tv Fast Money Halftime Report CNBC August 23, 2013 12:00pm-1:01pm EDT
the key debate for the next couple weeks is just going to be to what extend traffic continues to get hit and confidence continues to get hit or whether they take it in stride. >> in a week wells laid off all those workers because refi activity had slowed down. let's get to brian sullivan back at headquarters with "the halftime." thank you, carl and kelly. and welcome, everybody, to "the halftime report." i'm brian sullivan. scott is back next week, thank goodness. four hours to go until the close and here is where we stand. we have green on the screen but not by much. the dow up a meager six points. the s&p up by 0.1%. but we're still in the green. a lot of big stories and here is what we're following on "halftime." flash freeze. the second biggest stock market came to a halt yesterday after what's called a technical glitch. it shut down though the nasdaq for more than three hours. we're going to let you know the impact on investor confidence
and why this could happen again. mind the gap. retailers have been getting crushed this earnings season, but the gap has found a way to avoid the carnage. that stock up more than 35% this year alone. why is one of our traders hitting the sell button? going to be a debate you won't want to miss. but first, everybody, your top story, ballms away. steve ballmer shocking the world saying he will retire in the next year. and investors today anyway are saying good riddance. the stock jumping on the news adding roughly $20 billion more in market cap and about $600 million to ballmer's bank account. what is next for mr. softy. let's welcome in mike murphy, erin gibbs, steph in i lianie l jon najarian. i want to get to microsoft. it's a tough situation when you're a ceo and you say you're stepping down and the stock soars? >> that's not exactly the sort of news you embrace, although as you said, it made him at this
point $600 million richer so far today because he's got about 330 million shares of the stock. at one point it was nearly $1 billion on the bottomline here. i'm sure mr. ballmer doesn't need the extra billion. he's already a multibillionaire, but he would rather have a good legacy continuing forward with the stock. they're moving in a lot of the right directions, brian -- >> they are? >> i believe they are. >> what are those right directions, jon? >> entertainment. we've all week been looking at things like, for instance, the nfl getting together with google potentially. microsoft certainly has to be considered one of those that could be involved in entertainment going forward beyond the xbox, which is how, by the way, a lot of people do consume a lot of online entertainment. >> but can i point out not to be rainy day sunshine which is that microsoft shares are a couple percent already off the highs of the day. investors have had a few hours to digest it and the stock is up but not up as much as it was so there are some second thoughts
here. >> there definitely are, sully, you're correct. if you look at the news that came out this morning, this is one of the reasons that microsoft is one of the top performing dow stocks this year. there was a lot of talk out there for a long time that ballmer could be stepping down or could be replaced, and obviously the market took that as a positive. we are long the stock. we sold the stock today on this news. i don't think it's worth 8% or 9% or 10% stock. i think you have to let it settle in. if you have been long this name, this is a great opportunity to get out, step back, but i'm in jon's camp. i think there's potential for microsoft to move a lot higher here because i think they are doing right things inside. >> the stock is down 39% since ballmer took over. that tells you erg you want to know. >> but to be fair he took over basically right when the nasdaq hit 5,000. he did take over right when everything was peaking. >> but they're not in mobile really. they're not really in cloud or late to the picture cloud. social, i don't even know where they are in social. enterprise, certainly he's done a good job and that's 87% of
total profits, but they really have to take this to the next step and this is what ballmer has not been able to do. so i don't think you chase the stock here. i think you wait to see who they get in, what direction they want to take, and just you have time for this. you have a year between now and when ballmer exactly steps down officially. i think you have time. >> now, we actually cut other position in microsoft about in half last week. so i wish i would have waited until today for this news. however, i still don't feel it's a reason to get back in. just because he's leaving, i still don't know who is going to replace him. for me it's important to actually see some changes. i still see there are some big problems with enterprise spending, they haven't been able to shift to mobile and tablets. i want to wait and see. >> good point here. we'll get to amy, but i want to read a quote that was pulled out by all things "d" of the "wall street journal." the iphone has no chance of gaining significant market share, quote, no chance. that was steve ballmer in 2007. there you go. let's bring in henry bloge jet,
