tv Cavuto Coast to Coast FOX Business October 18, 2018 12:00pm-2:00pm EDT
business day. now the dow is down over 300 points. we have the treasury secretary steve mnuchin stepping away from that davos in the desert conference coming up next week. and we have the caravan as a major news story as well. plus, developments in saudi arabia. neil, it is yours. you have a full news plate. neil: you're not kidding, buddy, thank you very, very much, stuart. we're covering fallout as steve mnuchin will not be attending that summit in saudi arabia. obviously something came up at the white house, it was thought, you know, secretary? good to hold off on the flight plans. that he did. what was once a who's who cast of investment characters, defense industry characters, politicians, global thinkers, so-called davos in the desert as stuart was saying are not attending this event. i want to show you an interesting inflection point. it turned what was a gain for defense stocks for reversal on fear here they could lose some of the big contracts many
already had in place with the saudis or the saudis could respond tit-for-tat if we get rough with them over this. i want to show you the greenpoint on left part of that chart, shows a point we're down already a lot, about 190, 200 points on the dow, word of this broke that the secretary was not going to be attending this conference, it cascaded further south. that could unwind by day's end. we still have another four hour to go. this is very big catalyst, it was thought bygones would be bygones, whether it was the right thing to do, the wrong thing to do, the markets like this relationship, they don't like anything imperilling it. you will jump, they're in human, all that. many are, fact of the matter is, this is a business deal and financial relationship that is probably second only to the u.s. and china. by the way that has kicked china off the frond pages here, all attention now focused on saudi arabia and whether we continue doing business with one another. whether the saudis do business
with others. whether it leads to continued friction. even if they get what they want, that is, many have called for the crown prince, mohammed bin salman, to resign or be forced out by his father, king salman, over the death or apparent death of jamal khashoggi. we don't know. sometimes in the royal family they can put you aside but will that be good enough for a royal kingdom will simply like a pez dispenser come up with another prince? we don't know. but we know it has clear market impact. we have market watcher phil flynn. phil, what are you seeing? >> neil, this is a shake-up in the world oil order right now. markets are reacting quite dramatically. oil prices were under pressure because of a big build in supplies but under the assumption saudi arabia would raise production to try to offset losses from the upcoming iranian sanctions. there was a rumor because
president trump seemed to be talking about rogue killers, maybe the saudi hierarchy didn't really know about what was going on with mr. khashoggi, seemed to suggest maybe they would sweep this under the rug and saudis would pump more oil to try to keep president trump happy. now with the steve mnuchin comment that he is not going to the saudi economic conference, that really changes the outlook right now. it increases the odds we'll see some kind of tougher sanctions perhaps against saudi arabia in how they react on oil production, it can have a major impact. we saw oil prices start to come back a little bit anyway, but they continued to rally after that news broke. we saw bigger moves, actually, if you look at the gold market for example, gold was down before the steve mnuchin comments t turned around. it put on a big rally. you had yields basically rising here in the u.s. they actually pulled back a little bit, as we saw a bit of flight to quality
or nervousness buying in the bonds until we see how this all plays out. once saudi arabia does, when it comes to oil production, it has been one of the most important relationships the u.s. has had within the opec cartel. now we're probably at the most stressed time we've been since september 11th, september 11th attack, and it could have major impact where oil prices go over the next few months. neil: is it your sense though that the fundamentals for oil, they were built on, you know, improving global demand particularly american demand but offset by the fact we're boosting production ourselves. we're a leading player in the oil community with what we've done with fracking and the rest and that could mitigate the damage. that was before any of this, but how does that play out? >> i think, basically, that the u.s., thank goodness, neil, that we're a major producer, or the world would be in a lot of trouble right now, the global
economy. because the u.s. has been able to raise product to record levels, they will be probably biggest producer in the world in the future. they kept prices from spinning out of control allowing the economy to continue to grow but i still believe in the increase in u.s. production, even if things calm down in saudi arabia, i think that underinvestment left the market vulnerable to upward price spikes. that is why we do not need this type of uncertainty in the market. easy to bring on oil in the marketplace it isn't there right now. with if we lose oil from saudi arabia or another source, it could really do some damage to the economy because of the major price spike in oil. this is very dangerous situation. not the end of the world yet. but if something else, some other shoe drops, it could be a big problem. neil: my friend, thank you very, very much. show you the vix, volatility index. i don't put a lot of stock in this, folks it is like a geiger
counter, it could swing wildly in seconds. after we to the the mnuchin development he would not attend this conference that added to uncertainty. vix goes up with uncertainty and people start to panic and quickly goes down. it's a snapshot, once snapped it is shot and it is done. i share that because it shot up. secretary of state mike pompeo is saying saudi arabia whatever problems we have is still a very strategic ally. take a look. >> i told president trump this morning that we ought to give them a few more days to complete that so that we too have a complete understanding of the facts surrounding at which point we make decisions how or if the united states should respond to the incidents surrounding mr. khashoggi. i think it is important for all of us to remember too along, since 1932, a long strategic relationship with the kingdom of saudi arabia that continue to be important counter terrorism partner, they have custody of
the two holy sites. they're an important, strategic alliance of the united states. neil: all right. it is pretty clear the administration is going to do something. the question is what? we've already seen this cancellation of the trip by the treasury secretary to attend this financial conference. he joins a long list of players, who's who from dutch and french and other european officials who are opting out of this conference and will not participate. who's who as well of corporate america. 26 companies, virtually every major financial firm in the united states not participating. every major european financial firm, not participating. so, obviously that is the first step here. now what follows after that and whether it would be good enough if they demanding crown prince mohammed bin salman step down, whether that is good enough. if you're implicating that might not be good enough for a lot of folks. a lot of people keep your
kingdom and riches you're not running it, hardly seems like punishment. how far does it go? former undersecretary deputy of defense, jerry boykin, hudson institute senior fellow rebecca heinrichs. general, to you first, is it your sense by canceling the treasury secretary's trip, the administration sending a signal they have got something on the saudis? >> well, i think they do have something on the saudis. i don't think there is any question about that. i think canceling secretary mnuchin's trip there was something they had to do. i think optics, particularly the diplomatic and political optics of allowing him to go while we're still in this period of unknowing in terms of what actually happened to khashoggi i think they had no choice but to cancel his trip there. neil: rebecca, the big question, what is next? a lot of people drawing ties to
the crown prince, his contempt for jamal khashoggi, this journalist, who might have been killed after an interrogation gone bad. apparently those are some of the reports. there are other reports video and audio to prove that, only those coming from the turks. no one else confirmed this. maybe, maybe the secretary of state has gotten information that verifies that, what do you think? >> well, first of all i hope that reason will prevail over emotion here. this isn't a critically important strategic relationship between the united states and saudi arabia. as you just said, neil, all of the information, literally all of the information coming out on this story is coming from anonymous turkish sources. neil: that worries me, rebecca. i have no horse in this fight but, it did you bother me almost every journalist quoting, detailing this quoting turk officials who have their own beefs with the kingdom. so what are we to make of that? >> well they do and the turkish
government it lies, it fabricates, exaggerates, a lot of details coming out gruesome to stir up emotion, basically drive what i think what it looks like an american response that would be really tough on the kingdom of saudi arabia. what is concerning to me so many mainstream american media sources because this was a man who was writing a column for "the washington post," there is a lot of emotion wrapped up in this, they see a lot of, you know, sympathy understandably towards khashoggi and so they're running this and running a lot of information that is coming straight from turkey that is not corroborated, not substantiated. we need to take a step back, this is feud between kingdom of saudi arabia and turkey. we need to have more hard-hitting facts to understand what actually happened before the united states can come up with a prudent, careful response that does not derail our alliance with the saudis because we need that, for peace and stability in the region. neil: you know, that is a very good point, rebecca, and
general, i'm old enough, i'm ashamed to say, you are as well, toppling of abandoned the shah of iran, abuses, he was hardly a father hannah, yet we got something worse afterwards. i'm wondering how we juggle that? you know, this is not exactly a cub scout group of people running this country but i'm talking about saudi arabia, you know, the devil you know might be better than the devil you don't, what do you think? >> it has been that way for as long as we had diplomatic relations with saudi arabia. remember, this is the home of wahhabi islam. this is also the place from which i think it was at least 19 of the hijackers of 9/11 all came out of saudi arabia. neil: right. >> so we know have known we had, we had an unreliable and untrustworthy ally in saudi arabia for deck decades,
