeah, i think as we move closer to the election and we
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actually get clarity on some of these issues, i wouldn't be surprised over the next 18, 24, 36 months if we actually have a higher market. >> interesting. matt, great to have your insights. thank you for sharing them with us. >> thank you. take care. unusual activity in the energy area. what you should know before you invest and traders aren't fast but not always right. learn from this trading blunder.
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welcome back.
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we asked if you're buying from ron johnson is selling these days and a lot of you are not. ryan tweets, ron johnson is basically trying to sell jcpenney in apple stores. doesn't understand the customer, not buying it. ah 44 says jcpenney is up because of short covering. a misperception that it's become a turnaround story and other retailers are overvalued. wolverine 2710 tweets, i would not touch this story with ackman's money. referring to the hedge fund manager that made a big bet on jcpenney. doc, big bets in the energy space? >> we got a bunch of them, scott. in fact, when i looked at the energy space on the heat seeker today, seemed like there were at least five companies with unusual activity. we focused first, though, on ultra petroleum. upl. big buying blocks of september call options. somebody wanted to bet as the stock was dipping today. people wanted to bet on the
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upside. so in other words, it's a contrarian play and an upside bet to trade higher over 40 days or so. >> grasso, upl in. >> most people are underweight in this market energy. so there's struggling to buy everything in the space. we have seen stellar performances from the service companies. we have seen bhi and halliburton be bought. quickmakers are names to be in. but as a whole, people are definitely underweight energy and not surprised. >> are you underweight, grasso? i couldn't help myself. >> i've been carrying you on my back for so long, i don't know, maybe i am. >> final trades next. the first trade route to the west, the greatest empires. then, some said, we lost our edge. well today, there's a new new york state. one that's working to attract businesses and create jobs.
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call... to switch, and you could save hundreds. liberty mutual insurance -- responsibility. what's your policy? final trades. pete? >> cog. >> jb? >> rock space. >> steve? >> sds. >> all gh


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