editor and steve of business insider. he joins us on the fast line. you got an excellent report out on your website here, henry. microsoft insider, it's a total shocker. something big must have changed. what do you believe that might have been? >> well, on wall street the reaction is this has been many years in coming. it's not a surprise to anybody. he had to go. the company has run aground. but people inside the company were still very much behind steve, and after the big reorganization they thought he was here to see that through, and so they're very surprised. and the speculation is that something happened at the board level where the company basically realized what we're doing is not going to work. we don't need to keep doing it and try to do it better. we need to actually have major changes, and one of the speculations that i heard was splitting it up into consumer business and enterprise business, which is something a lot of outsiders have wondered whether that would be a good move for a long time. >> yeah. because that is an excellent point, henry. if you dig into the financials of microsoft, unfortunately,
what we look at here in the media are the things that we see every day, right? the phones, very little market share. we look at sort of windows, windows 8, some people have called it a bust, but the enterprise side, the stuff we don't see, that's actually done very well. >> and that drives most of microsoft's profit. i think it's easy to lay this all at steve ballmer's feet but i think stepping back from it, he was in an extraordinarily challenging position, the company was. this was a company that surfed the pc wave for two decades, incredibly successfully, but that wave is over and it has been replaced by two others that microsoft has completely missed, mobile and then the transition in enterprise to cloud services. and they're doing is decent job of starting to catch up with some of those, but their main profit business is just completely under assault. >> henry, how long do you think it's going to take to get a ceo and do you think they'll go outside, stay inside? what are your thoughts? >> i think it's a big question. i think it's going to take a while unless they are ready to
make a major change immediately. i think to your point earlier, the point somebody made, is steve ballmer is basically a lame duck starting this afternoon. so they have to actually act fast. you can't have the company just sort of sitting there with no direction for a year. but are they going to break it up into two? is there somebody going to come in? is it going to be somebody who is young and aggressive who is going to try to totally transform the business? that would be massively risky. so i understand the idea you would want to wait and see until we get some real direction. >> it's mike murphy. any chance, i know it's probably slim, but any chance that bill gates takes a more active role in the management of microsoft now? >> he seems to be involved in taking an active role in figuring out who is going to lead the company. i would be very surprised if he stepped back in. he retired at the top. he moved out of the industry effectively into philanthropy and has rebuilt an entire image and career for himself in that.
that would be an emergency move for him to come back and i don't know that it would end well jump parachuting in. he's been out of the day-to-day for so long, but some chance but i think highly unlikely. >> smartphones effectively didn't exist when bill gates stepped out. the whole industry has completely changed, has it not? >> absolutely. you look -- if you look -- >> so henry, my follow-up would be what about the second coming of steve jobs? is there anybody out there that could turn a 100,000-employee company around? tens of billions of dollars in revenue. you have probably been to their campus. i have. it looks like a small town. this is a gigantic corporation. is there anybody that comes to mind in your straightaway first thing that says this guy, this woman, this person could turn things around at microsoft? >> there are people who come to mind for different pieces of microsoft. the enterprise business is still a great business, and that can be converted into a services business. they can continue to take share from some of the other big
enterprise players and i think there are lots of people in the enterprise world who could lead that business. consumer side is different. if you try to keep it together, it's much tougher to think about who would take the lead. and i think bringing in apple, one advantage apple had when it started all this is the company was left for dead. they had no core business to protect. they had nothing to lose by coming out with these revolutionary new products. microsoft has a huge, wildly profitable core business to protect. so the idea that you're going to suddenly bring in some visionary 29-year-old who has no relationships in the corporate world to whip up some new products and save the company is just a hallucination. >> well said. i think they could steal a quote from under armour slogan, we must defend this mouse. henry, thank you. you know what? on behalf of everybody, i apologize for that. henry, thank you very much. >> thank you for having me. jon najarian -- >> sir. >> you noticed a wee bit of