is, we have done a lot of business with saudi arabia, particularly in the military industry. saudi arabia has been a strategic ally and let me point out that, it is important that we maintain a relationship with saudi arabia particularly with regards to its strategic implications relative to israel. and if israel was to, as some point, have to conduct a preemptive strike on the iranian nuclear program, saudi arabia would be a key staging base for that kind of operation, whether it is, whether it is the israelis or the americans, saudi arabia strategically located and they are going to be very key come 5 november, when we see the next round of sanctions against the iranians, if the saudis decide they're not going to increase oil production, that is going to make it very difficult for those sanctions to be implemented. neil: i think the general is right on all of those counts,
rebecca, and i wonder if the saudis know it? they have always taken some kind of advantage, some would say they flaunted this advantage with us, a little less so from the '70s in the oil crisis we were so dependent on them, dramatically so now, they flaunt this, shove it back in our face, we can always go to china, we can always go to russia, is that a legitimate threat? how do we respond to that? >> i always thought the united states can do a better job pressure saudis privately, internally to get reforms in saudi arabia but saudis do need us and we need them. could stunter iran's maligned influence in the region. if iran weaponizes its oil production and its sanctions of course, stops oil exporting ability, saudi provides that counter. they do help us with counterterrorism operations and they are normalizing relations with israel. so as bad as saudi arabia is
internally, mbs, this prince, i don't have rose-colored glasses, i don't think he is some fantastic thomas jefferson reformer but he is making some progress. he is somebody i think we need to give a little more time with, cut him some slack here, at the same time on punishing him privately internally when something like this happens. one more thing, neil, the media is whitewashing khashoggi how he wrote for "the washington post" this was not impartial reporter either. he was an islamist sympathizer. he wrote promoting the muslim brotherhood. he had a relationship with usama bin laden years ago. he was upset when the united states killed him. this is also somebody that i think does not excuse his terrible murder from what we've been hearing about it but it does paint a very different picture about internal dynamics in the arab world between turkey, saudi arabia and also some of these other sectarian differences. neil: we forget a lot of earlier columns of khashoggi. he went on to go and criticize a lot of muslim extremism and the
rest, but you're right, you have to look at totality of his work. obviously his end appears to be his end, it was horrific. but general, is it your sense, let's say we push to get rid of the crown prince or we tell the king, look, this son is not working out. i think you have 12 more. the kingdom hassle has zillions of cousins. what do they do, even pushing him asaid doesn't mean he is still there, or the family harbors these views, that doesn't go away, right? >> no, it doesn't. neil, first of all what i think we do know thus far certainly points the finger back at mbs or prince mohammed as he is referred to. neil: right. >> i think it points the finger at him i don't think this could have happened -- personally i think this guy was targeted for rendition. they were going to bring him back to saudi arabia and things
went bad there, but again, as your other guests says, all we know right now is coming from the turks. that said, i think the crown prince is really damaged goods at this point. they're going to have to make a tough decision with regards to him. that may be to, to let him step down for interim period of time. then ultimately through over a gradual process bring him back into position there you about, i don't think this could have happened without his concurrence and probably his support. neil: yeah. something at the very least went terribly awry or wrong. guys, i want to thank you both, very, very much meantime we're speaking, still in and out of our session lows, the dow down about 361 points. as we take a peek, dow down and stocks are a penny or two going down as well. oil gyrated on this. gold barely gyrated on this what is interesting, interest rates moving down on this.
people always seek out a flight to safety or haven, whatever you want to call it and that has temporarily helped the bond market stablize in what had been an uptick in oil on fears of a slowdown going on and maybe a brief supply glut is actually helping the situation for those who want cheaper gas. a lot of wacky developments going on here concurrently. all of this in response to the treasury secretary adding his name, albeit late, to the list of financial officials from the world over, saying you know that party? we're not going to it, after this.
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neil: all right, this saudi conference looks to be all but off right now. it is one thing when you're planning a party or an event, even a wedding. you're counting on some guests you really wanted there. saudis wanted us there, our financial titans and bankers and hedge fund guys there, one by one they were canceling out. one saving grace the secretary of the united states was not opting out, not doing what the french were doing or british were doing or dutch were doing or belgians were doing. everyone of respected ministers, foreign ministers, finance
ministers were opting out. we were staying in at least officially. that ended an hour ago we got word from steve mnuchin's office, apparently at the behest of the president it wasn't happening. stocks quickly cascaded south. it picked up steam when we got news of that. we're in and out of a 300 point downdraft. bush 43 council of economic advisors ed lazear. ed, very good to have you. is this a justified response, ed? what do you think? >> well it is always difficult to talk about what, whether the market is rational or not. let me give you some numbers that will-right, that make some sense what is happening. when i was in the government, we would score, figure out youhowout how much much a change in oil price would be on the economy and figure out how much a change of the output on oil would be on oil prices. those are linked in and important. here are back of the envelope
numbers that we always used. one is that for every $10 increase in the price of a barrel of oil, what you get is, about a quarter of a percentage point reduction in gdp. then the question, how do you get that $10 increase? that is about two million barrels a day. so you know, this is, this is in the range, if we think about what might happen, this is not crazy stuff. it is something that is at least rational as the market seeing it right now. whether these things will happen, of course, depends on outcomes, on likelihood, i listen to your last segment, all of those point are completely relevant. it depend how we react, what we learn, what we decide to do, what they decide to do. and so forth. but, if there were a reduction in the supply of oil to the world, the kinds of numbers that we're seeing are not out of line. neil: you know, it is interesting, because, china, i'm thinking is looking at this,
saying well, we're at least not in the news. no one is talking about us, right? >> yeah. and, of course, the china situation is a little bit different. the china situation is a longer-run situation. i think the way the president viewed canada and mexico was actually quite different from the way he viewed china. the canada, mexico thing, if you look at their economies, see what is going on there, they are so heavily dependent on the united states as proportion of their gdp for mexico. it is 30% of their gdp is exports to the united states and canada 20% of their gdp, we really had them over a barrel, in terms of our ability to negotiate with them. with china, it is quite different. for china, although we're important trading partner, it is still less than 5% of their gdp. i think the way is the president is thinking about this, while his tactics might have been been a bargaining ploy with respect
to canada and mexico that, is not the case so much with china. with china he thinks as a long-run strategy. we know he has protectionist instinct in him. not something i particularly agree with. part of his blood, he is preaching this a very long time. my guess this is part of a long-run strategy. neil: quickly your thoughts, a little bit of history here, i am old enough to remember what it was like the shah of iran fell, he was not a warm and fuzzy guy. >> right. neil: there were revolts within the kingdom. then we just abandoned the guy. we know who came after him. i'm wondering, you know, be careful what you wish for. you just might get it. what do you think? >> well, i mean that's obviously true. and, our relationship with all of the middle eastern countries has always been complicated. even with our allies, most important ally of course is israel. even that relationship was
complicated, if you think about the israeli-u.s. relations during the obama term. certainly wasn't exactly rosy. so it is always a difficult situation. this was, not part of my portfolio when i was in the bush administration but obviously there was a lot of stuff going on, i certainly remember the difficulties that president bush had and all of us had in terms of figuring out ways to deal with it, and in the way that would be most effective for the united states and also for the rest of the world community. so it's always a very tough situation and it is going to be tough over the next few months as well. neil: to put it mildly. ed, thank you for always taking the time. >> thank thank you, neil. appreciate it. neil: we're quickly following developments off the lows of the day. these are volatile conditions. i think there will be a battle between the political developments, so-called black swan developments and fundamentals of this market which are earnings and all the
other stuff remain very, very strong, likes of philip morris topping estimates. a host of others doing the same. airlines cashing in on all the companies seeing a big boost in business travel. paying top dollar for it. demand in department stores is apparently higher than thought. consumer sentiment, earnings, as i say 84% of the s&p 500 companies reported thus far handily beaten estimates. so that is the backdrop for all of this. the question which wins out, the fundamentals, overall economy which is sound or these latest scares? and they're legitimate scares that this could get wildly out of control. it will be a battle royale for the next 3 1/2 hours. let's keep watching it. more after this. but allstate agents know that's where the similarity stops. if you're on park street in reno, nevada, the high winds of the washoe zephyr could damage your siding.