unusual options activity ahead of this announcement. >> we did. pete talked about it a week ago. there were about 150,000 of the september 33 calls that were purchased very aggressively for between 19 and 21 cents. they exploded to $2.70 today. so that is a multi, multi, multimillion dollar windfall and knock on wood, we had some. i sold out like murph today, took the profits and ran. >> what did ben franklin say, three can keep a secret if two are dead? let's go to the market flash desk. jackie deangelis, what are you looking at? >> we are watching gold prices rallying today up about 25 bucks, brian. couple of reasons for the move today, you have those downbeat new home sales first. also some commentary out of jackson hole, and also the news that moody's is weighing a round of bank down grades. all these of these things supportive to gold prices. we're watching the prices right now trading dangerously close to
$1,400. if we break that level, traders are saying $1,430 could be the next stop. >> okay. there you go, guys. anybody with a comment on gold? certainly nobody in america -- >> absolutely. i have been on this one, i think others of us on the desk thought that was a washout at the end of the second quarter. congratulations. you have a windfall, a 200-point jump in the price per ounce of gold over the last month and a half. >> and jon pretty much nailed the bottom on the gold trade, i didn't. i have been sticking to this and i still stick with it today. it looks to me like this is an oversold rally off a commodity in a down trend. i wouldn't be jumping in. >> if you look at oil, this also has, too, rallied. i think you want to look at some of the energy stocks because they have underperformed. >> can we give a shout out to dennis gartman because i believe he called the bottom in gold about six to seven weeks. d. gart. >> moving from the lower left to
the upper right. >> he's always happy about my hokies doing well. dennis, if you're out there, good call. up next, morgan stanley's chief u.s. economist vince reinhardt will join us live from jackson hole. does he believe the taper will be on? when? it's the burning questions and they're coming up after the break. much more on steve ballmer's announced retirement. just how well did he fare while at the helm. is he getting kind of a raw deal by the media? we're back after this. ♪ make it happen with the all-new fidelity active trader pro. it's one more innovative reason serious investors are choosing fidelity. get 200 free trades when you start using active trader pro today.
off microsoft for just a bit to talk about, what else? the fed. because we're all wondering whether or not there will be a taper, a reduction in bond buying, in september or not. that is really the question that everybody has been asking for a while. this morning we got a little more insight from atlanta fed president dennis lockhart who spoke with our own steve liesman at the fed's jackson hole conference. >> i would be supportive in september as long as the data that comes in between now and then basically confirm the path we're on. >> all right. so you get one voting member, and that's key, in favor, but what about the others? morgan stanley's chief u.s. economist vince reinhart is a former fed insider and he joins us from jackson hole. how would you handicap the odds of the fed reducing bond buying in september? >> pretty high. the only thing that would get in
their way is a weak employment report. that's not in our forecast. basically they want to get started with the business of exiting qe. they want to do it under chairman bernanke's watch. they think the economy is doing better, and they can send signals through their thresholds on rate guidance. >> why are you so confident in the fed though? >> mainly because that's what they've been saying. they have said data dependent, but they've basically been avoiding mentioning low inflation, enough fomc speakers have been talking about the exit, and it just seems that they've lost confidence in the instrument qe and they think they can send rate signals better by their threshold approach. so they got a new, shiny toy. they're going to use that. >> vincent, what about rates? the ten-year is up quite significantly. does that get in the way of them making an announcement in september? do they see how that whole things plays out? and also if you look at the housing data, it's been very mixed in the last couple weeks.
so where are your thoughts in regards to that and, again, what the fed does based on these numbers? >> well, they didn't show much sympathy for the backup in rates in the latest minutes. true, most of it came after thef omc meeting, but they didn't edit it to take into account that. so they probably think the economy is self-sustaining. they also probably believe that the form the tapering takes can offset some of those concerns, stop purchasing treasury securities first, go slow at first, and then, lastly, they may just give a stronger rate guidance. that is, take something that's hawkish, the taper, and then wrap it in a dovish package, say they'll be willing to keep rates low for a very long time. >> you know, vince, if we look at the fed, what could make them change their mind? you referenced that payroll report, okay. how bad -- i hate to be like this on a friday.
how bad would it have to be for them to change their mind? >> they have got to say that the trend in employment is better than when they started the program, hence the program has been successful. so if they get a number say 120,000 or below, it will get harder to taper. >> so it wasn't just the housing data today alone, weak as that was, is not enough, but that in combination with a jobs report under let's say 130,000 could be enough. >> it could be because mainly on the housing side they're impressed by the strength of housing overall. they think that the distribution of housing to activity is purchase of new homes. that's not as rate sense tiff as refi. it's not the '90s or early 2000s. it's real money buying houses and that's more about housing afortability. >> vince, we have heard for so long about the taper, that we're going to go from 85 to 65, a cut
of $20 billion. you're starting to hear in some circles it could be $10 billion. any thoughts on what the number will be? >> well, i can do the basic arithmetic. they've indicated they'll take about nine months to do the tapering. they have to cut $85 billion to get to zero net purchases. that's about $10 billion a month. i still think they'd announce something on the order of $20 billion or even $25 billion in the first cut. given their concern about housing, they're more likely to take it out of treasury securities first. >> just picking your brain about the economy overall, do you think the economy is stronger than about the 2% level that we're at? do you see it recovering in the second half of the year, and when do you think business investment is going to start to pick up? >> well, that's actually the key issue. we've basically been stuck in a growth channel at 2%, but the drag of the financial crisis has receded. we're past the point of peak fiscal contraction. we've gotten a lot of wealth
creation. we expect growth to pick up to a 3% channel. when businesses see sales and sales expectations, we'll get cap e capex. >> just quickly to wrap it up, a lot of people pointed out that new home sales number, which again was pretty dismal today. prices were up but the overall volume was down. do you think that portends negative things or maybe one off, two off, whatever? >> yeah, look, it's always a bumpy path, but fundamentally domestic demand has some momentum. there's still a lot of policy accommodation in place. as long as we get capex lifting off, then we should be on a more sustainable growth track. >> vince reinhart always good to speak to you. have a good time in jackson hole. >> i'll try my best. >> the biggest pops and drops. we'll again with auto desk. big pop here, mike murphy. >> big pop. last night the stock sold off 4%.
it's rallying now, but i'd be very careful here. the stock ran up over 11%, just about hit its 52-week high and now sold off. i would not be chasing. >> footlocker is down 3%. >> retame is so hard. this company did not beat. they missed on operating margins, on comps, on earnings. they reiterated guidance which nobody believes. at $30, this is where i would hit. >> this is the ceo that some would like to see take over jcpenney. >> it would be a negative. >> very good. erin, let's talk about vmware. >> looks like it was mainly from a jeffrey's upgrade. i would use this to take money off the table. it's getting close to the analyst target price of $87.50. i think this is a good place to come out. i think it's getting a little rich for where we were in the market. >> thank you very much. finally, a pop for petrobras.
>> i thought we were talking about pabst blue ribbon. >> that's later my friend. >> a big bank in brazil. a lot of folks when they focus on emerging markets and so forth see petrobras and itub coming back from the dead. i would give them another buck, buck and a half to the upside but i did take about half off on some unusual option activity that we bought just over a week ago. >> we have been seeing way too much of each other, jon. >> we have. >> this is like -- >> four or five hours yesterday. >> the chemistry is noticeable. >> it will be noticeable later when we're both sitting at laguardia waiting for delayed flights to chicago. jon, thank you. coming up next, pandora sings the blues. shares plunge on disappointing earnings. we'll tell you whether to buy the dip or run for the hills. over the hills and far away. back to the story of the day, microsoft ceo steve ballmer is retiring in 12 months. how did i fare during his ten e
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welcome back to "the halftime report." about 12:25 in the east and here are the top three trades right now. first up, pandora. taking a hit after reporting a disappointing guidance even after beating on the top and bottom lines. mike murphy, your thoughts. >> the quarter came out, sully, and it wasn't as bad, but the stock had run up so much into it. i had a very good discussion with josh brown yesterday off air on it. pandora was pricing in a massive quarter, and they just didn't get it. the run-up wasn't enough to support the recent hrun-up in te stock. i think it gets interesting down around $18 because the business doing phenomenal.