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>> i'm susan li on the floor of the new york stock exchange. we still have declines across the board. dow jones industrials lower by 300 points, still off session lows but still drops though. s&p 500 falling a quarter of 1%. tech-heavy nasdaq seeing losses as well. the drag has been about technology today. take a look at facebook. we're down 2 1/2%. apple is lower. amazon losing about $42 each on shares. netflix declining after a stellar beat that we saw this week. alphabet, google, microsoft seeing losses as well. we did i secession lows after steve mnuchin, the treasury secretary, confirmed he is not attending the saudi arabian investment forum. we had selling and selling going into the announcement as well. this is low volume trading. that means moves can be exaggerated. look at the defense name. we're tracking because they had a horrible weekend. declines continue especially as the saudi deal, arms deal,
$110 billion in focus after the news this week with the murdered "washington post," alleged murder of the alleged "washington post" columnist. on the flip side, there is a safety trade taking place. utilities taking a lot of rotation of money. that is not a good sign in terms of the confidence of investors in this market. neil, back to you. neil: last thing they wanted to hear. susan, great reporting, she is on the floor of the new york stock exchange. let's get the read on fallout from all of this, fbn deirdre bolton and federalist senior editor, mollie hemingway. deirdre, money always fined -- finds a place to bark but what happens after this saudi uncertainty? >> we started this morning, a huge selloff in china, shanghai was down, new four-year-olds. italian yields were up after ecb president said more or less, we're uncomfortable with the whole budgetary issue. neil: had to drag my people into
it. but you're right. >> investors are they going to pay their debts or not pay -- made everybody. that is asia. that is europe. neil: not now. >> not now. so i like to kind of quote this old saying, u.s. is always cleanest dirty shirt in the closet. today, with this extra pressure, from the saudi arabian event, seems like money is going into bonds. safer haven. two years and 10 years. yields are going up. at one point they touched june 2018 levels. neil: right. >> so i do think investors may look more for perceived safe havens n this case anyway, today it is treasurys. neil: after this mnuchin story, you're quite right the two year note rocketed up almost 2.91%. that represented highest since june 2008. yield came down, price went up. i'm looking at all this, molly, wonder whether this is ends up
as an issue 2 1/2 weeks from now. what do you think? >> i don't think this will be a issue. this is washington, d.c., focused story, because of the fact a a lot of people are interested in the story as a way to sort of rethink what we're doing in the middle east. there is obviously pressure to move away from saudi arabia. the trump administration thinks that saudi arabia is a good ally. we have a very strong arms deal with then. there are people who would rather we reposition more toward iran as the previous administration did. that is the subtext that explains were there is so much focus on track issue with journalist and political activist but i think it is more a d.c. focused story. neil: molly, that is a good way of characterizing it but you're right and if it hits gas prices and it hasn't and if it hits oil prices it hasn't to your point and if it does, we get saudis responding in kind all bets are off, right? >> one of the reasons we're
working with saudi arabia to make sure iran doesn't control the oil flow. if this is used as a way to renegotiate or reposition ourselves in the region it could have very serious short term and long-term effects and people would start to notice but i think we really need to move cautiously before we reorganize our entire diplomatic posture in the region which is full of frankly bad guys and people who have committed horrible human rights violations. neil: in this particular neighborhood it is the degree of bad guys, right? so, deirdre, a question comes up, you mentioned exposure, foreign market developments we slough off, we don't slough them off anymore, talking about our market, regardless what you think is happening with the saudis, that will be the new realitity, right? >> it is. we did this voter analysis poll at fox, i just have this quick list here. neil: sure. >> you would think the economy would be number one because, at least i thought that, i was wrong. i thought economy and taxes.
the number one most important issue to potential voters again, as of the past month is health care. neil: yeah. >> so i mean -- neil: that is not a winning one for republicans. >> not particularly, however, obviously we will see on november 6th. neil: no, you're right. >> as far as economy and taxes, that was number two and number six on list of six. neil: taxes bottom of that list? >> bottom. neil: molly, what can we globe from that? >> really interesting how much of a national election these midterms are shaping up to be. people are very passionate on both sides. partisans on the left and partisans on the right and they very much will vote for party they're associated with it. it is to look at independents why that is tricky. they might split their vote. they are conservative on one issue but liberal on another. they might like donald trump but want opposite opposite party controlling house. it will not be the blue tsunami
long predicted but democrats have solid chance to take the house, if not the senate. >> our polling data showing how close it is. neil: yeah. >> basically when we reached out to people we asked them which party are you voting with, none of the people changed their views from september to october. also 49% to 42%. there is very little sunlight between those two numbers. backing up what molly is saying, i feel like independents if they could show up, could cause a lot of surprises and upsets. neil: thank you guys, very, very much. 30 of those races, house races the gap is within five points, which is a statistical tie. so it could go either way. it is surprised by that closer than i thought. surprised by a comeback in the dow? it is still early. this is a comeback, some are saying if you just tuned in, wow, we're down 274. treasury secretary steve mnuchin sent his regrets to riyadh. saying i can't make this party. he is not only one.
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neil: all right. it was a big disappointment for the saudis when you're waiting for your rsvps, then you hear from the united states top economic representative will not be showing. obviously jarring to the saudis because they were hoping a top representative of the administration would be there, now not there. that sent stocks cascading for a while. we're well off the lows. still down a lot. charlie gasparino on the impact this is having. >> this will have an impact on wall street. even though all these major wall street ceos, jamie dimon, larry fink. >> jamie: of jpmorgan chase, larry fink, of blackstone after journalist khashoggi was murdered in the turkish embassy, saudi arabia turkish embassy. looks like saudi arabia operatives connected to current regime did it. they all said no, but they were all planning to send executives
there. today with mnuchin, steve mnuchin, the treasury secretary bowing out, what authorities are telling fox business, wall street is scrambling to determine to send anybody to this conference. neil: that is interesting point you just mentioned there. jpmorgan chase might not send jamie dimon but his lieutenants would? >> better example, goldman sachs. goldman sachs, ceo, was sending dina powell, back at goldman sachs. and both executives were going to go, up to salomon and, goldman is not commenting right now, whether they will send executives. we should point out citigroup thinking about -- it was kind of interesting how they were going to do this obviously goldman sachs, city group, all these firms have massive business ties to the saudi kingdom. they did not want to blow it up. they split the difference. no ceo's but we'll send lower
level people. citi and goldman, as of right now have made no change in their determination post-mnuchin whether to send lower levels executives to the conference. we might find out something later in the day. they're reviewing the matter possibly, definitely, from what we understand. point out fox business is also reviewing whether we will attend and cover the matter. that is still up for review. you know, we put calls into blackrock, morgan stanley, wells fargo, goldman, citi, bank of america. they will not say whether they were going to attend, they are going to attend this thing next week in light of mnuchin pulling its out. we understand they're all in meetings whether they go or not. if theyed that hair druthers what they would really hope for, this thing gets canceled somehow. we should point out that -- neil: it just might. >> blackstone run by steve schwarzman is not sending anybody. we got word they're not sending anybody. they're at least playing it
straight. neil: if the wagons are circling around the crown prince, say we succeed getting his father, king salman, son you have to step aside, some will not be satisfied, you can't take him out of the power mix and replace him like a prince out of a pez dispenser with -- >> why not? >> is that enough to satisfy demands the guy could be a murderer and plan adjournnallist's death? would that be enough? in other words would there still a taint on saudi arabia? >> i think there will be an investigation, all that, that is what they say. you trust that saudi arabia an investigation into themselves you really go there? neil: eating habits. >> do back to the things we were reporting last couple days. pompeo would come out with statement imminently. we said tuesday. neil: do we know whether we get video or audio? >> think what happened. he wanted to first come out with the saudis basically say here is
the evidence, to put some distance between the evidence and the royal family. if you notice what he did, he just came out today said we're going to, we're still looking at the matter. then at the same time, mnuchin came out and said he is not attending. whatever they found within those two days is not good for the current regime, for, mbs, mohammed bin salman. neil: so that all of a suddennen now, he is, he went back to the president, sidestepped, they have got something here? video or audio. that prompted mnuchin, they told mnuchin newspaper you're not going? >> i'm telling you, the way they wanted this to work out it would be a joint press conference where they can say, here's the daylight, royal family didn't do this rogue -- it hasn't happened. this will put a lot of pressure on mbs and royal family -- neil: i hate it when we call him mbs he is not a mercedes model. >> remember dominic
strauss-kahn, remember when he got exonerated. dsk i remember that. he called you nc. neil: thank you very much, cg, he is the best, really is the best. more implications on this. we're not losing sight of all the other foreign market developments. we told you about italy, the market cascading south. it doesn't have its act together. something concerns us, a caravan of folks coming to us here normally would be the lead story until the saudis somehow, took our attention away. more after this.
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neil: so many foreign market developments, so little time. the president threatening to close the southern border with u.s. and mexico if mexico doesn't stop the onslaught caravan heading to the border. former ice director is here. >> thanks for having me. neil: where is this going. we made the threat the caravan is coming. we don't know how many part of it, there were earlier caravans and we expected mexicans to do what they didn't do then. what do you think? >> the caravan is a pr stunt, publicity thing by folks in
central america. bigger issue, the numbers along the southern border of central americans coming reached record levels. last month 16,000. when you have that many, almost all claiming asylum, overwhelming the system. the president is saying how do i stop this? not many tools or easy disposal. neil: what do we do? last caravan from honduras, memory serves me right. bit by bit the numbers dwindle. i don't know what was finally the correct number, it arrived at various points, there is a process for this. there is processing for this. and it is quite a process, right? >> what they did last time, when the caravan showed up last type, the caravan would not cross the border illegally. they tried to go up to port entry and walk up to say i want asylum in the united states. i am fleeing gang violence. they froze the border, port and trickled people in slowly. over time it dissipated. a lot of team turned away and
lot frustrated. what he is trying to address not this caravan but the big flow of people. 16,000 families coming up from central america is a lot. we can't deal with it. when they claim asylum overwhelm manies us. they are trying to get mexico to stop them at the southern border. key part of the strategy. makes sense. i'm not sure it is worth shutting down all trade with mexico. i get what he is trying to do. he is trying to put pressure on mexicans. neil: trying to send a message to the incoming mexican president, i think takes office in december, right? >> yeah. neil: so he has to deal with the presented a administration and new administration. they're not going to be on the same page? >> no, it will be interesting. obrador is generally to the far left, right? neil: right. >> historically mexico, i spent a lot of time in mexico myself and secretary napolitano and secretary johnson to try to get mexico to do more. we have the same problem, large numbers of central americans. mexico's' southern border is ridiculously porous.
it is a big border and don't have the infrastructure we have on our border. the president is sending a message to incoming president this is critical issue for the united states. president obama's administration tried it. trump's administration tried it. it is harder to do than it sounds. neil: you're absolutely right about that. is this coordinated? in other words one thing to assemble a caravan, whatever you want to call it, just a lot of people making their way north and mexico lets them through but is it deliberate or is it coordinated? is that always comes up. it came up about a year ago. it is coming up now and who is coordinating? >> mexico is smart really cared they would stop the particular caravan. it is hard for mexico, when you have 16,000 people coming up from central america a month. they have a big border. candidly they don't care that. as long as central americans are not saying in mexico, they don't have the incentive to sop them. they know where they're coming, they're coming to the united states. it is a complicated issue.