>> also laeliminating their 40-hour limit cap in september. aeropostale plummeting. stephanie link, they all stink. >> yeah, well, this is one -- aeropostale, american eagle, abercrombie, a lot of the teen retailers are doing terrible numbers, just terrible. and this company not only did they lose money and their costs were down 15%, but they say the third quarter initial trends are even worse. this is one i think you absolutely have to stay away from. no clarity, no visibility whatsoever. there are other names in the space i like, but this is not one. >> if you're on the radio, that stock is down 20% right now, ouch. finally today, expedia surging on news that it might team up with travelocity. dr. j, do you care? >> oh, sure you do. and you're still licking your wounds if you were long this one, brian, after that earninme
when the stock got trounced from $55 down to the mid-40s. it made it back to 51 and change today. it's now pulled back about $1.50. but this is good news for them. deutsche bank agrees and they reiterate their outperform with a $66 target. >> all right, guys. thank you all very much. now back to your top story of the day. what else? microsoft, steve ballmer planning to retire from the top post after running the company for 13 years. cnbc contributor jeff sonnenfeld is following the leadership angle. senior associate dean at the yale school of management known as one of the leading voices on grading and understanding men. i was surprised when they told me how you were grading ballmer and his tenure given some of the missteps he has made. >> and that grade being a "b" plus. i hope you got it reported accurately through the cnbc registrar there. i should have given him an "a"
minus just to upset you more, brian. i love being on with you in particular today because you're such a contrarian an yd you thi about it. over that 11 years, he's tripled revenues. $76 billion business. it was a third of that when he stepped in. his profits are roughly the same. he's almost tripled those. and then you sort of take a look at the shareholder returns, he's given back, i don't know, close to $200 billion. there's not another company -- exxon has done more than that in this period of time. nobody has given shareholders back that much in dividends and repurchases, and, you know, that's a pretty good record, and new business, people like to say because he's not -- they're not the new new thing, they have 75% of their revenues now are not coming from those old operating systems. they've been moving in these new business categories but, you know, when you think brian, interrupt me whenever you
will -- >> i'm just letting you go on. we're just -- >> well, i will go on because i tell you what they're not -- >> we're going to dive in and throw the bomb -- actually, you bring up good points, jeff. listen, we actually gave ballmer credit earlier in the show for what he's done on the enterprise side, the stuff we don't see, the stuff that runs on the servers. that revenue has soord. >> that's a multibillion dollar business that wasn't there before. it's a huge business for them. if 75% of the revenues are coming from these new areas, that's fantastic. >> what we point out, and maybe i'm completely wrong, i have always viewed the real report card of a ceo as being the stock performance. if you're the leader of a publicly traded company, the only thing you should probably be graded on by shareholders anyway is how much money you've made them. yes, he's given them back money in dividends, but the stock down 30-some percent from its high. >> let's think of the stock performance of the new new companies when we were on this network and you used to be over at brand "x" and i would talk to
you then. the companies that were being celebrated then for our soaring stock performance were yeo cities and net scape, snap, e toys. what's happened to those? they were soaring and then they disappeared. this is a company that's built for sustainability. not to be the new new thing. so they've gone through a dramatic repositioning and there is a -- the stock market is mercurial -- >> so they should be defined by the old blue song shtio, they w built for comfort, not for speed. is that how it works? >> there's a dependability and there's a reliability but they've moved into exciting new spaces. they're not pleased they missed out on the movement to devices, of course, and trying to do a better job in tablets and cell phone -- cellular business. with that migration, could you take a look at the great bill gates himself. his wonderful prophetic book "the road ahead."