candidly, when you look all the things we need from mexico i'm not sure this is the top priority. there are a lot of other issues we're working on. cooperation, frankly, against narcotraffickers for instance. mexico is it pretty good partner with us, combating drug cart tells at border, right immediate border. that takes priority over central american families fleeing violence in central america. neil: you're right. remember, they were the first country in the region with whom we negotitated a a pretty good trade deal. >> we'll see. neil: john, thank you very much. >> thanks, neil. neil: meantime we are still waiting for more fallout on this move on the part of the treasury secretary to opt out of that meeting in saudi arabia. the saudis don't like it, but increasingly their big party is a no-show for the world. now what? welcome to the place where people go to learn about
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neil: all right. down 290 points on the dow and this has been kind of the theme of the day. we get as low as 220 points, about 20 points more than we had. we get news the treasury secretary wasn't going to the saudi conference, now down 360 points when people start fearing that out and seeing the implications for defense stocks, oil and everything else. so we battle continuously. the backdrop for this is still a sound economy, still sound earnings. no doubt the administration will be pushing the latter to remind folks this issue notwithstanding, we are the market and economy that is
outstanding. blake burman at the white house with the very, very latest. hey, blake. reporter: president trump was waiting for this full debrief from secretary of state mike pompeo, who was in saudi arabia and turkey over the last two days. those two met inside the oval office earlier today for about 45 minutes or so. afterwards, the secretary of state came out and spoke with us and quite honestly, didn't reveal much. only to say at this point they still want to give the saudis a few more days to conduct that investigation and when he was asked, the secretary of state was, what they think of all the stories that are out there about what potentially happened inside the saudi consulate in istanbul, turkey on october 2nd, the secretary of state would not reveal what the u.s. believes at this point. watch here. >> there are lots of stories out there about what has happened. we are just going to allow the process to move forward. reporter: those two met in the oval office. afterwards, the secretary of state, steve mnuchin tweeted out that in consultation with the president and in consultation
with the secretary of state, they decided that he will not be headed to saudi arabia for that big investor conference. the secretary of state instead will be staying behind. we should note that fbn is a sponsor of that event and as of now, that participation is under review. neil: obviously mnuchin was being told we don't think it's a good idea for you to go, so we're wondering what information pompeo had or is sharing with the administration, sharing with the president directly. i believe yesterday or two days ago, he had not seen this purported turkish tape video or audio that purports to show the whole khashoggi thing going awry, or maybe he does. what happened? reporter: i wish i had the answer of what exactly was shared, because the reality is we just don't know. what we do know is the administration right now, the trump administration, is trying
to make a point of saying look, as we heard from the president, you shouldn't be guilty until proven innocent and then you heard the secretary of state say we needed to give them a few more days. so the trump administration feels at least at this point the best course of action is just to kind of sit back, let that investigation unfold, and let the saudis, maybe even the turks potentially together, reveal it all. we don't exactly know, neil, what the secretary of state learned, what he may or may not have shared with the president inside the oval office, but clearly, it was enough to give this administration pause not to send the treasury secretary over there to sit down with the saudis during this big investor conference. neil: i have heard this before, the sachludis are going to investigate themselves? is anybody coordinating that to make sure they are telling the truth? reporter: the president was asked yesterday why not send the fbi over there. he was very coy about it, by saying how do you know i
haven't. when pressed by the reporter well, would you tell us, he said why would i tell you. normally the administrations in the past would say yeah, the fbi is getting involved. the president yesterday would not say if that was the case. neil: yeah, that's right. blake, thank you very, very much. blake at the white house. let's go to retired u.s. navy captain, former deputy assistant to secretary mattis, amber smith, and payne capital management president ryan payne. ryan, we begin with you. your sense of obviously gyrating the markets, this whole thing. too much so, too overplayed? what do you think? >> yeah, i think it's a little overplayed, especially in context of the overall market. but i think you have to look at oil prices. that's really what matters. i think there's a strong desire for the u.s. to play say nice in the sandbox with saudi arabia, especially because we have sanctions next month going on iran. i think there's a real desire there to keep saudi arabia's
supply to the market to keep oil prices stabilized. i think that's what everyone is watching closely here. neil: amber, looking at this and how we play it, we can't pick and choose our friends in the region but apparently we are working on a plan, i'm told cro can't stay. whether you believe him or not, he's just damaged good so the king has to tell his son to step aside and replace limb with someone else. it's not as if the crown prince goes away, not as if he's going to go to jail or be punished. would that be good enough? >> well, there's lots of internal workings and turmoil with the saudi family right now, and i think that regardless of what happens, we have to remember that we cannot basically afford destabilization in the region right now. what we have with saudi arabia is the only counterbalance to iran. so technically, we need them to be that stabilizing force, that
friendly force -- neil: what if they're not that stabilizing? i understand the argument for that, but if they were to behave this way and all this stuff is true, they're not exactly, you know, scaling back. they're kind of flaunting it and actually being destabilizing influence, aren't they? >> i think saudi arabia has been beheading its own people, there's very few female rights inside saudi arabia. this is nothing new. the u.s./saudi alliance has survived the 9/11 attacks where the majority of the hijackers were saudi citizens. so what it comes down to is they are a friend in a region of the world where we have many enemies so we rely on them heavily for that counterweight, especially now when it comes to iran. they are the only power player that is really pushing back against the iranian aggression and the iranian influence that they are trying to gain more and
more traction, so without saudi definitely tips the scale in favor of iran. we just cannot afford that right now. neil: captain, what do you think of that, we might not be enamored with the kingdom and the sons and everyone else, even replacing this one if it comes to that or the king decides to do that, but they're the best we got. >> well, i go back to the very founding of the modern saudi state. they hooked up with the house of saud and essentially mobilized their version of islam to support the house of saud. up until recently, that bond many believed was unbreakable. then along comes mohammed bin salman. what's he do? he starts liberalizing saudi arabia to the point that he's made significant changes to the religious police, he's started talking to the head of the christian coptic church, the archbishop of canterbury and
other religious leaders. in fact, last month, the commissioner of the u.s. commission on international religious freedom visited, and mohammed bin salman was quoted as saying that he wants to have a saudi arabia that's open to all religions and to the world. this is a direct threat to that view. if you let me posture one thing. as a defense attorney, i'm not a lawyer, but what i would do is raise reasonable doubt. who had the motive to do something like this like kill this guy if, in fact, that's what happened and it looks like it did. not mohammad bin salman. why did you need 15 people to show up to whack one guy? you didn't. you needed a smaller group, but you needed people who were close to him to be in that entourage to make it look like that. that's all -- it sounds like a conspiracy theory. i think there are other ways of looking at this, because if the
u.s./saudi relationship is damaged because they get a very harsh, more islamist type guy to replace mbs, then the united states loses and china wins, because india just signed a deal with the iranians for oil. china could now move in with the pakistanis and get that deal with a replaced regime in saudi arabia. neil: you just looked at something far more eloquently than i did yesterday, saying much the same thing but leaving it at a colombo episode, it's not always the person you think. of course, no one else knew what i was talking about. everyone thinks it looks one way and it doesn't go. you know, ryan, if we're wrong on this and we tied it to the wrong guy who might have been set up, leaving aside the fact the turks don't have a lot of nice things to say about the royal kingdom or for that matter, saudi arabia, they are also not sharing this evidence that they've got, we are told,
with either u.s. or european allies, so there is that. but the bottom line for markets on this is that it's taken china off the front of the financial pages right now, and replaced saudi arabia. is that justified? is that an overreaction? >> yeah, i definitely think it's an overreaction because really when it comes to the global markets, i'm not quite sure, the only place it could really derail the overall market is if saudi arabia will start taking supply off the market. then you see higher oil prices for the entire globe. neil: that would hurt them as well, right? >> yeah, it could. it could possibly be damaging to them. i also think above and beyond that, i just don't think anybody wants that. i think for the most part we will see cooler heads prevail here and i think that's the bottom line. i think this is probably a little bit overblown in terms of where it's going to affect the markets. neil: amber, i know you're not a market person, blessedly you look to the analysts.
i'm wondering what would make these prices ease. what do we have to see, what would get the cooler heads prevailing? >> we need congress to make sure they keep their heads on straight, they don't create a frenzy before we have all of the facts. neil: that's impossible. >> we are already seeing exactly what has happened when congress does decide to act and they speak to the media about perceptions. so until we have all of the facts, everybody just needs to take a deep breath, calm down, including those who are speaking in the media, because we just don't have the facts yet. until we do, we just need to take a break and say we don't need to be making any rash decisions whatsoever. i think it was very important for the administration to recognize that secretary mnuchin for optics should not travel to saudi arabia, but at the moment, that should be it. we should all just take a pause
and calm down until we see where this is going to go. neil: could we still use the dramatic music we have been using on this show? is that possible? >> yes. neil: all right. guys, thank you all very, very much. they all raise a very good point. cooler heads must prevail. we ought to step back and whatever everyone is telling you, what everyone is telling you, maybe, maybe, maybe there's reason for caution. more after this. making my dreams a reality takes more than just investment advice. from insurance to savings to retirement, it takes someone with experience and knowledge who can help me build a complete plan. brian, my certified financial planner™ professional, is committed to working in my best interest. i call it my "comfortable future plan," and it's all possible with a cfp® professional.