guess what? that book came out in 1995. you can't find a sentence, let alone a paragraph, that talks about surging e-commerce. what that would mean. >> if they were doing things that were so great and ballmer was doing as good as you're saying, why would they announce this massive restwruk touring. if things were so good, why are they changing that, in your opinion? >> that's the great question, the timing i think, why now? i think ballmer has done a very credible job over the last 11 years. the why now issue has to do with why would this not have been about six or seven weeks ago. if there was great board disaffection, you would not have let him go through this massive restructuring. he did the heavy lifting for a succe successor. he said he waent going to see it through. like moses saying i'm not going to get to the promised land, but he said i'm not going to get you there but here is the path.
breaking down the fiefdoms which were a problem, he's acknowledged that, clustering this around servers, around devices and applications, and that's going to be for somebody else to deliver i think is great timing. frankly, they were great partners to have. they were great on the board with martha stewart. >> we're going to anoint you autocrat. you can pick one successor to steve ballmer. who do you pick? >> believe it or not, there's a guy named john legere. he had been at dell running africa, middle east, and europe before that. he was in the old original at&t. he was doing a spectacular job. he turned around global crossing which was a completely collapsed at the time he stepped into that disaster and managed to sell that to level three very successfully for billions of dollars. john legere knows every part of this business.
his ad rates are soaring at t-mobile. the usage is up dramatically. and he actually really knows the device business. his relationships with apple, samsung, and everybody out there is spectacular. >> you're on record then because -- and they did gain 678,000 new subscribers i believe it was last quarter, including myself, by the way. >> good for you. >> i just want to say though that a former microsoft executive who has gone on to run a mobile company went the other way, steven e lop of nokia, has far from torn it up. >> yeah. no, he hasn't. that's why i'm not pushing for steven elop. i was worried about nokia. as i went on with your show about a year ago, actually the end of the last year, talking about winners and losers, he was on my watch list for somebody that could be one of the losers. obviously marissa mayer should be on everybody's short list as an incredible what's happening
at yahoo! and sheryl sandberg is definitely dressed up and ready to go as ceo somewhere, too. so there's ample, fantastic talent on the outside and there's some very good people running skype which is doing much better than people imagine. they're up i think 47%. some business units inside microsoft, there would be good internal candidates to review as well. >> i like how you left it on a positive. you're a positive, optimistic guy. you mentioned skype. microsoft invested in facebook. they have made some good investments. jeff sonnenfeld, thank you, thank you for the compliments. the rumor is steve ballmer will be co-hosted "street signs" if this keeps up. next up, step into the gap. shares of the gap have jumped up more than 30% this year alone but were there warning signs in last night's report. plus, 3 hours and 11 minutes the nasdaq shut down leaving investors scratching their heads but we still don't know what exactly happened. connectivity error?
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consecutive quarter of higher same-store sales and raised its dividend yesterday. but could the retailer be the next victim of the teen slump? let's debate it. stephanie link is the bull on the gap, mike murphy is the bear. 1:30 on the clock. stephanie, make the bull case. >> retail is hard. i said it before, but this company delivered, and they completely are shining the rest of the group, the rest of the industry. they beat eearnings, comps were 5%, sales were 10% constant currency. they raised guidance, and they increased the diffident by 60%. that tells me they're taking share and they're taking share because the restructuring actions they've taken are starting to really work. we have growth initiatives, new products, international ex pang and i think the valuation is reasonable. >> used facts. >> i have bought green jeans so i will say that. >> cool. >> however, you look at gap's quarter, they really couldn't have done anything better in my
opinion yet look at the stock price reaction. the price of the stock,s down almost 1% on that great quarter. my major concern and my major bear thesis for the gap is coming into the fourth quarter. they have one less week which was $190 million in sales coming into the fourth quarter. so i think that comps are going to be that much tougher for a company that's already set up to have to have perfect comps. although they are hitting and they're not an abercrombie or one of those companies missing the entire back to school business, but they're priced to perfection. i think based on today's trading, it's priced perfectly and has to go lower. >> the rest of the industry is down and everybody is souring on the group. i think when the dust settles, they will look at who beat and who actually raised numbers and they raise numbers even in the face of the fourth quarter. difficult comparisons. >> however -- >> in your face, murphy. even doing the pointing thing.