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neil: you know, they call these black swan developments in the market. sometimes when you least expect it, something out of the blue comes, such as this saudi arabia situation and the fate of the american journalist, what happened to him, who was behind it. out of the blue it dictates where defense stocks are going, oil is going, bonds are going. they can be short-lived or can lead to bigger events. certainly we saw that back in 1979 with the fall of the shah of iran and of course, the arrival of khomeini. that was then, could it be now? let's go to ambassador stuart eisenstat who wrote the definitive book on the former president. he joins us now. thanks for taking the time. >> always a pleasure. thank you. neil: you know, without getting
into the details of what's going on, namely because i don't know them, you don't know them, i do wonder about just unexpected developments and of course, what happened over the years. you were in the white house, not that you had anything to do with it or for that matter, president carter but the idea when you least expect it, something comes out of the blue and invariably out of the middle east. what do you make of it? >> that's certainly true. in our case, as i mention in my book, it was the iran oil crisis that sparked the doubling of oil prices and added to already high inflation. and president carter took i think the right action and i think one that president trump should take. he's been, president trump, highly personally publicly critical of the fed and its chairman which i think is a mistake, because it can undermine the confidence of the markets. but what president carter said to us going into a re-election campaign in 1979 is i've tried everything, i inherited high
inflation from ford and nixon and it's gotten worse in part because of iran. therefore, i'm going to appoint paul voelker to head the fed and i will keep my hands off and let him do his job, even though voelker was very clear he was going to tighten the money supply, it would cause an increase in interest rates, unemployment, and not once during the re-election campaign when ronald reagan was blasting those high interest rates and pointing at president carter, did he in turn blame voelker. he let him do his job and in fact, inflation dropped like a rock and we have it low today. unfortunately, it didn't drop fast enough. neil: it didn't drop fast enough for re-election. when i had him on, jimmy carter, a few weeks ago, he was conceding that obviously didn't help his re-election prospects. i guess he and voelker got to be good friends. they went fly fishing i guess together and all that. >> they did, and he kept hands off. he let voelker do his job. that's a lesson i think for
president trump. we have a very strong economy and what i think chairman powell is doing is taking a page from the longest standing fed chairman, william chesney martin, who joked once he was like the chaperone at a party. his job was to take away the punch bowl just when the party was warming up. what the fed is trying to do now, particularly because of these external events, which could raise interest rates, is to take proactive steps now, small steps, but a signal to the market that he's not going to let inflation get out of control. neil: wouldn't that be a killer, though, if it gets to be a problem, not overdevelopment within the united states, but halfway around the world. >> quite the contrary. i think markets around the world depend on the fed's independence. neil: no, i know that. i'm just saying with the precipitant then as you accurately point out was iran
and oil prices going crazy and the federal reserve having to interfere the way it did, do you see something like that potentially happening now? >> it's potential but i don't think that will be the case. i think the global markets are strong. there is slower growth already in international markets. it would take an extraordinary circumstance to have anything like the doubling of oil prices in 12 months that we have. on the other hand, the fed has to be cognizant of that possibility and therefore, although they signal that there will be one more rate increase at the end of this year and three more in 2019, they have also said that they are going to look at external events to make sure that they are not overreacting. they want the goldilocks notion, raise interest rates enough so that it dampens inflationary expectations, but not so much that it depresses growth. and they will be looking at these external events. they're not going to blindly go
raising rates if some explosion occurs in markets, which i don't expect, but which could be possible. neil: you know what's interesting, too, we're in a different world, with the twin oil crises of the '70s, right, the ones that began under richard nixon, continued years later under your administration with jimmy carter. because we had so much more independence, energy-wise, right? >> you're absolutely right. over 50% of all of our oil use during the 1970s came from opec. one of the reasons president carter got three energy bills passed, deregulating the price of natural gas and crude oil to stimulate more domestic production, increase conservation measures, bringing solar on, was to reduce that dependence and indeed, we have, as you properly point out, much less dependence today on opec oil than we did then. that's a real plus for the united states. neil: looking at the economy now, do you see any threat of
like a hyperinflationary environment? lot of people said inflation will never be a problem again because we learned our lesson. i always find, ambassador, that history might not repeat itself but it does rhyme, when we get so arrogant to think it can't happen again. it can. what do you think? >> well, anything can happen, but i think we learned a very harsh lesson during the 1970s. you know, nixon got arthur byrnes as chairman of the fed then to overstimulate interest rates, and our first fed chairman, bill miller, also was too stimulative. carter learned that lesson. that's why he appointed voelker to tighten the money supply. ever since, every fed chairman, greenspan, bernanke, now powell, yellen, has recognized that the fed cannot let inflation run away. can something happen extraordinary, of course it can, but it's highly unlikely. the reason is also that the
markets expect the fed to put the brakes on early enough to stamp out inflationary expectations. i don't see those expectations right now. inflation is under good control and the fed wants to make sure that with the very strong economy that we have in part because of the trump tax cuts, that we don't end up with raising inflationary expectations with higher wages, so that's why they're taking these small steps, it's why president trump should let them do so without trying to blast them publicly as being wild and going out of control. it's important that he allow the independence of the fed because if he doesn't, neil, it sends a signal to the markets that the fed is just going to be subject to political pressures and that in turn will ironically raise inflationary expectations, the opposite of what president trump should want. neil: yeah. any move the fed makes, whether influence or not, is going to be seen through that prism. >> exactly. if they hold back, the markets
will say ah-ha, they are reacting to political pressures and that will raise expectations. on the other hand, if they continue to raise them, barring again something unforeseen in world markets, as they have signaled they will do three times next year, once by the end of the year, then they risk further ire by the president. so they are in a very dicey situation. i think they will navigate it well. i don't see inflationary expectations going out of control. if the president will let the fed do its job. neil: i would not hold my breath on that. but it's always good seeing you. thank you very, very much. >> neil, thank you. always a pleasure. neil: he really penned the definitive book on president carter. what i love about the book, it's not one of these that sort of glosses over controversy. he gets into the good and the bad. dare i say, a fair and balanced narrative. this is a fair and balanced read of what's going on at the corner of wall and broad. they are selling a lot. down 391 points.