have she did point, didn't she? >> the one thing here is that i think with the gap here, yes, they are doing well, but i think there's way too much movement in the price of the stock. >> all right. dr. j, jon najarian, before we get to the audience, what do you think? who won that debate? >> i love the leadership over at the gap. i'm surprised, steph, that they've been able to outperform as they have versus the others, but in particular teen retailers, as we've said earlier in the week, the teens have one of the highest unemployment rate so that additional money -- >> hold on. >> this is not a teen retail. >> i'm not going to go to aeropostale and get something but i would go into the gap. aren't they a little different demographic play than the other -- >> and they have targeted themselves that way on purpose. the old navy side of it, that goes for the teens, and that's the more or less garbage throw away stuff on that side. >> and the gap and old navy just did a 6% comp in the face of a
difficult environment. >> banana republic. >> if the whole sector comes down -- >> you have to buy clothes somewhere. >> tj maxx. >> i think you will get a good quality company with a restructuring story at a decent price if it continues to come down. >> this green jean thing has really disturbed me. i didn't need to hear that on a friday. tell us who you think won the debate, america. tw tweet us using #bull and #bear. we'll have the results at the end of the show. we still do not know exactly what caused the now infamous flash freeze at the nasdaq, but here is what ceo bob greifeld said earlier today about why they halted trading. >> we have a data feed which consolidates the trading for 13 exchanges. we do that for the industry. that had a problem. as soon as we saw that had a problem, we had a fundamental concern. we knew professional traders had access to individual data feeds but the traditional long investor, retail investor now
didn't have the same information. >> all right. your next guest is an institutional trader, but also the co-author of "broke markets, how high frequency trading and predatory practices on wall street is destroying investor confidence." joe saluzzi joins us. you really understand what happened. tell our viewers. >> thanks, brian. first of all, that quote that bob greifeld said, that should send shivers through the spine of everybody because basically what he said is they should halt the market all the time because professional traders that he's talking about, the high frequency guys, have always had access to these individual data feeds and they co-locate their computers. they're always seeing a quote faster than everybody else just by definition. that's why the system is so screwed up. let's get back to yesterday for a second. nasdaq is the security information -- the security processor. they call it the s.i.p., the security information processor. they basically consolidate the 13 different stock exchange
quotes into an ndbo or national best bidder offer. something failed along the way. there's all different points of failure. who knows where it was. some evare blaming arca. i don't know. something failed. that's a problem. that's a simple problem, i'm sure they're fixing it, but it tells you there are so many points of failure in the system. it's going to happen again. back to my original point was this happened. they're always seeing the quote faster. why not halt trading all the time. >> that's a good point, joe. i'm ask you this because we learned yesterday just how many feeds are connected. i think there's 13 exchanges, 40 dark pools. you probably know the exact numbers, but the point is any chain is only as strong as its weakest link. what we have learned is that when a link breaks perhaps anywhere, it can take down the entire system. that makes me nervous. >> absolutely. a single point of failure, that's that s.i.p. process. we think that nasdaq being one of the competing exchanges, like you said, there's 13 of them,
probably -- there probably are some conflicts of interest along the way. we feel they should probably not be the person consolidating this quote. maybe there should be a non-utp participants consolidating the quote. someone would have to pay that person and we think it should come out of the market data revenue that's collected from every one of us that has to subscribe and they should pay this independent party. but that's an issue for the s.e.c. to decide. that's an issue for the utp plan participants to decide. the bottom line is a year ago we wrote "our broken markets." nothing has changed. but the bottom line is we continue to have issues, continue to have technical glitches, continue to lose confidence in the markets while the s.e.c. sits there and waits and tries to figure this out and then they should really think that they created this mess when you think about some of the rules that were changed since