neil: all right. we have 27 of the dow 30 stocks, save exxonmobil, kind of surprising with the lower energy prices, it's doing fine. verizon and chevron, chevron another energy component, doing well. 27 other issues are down here. we are definitely at session lows now, down about 407 1/2 points. liz harrington is joining us. do you think any of these market gyrations, that's what it's been over the last week, extreme moves, are going to weigh on the midterms in two and a half weeks? >> i don't think so, because i think the market right now is reacting to the uncertainty but the trump administration is proceeding with caution when it comes to this saudi arabia/turkey affair. i think they will act accordingly and the market will
stabilize. i don't think it's going to have a huge impact when there's so many other economic gains happening because of the trump administration policy that really started the economic boom we see going on. neil: another money story is this report the democrats have outraised republicans in these congressional races, i guess the total sum is north of $1 billion. republicans were up $715 million. it's always a moving target. it doesn't always translate into more votes. hillary clinton found that out in the last presidential election. i'm just wondering how you see that playing out. >> right. well, hillary outspent trump almost two to one and of course, that didn't work out very well for her. we are also seeing right now beto o'rourke in texas is breaking fund-raising records on his way to defeat, because a bunch of yard signs in connecticut doesn't exactly transfer into election victory
in texas. i think funding is a matter of looking at where the money is going and if it's being misdirected in races democrats aren't even going to win, that's a problem. it does show enthusiasm, however. but i think republicans are enthusiastic as well, too, largely in part because of the kavanaugh affair. the democrat gambit to try to derail that nomination backfired majorly. not only because kavanaugh is on the supreme court but because it awakened a republican base that is ready to vote in the midterms now that otherwise they wouldn't have been. neil: the latest political survey shows the overwhelming issue -- not overwhelming, but the most important issue for voters right now is health care, and that taxes was actually i think sixth on that list. i'm wondering if republicans were betting on all these other issues dominating the mood, and they still might, what did you think of that? could that be a problem, an issue, a worry for the grand old
party? >> right. that is the one issue that republicans didn't resolve and they didn't, you know, follow through on their campaign promises but it's funny because health care is becoming a bigger issue because no one's really worried about the economy because it's doing so well. nobody is worried about jobs. nobody is really worried about any of those usual top line issues. so health care is taking away and making that -- i think it's important in certain races that are highly focused on that, but i don't think it hurts republicans as much, because a lot of the problems we're seeing with health care is still what we're dealing with with obamacare's failures. neil: when mitch mcconnell comes out to say we got to address that again, you know, in the new congress, i guess he's talking about if they maintain their control of the senate, all bets off if republicans are not running the house, what did you make of that, that he just revisited an issue that could be a sore point for republicans. >> it could be, but again, republicans have won on this
issue and it's a reason why they got the majority in the house in the first place, is running on obamacare. i certainly do think it hurts them a little bit with their base by not fulfilling that promise, although they did repeal the individual mandate which was a big win for them. but i think this issue doesn't go away and i think republicans, if they do keep the senate, if they maintain control of the house which it remains to be seen, i think it's going to be close, but that is an issue that's not going to go away that they should resolve. neil: you talk about that, in 30 of these races in the house, the gap is in these key districts within five points. that's pretty close. it could flip either way. but what is your sense now of who has momentum? two and a half weeks is an he certainty but what do you think? >> again, to go back to the kavanaugh affair, it really energized republicans and i think it also has the effect of turning off independents and
rank and file democrats, the far left with the mob-like behavior, now we have gop operatives being assaulted in minnesota, nevada, that really angry far left, they are energized but i think they are also turning off the normal, everyday voter that's not going to be convinced to come out to the polls to vote just solely against trump, when everything else seemingly in the country, the economy, is going pretty well policy-wise. democrats should have a good opportunity for a wave here, but if there's no policy driving it other than antagonistic towards trump and in the meantime you have all these crazy far leftists acting like a mob that's turning off voters that they need to win to pick up more and more seats. i think it's going to be close but i think this kavanaugh thing really backfired for them. neil: liz, thank you very, very much. liz harrington. liz was speaking there, you could see we are in and out of
session lows. what i find interesting, a lot of the economic bellwether issues are those that sort of telegraph what's going to happen in the economy or vice versa. look at united rentals, some of the others that have been taking it on the chin, looking at double digit losses. caterpillar down a little north of 8% and the rest. you begin to think there's fear of contagion or if something spreads to them. i like to remind people these are short-lived events but in the moment right now, if you were to take a snapshot, one snap, that image is shot but the image shot right now is one of concern for the global economy. whether that's justified or not really depends on saudi arabia, by extension maybe what's going on in china, but the fear seems to be that these outside events are going to have an unexpected damaging effect on the global economy. oftentimes these guys are wrong. but that's the read right now. what do you look for when you trade? i want free access to research.
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neil: i want to pass along some comments that might, might explain some of the acceleration in selling right now. they might have to do with the white house economic adviser larry kudlow speaking. where is it, guys? in detroit? economic forum? he is apparently talking about china, saying that on trade, china has been uncooperative thus far, saying the healthy domestic economy will give the u.s. some leverage in these trade disputes but again, the signal there echoes what we got out of wilbur ross, the commerce secretary, who was saying yesterday there's nothing going on with talks right now with china, and that of course on any other day would be like a lead foreign policy issue worry, the chinese are not coming to the table, nor are we inching closer to them, but today, they are eclipsed about what's going on with saudi arabia and the fear
our relationship could sour quickly and growing global tit for tat that could affect everything from defense stocks and their pricing to oil and related issues and their pricing. n i know that drill. sort of greasing the selling skids is what's going on and apparently taking larry kudlow at his word in detroit, nothing is happening there. nothing promising. the read from jpmorgan chase chief economist anthony chen. good to have you back. what do you make of this? >> we have to remember, china is the second largest economy in the world so if that economy is under some pressure, obviously there's got to be concern around the rest of the world, including the united states. if you look at the shanghai equity market index comparing it to the s&p 500, as we speak, neil, they are underperforming the s&p 500 by about 28.3%. so clearly, there's a real differential there and a source of concern if that market differential were to get worse. neil: obviously the president
watching this very closely, he's very much aligned to these markets, if there are problems when it comes to the drop we had last week, he blamed it on the federal reserve, they are loco, they are going crazy, all of this. now the federal reserve will look at these potential inflationary developments with saudi arabia and bring that into its thinking and raise rates even more than we earlier thought. do you buy that? >> no, not really. because the federal reserve focuses on core personal consumption which excludes food and energy, so any upward pressure on oil prices is something that the fed generally tends to look through. by the way, neil, as you probably have seen after oil prices jumped quite high in recent days, because of increased supply, oil prices are actually going much, much lower. but the federal reserve has always been under some pressure, but generally, the federal reserve really focuses on the fundamentals and fundamentals
change and of course, they change the path of monetary policy, but right now, the concerns that i continue to hear is oh, the housing sector is slowing down, which it is, and the auto sector is slowing down. but you got to remember, the housing sector is 3.3% of real gdp and the auto sector is roughly about 3%. so what does that tell you? that tells you that over 90% of the economy is doing pretty well and that's one of the reasons we have one of the lowest unemployment rates we have seen in several generations. neil: you know, we are at session lows right now and you are quite right to say those two interest rate sensitive sectors are taking it on the chin. i believe auto stocks are well into bear market territory now. housing stocks are much the same conundrum. i'm wondering, do you see this spreading, that the market sells off, asks questions later, that what's going on in saudi arabia, what's happening with china, maybe it's the tough trade talk back and forth with china,
whatever it is, it's going to stick around awhile and is going to have an impact? >> neil, i have been in this business 34 years. generally, the equity markets sell-offs, real one, bear markets where the market drops more than 20%, that usually occurs only when you have a recession. over the next 12 months, i don't see the prospects of a recession. we know that historically from a technical perspective, the market when it hits a low and it bounces back, it usually doesn't keep going until it treefts those lows and that's what the market seems to be heading for. neil: but sometimes these outside events can lead to other events. i was raising that with president carter's former top domestic adviser, of course the iran hostage situation, we all remember that, although you might be too young. it led to other stuff. it led to hyperinflation, the federal reserve aggressively raising interest rates to counter that. one thing did lead to another. it's way too soon to say that here, but what do you think? >> i think you're right.