2007. they need to look at the whole system and say maybe we need a redo here, folks. >> quickly though, joe, i guess in some ironic timing, if you're watching the cnbc feed you see the news alert bats global markets is in talks to merge with direct edge. those are not names that necessarily the retail investor at home will know. they are high speed trading firms. >> they're exchanges. >> 13 exchanges. two of them -- bats owns two of them, direct edge owns two of them. they're much less than the new york stock exchange and nasdaq. you would expect an industry where volumes are dying and margins are collapsing to see some consolidation and that's what you're seeing. >> bats known because their own ipo had some problems at the new york stock exchange. we're looking at the headlines, at the possibility of nyse. when you have a deal you have computer systems, the legacy systems getting on top of each other. anybody out there in any form of corporate america knows how this
works. you have duplicative systems, blah, blah, blah. we're just stacking all this software on top of each other through these deals and you're leaving holes that midlevel i.t. guys might make a mistake somewhere and bring everything down. >> right. and, brian, there's one word that describes it all. it's fragmentation. they've fragmented the market unnecessarily which creates all these points of failure. a consolidation would be a good idea, but i'll bet you this, even if those two exchanges were to consolidate, they would still keep all four of their stock exchanges running. you need more of those points so the hft firms can arbitrage this. they want more fragmentation. they thrive on fragmentation. that created this whole thing. if they wanted to impress us, they would start to consolidate and get rid of some of the exchange points. we don't need 13 exchanges. do we need one? no, we need more than one. but the number is a lot less than 13. >> we appreciate you coming on. sort of ironic we got those
headlines as you were on. the perfect guy to talk about. >> anybody have a comment? he talked about fragmentation, you're only as strong as your weakest link. >> and it's not just about the software that you were addressing, brian. it's the question about it is in these exchanges' best interests to deep keep this thing as it is. that's the problem. >> next up on "the halftime report," volatility is back in play as the market seesaws between gains and losses. why is one investor saying it's time to head to the skies and maybe the roads for your best opportunities. so i'm always looking to take them up a notch or two. tdd#: 1-800-345-2550 and schwab really helps me step up my trading. tdd#: 1-800-345-2550 they've now put their most powerful platform, tdd#: 1-800-345-2550 streetsmart edge, in the cloud. tdd#: 1-800-345-2550 so i can use it on the web, where i trade from tdd#: 1-800-345-2550 most of the time. tdd#: 1-800-345-2550
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stocks may be holding their ground today. so the question we are asking, this summer we didn't get a bigger one, we are we going? we welcome you onset. bigger drops, this year was more like a tilt. >> we had one in june for 4% and now you have one for three or four and now you are back up to two. >> so what is the problem? >> we think you are still going to get a drop. given this macro headline it might drop another 10%. we are looking at stocks. that is where we are looking to
see, companies that we like. >> adding to positions as they come down. who are they? >> airlines, you have us air, american merger now. companies like delta and united. >> does it matter? >> it doesn't matter for us. actually, if they don't consolidate, delta and united are in a better position. they will not have a capitol to refurbish their airplanes and delta and united actually have it. >> any other that? >> ford, auto companies. we are adding to ford. gm, and johnson controls. these are companies that are going to grow. >> these are the ones that you want who are going to grow and not just have good dividends and balance sheets. i want good five% growers, they
are going to grow. >> i love ford. i think it is one of our biggest holdings. but looking at the ford, some of the names that you have there. i would have to think that the out look for the economy, you are not going to see things picking up. but the idea is that these are secular growth companies within a economy that might have good management and top line growth. what i'm afraid of are people who have subsequent dividends for bonds. >> thank you for joining us. final trades next up on the half time report. ls, appetite for ri. ls, appetite for ri. you can't say 'one size fits all'. it doesn't. that's crazy. we're all totally different. ishares core. etf building blocks for your personalized portfolio.
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>> cdrn, calls they bought a lot of them. >> long. >> call. by the way, stephanie you won the debate. according to our viewers. nice. >> thank you. >> it was the green jeans. thank you all. thank you all pow er lunch now. >> half time is over. power punch and the second half of the trading day starts right now. >> steve says so long sort of. he is leaving in 12 months. you know what investors are saying? good riddance. stocks are up. how about the markets? that is the question after the ceo said this. >> we sent out 22, head trader alerts to the community.