i think you are spot-on. it's way too soon. i actually believe we can get a recession in either late 2020 or 2021, for other reasons. but before that, if you get a major disruption, of course you can. once again, nothing wrong with carrying an umbrella if there's rain in the forecast. but that doesn't mean you should open up the umbrella if there's no rain and the sun is still shining. at some point it will rain. please be patient. a recession will come but it's not likely over the next 12 months and generally, the equity market doesn't start a protracted slowdown until about six months before a recession is going to start. so i think there's still some wiggle room for the equity market to continue to go up. corporate profits are doing well. you saw the first calendar quarter s&p 500 earnings, 25.9%. you saw the second quarter, 25.3%. even this quarter, you will probably see over 20% year over year. will it slow down this year, of course it will. these numbers aren't sustainable. but for the moment, i think the sky is not as cloudy as some
people might think, because remember, when the federal reserve is raising rates, what's the purpose? the purpose is to slow the economy. so if you see no cracks and nothing slowing down, then guess what that means? the federal reserve has to raise rates even more aggressively because the purpose is not to overheat and that's what's exactly happening. now, if the point comes where the medication seems to be having severe negative side effects, that is, increasing the risk of a recession, it would behoove the federal reserve to take note and adjust the path of monetary policy, but not at this juncture. neil: there are always tell-tale quotes that maybe stick with me, or statements that make you wonder, you know, if a top official is being this frank, imagine what he must really think. when larry kudlow is saying the chinese really aren't responding positively to anything we're doing, i'm paraphrasing there, it's got to be a whole lot worse than that. i'm wondering what that could
mean. if we're nowhere near a trade agreement with the chinese, or they are happy to wait this out, then what? >> well, we always know that it's always darkest before the dawn. that's part of the negotiation. things get really bad until they get better. we certainly saw the same thing during the negotiations of nafta and the canadian trade deal, the american, mexico and canadian trade deal. lot of people thought it's not going to happen, first they thought it would just happen with the u.s. and mexico, canada would stay out and at the last minute they pulled a rabbit out of a hat. my hope and expectation is although this may be a longer path, because it's a lot more complicated in these negotiations, that at some point, we will at least move closer. we saw at least a fig leaf, the u.s. did not name china as a currency manipulator. small fig leaf but certainly at least a sign that we are at least moving in the right direction in these negotiations. neil: do you worry, i think it's just a matter of time, i could
be cynical, the pre and blame somebody, not himself but probably the federal reserve or probably people nd this? could he make it bad? could he make it worse? >> i think at this point the economy is doing very, very well so i don't think there's any need to blame anyone. i think -- neil: i agree with you. but that's not what he does. >> but right now you have an economy that grew at more than 4% in the second quarter and we are probably going to see a number in the 3% plus range in the third quarter, so at this point, i don't see any reason to blame anyone, because the economy is doing just fine. wages are starting slowly but to pick up and we've got one of the lowest unemployment rates we have seen since the late 1960s. against that backdrop, neil, i don't really see any reason to blame anyone. neil: all right. might be best for him not to say anything at all. >> you said it. neil: okay. thank you, my friend. always good chatting. meantime, let's get the read on the markets right now which we
are in and out of session lows. the dow down 454 points. the national tax union executive vice president is with us and tax policy analyst, adam is it mitchell? sorry. michel. i apologize. what is your take on this, and whether the market's overreacting to all these developments, the added steam i guess to the larry kudlow comments on china that we're going nowhere fast. what do you make of that? >> i think you need to look at the fundamentals as your guest was just talking about. we have a strong economy, we have lowest unemployment rate in almost 50 years, we are seeing wages are starting to pick up again, businesses are adding more jobs to the economy, the longest running trend of that ever since we started measuring these things. i think the fundamentals are strong and we just need to continue with the pro-growth policies we have been seeing, lower taxes, lower regulation
and it will all work out. neil: you know, christine, i'm noticing all the market action today, looking at internals, you think about roughly 3% sell-off in the shanghai, sort of like their dow, if you will, that's down 26% over the last year, well into bear market territory, and a lot of people are saying what's different this time is that we're following it. do you buy that? if that's the case, do you worry about that? >> you know, i'm worried about a lot of the developments today. to your prior guest's comments about look at the fundamentals, sure, our economy is still very robust. i have reason to believe corporate earnings will be quite good this quarter and hopefully that will lift us out of some of this, although as you mentioned, the industrials haven't been doing that well, but we have only got about 10% of companies reporting at this point. we expect the numbers to get a bit better. what i'm noticing very early on is although we are expecting s&p 500 earnings growth of about 20%, that's slowing. first half of the year was very strong. we are starting to see numbers for the second half of the year and even 2019 to slow from that
rate, so i would expect you see a lot of this reflected in guidance, so far are we seeing not only tariff concerns, but the biggest concern right now is foreign currency exchange. lot of corporations worried about the stronger dollar and a lot of them actually issuing guidance that reflects that. neil: you know, brandon, there's an old lure bull markets don't die of old age but something else. i always wonder with everyone we see, whether the 2008 experience with the market meltdown, what was happening in the backdrop to '87 and the crash. is there anything you pay particular attention to or you worry about? >> well, i think the biggest concern out there for the market is our trade policy. certainly you have already touched on that, but the relationship that we have with china from an economic perspective. certainly we need to get some concessions out of them, particularly as it pertains to i.p., as it pertains to the forced joint venture requirements they impose on
foreign investors but at the end of the day we need to stabilize that relationship if we're going to have a growing economy continuing for years and years to come. the fundamentals are good. adam touched on some of the tax policy and deregulatory policy but that could all be undermined by some negative trade situations in china, being the biggest cause for concern, certainly. neil: all right, guys, i want to bring susan li into this at the new york stock exchange. this china stuff sort of added to the momentum, right, susan? susan: we had the china stock sell-off last night and the spike in italian yield so that is heading into the news of mnuchin canceling his trip, saudi arabia, tit's multi-facetd at this point. the mood at the floor of the new york stock exchange is relatively calm. there's not a lot of volume at play. this is a low volume sell-off which exaggerates a lot of these moves. lot of people are not putting on big trades, whether it's to sell or to buy at this point. there's a lot of volume trading algorithms kicking in, especially with levels that dip,
right, and we do have corrections when it comes to transports and as i mentioned before, the transport is a proxy to the u.s. economy and larry kudlow says that having a strong domestic economy is actually a good negotiating leverage against china. so that's something to closely watch. but i can tell you that it feels relatively calm. there's not a lot of fear and i guess people have gotten used to these large number sell-offs as we are playing with bigger numbers these days. neil: you are definitely right about that. we should hasten to add it was last week at this time we had the second day of big selling after the better than 800 point sell-off in the dow, we recouped a little bit by friday. these are volatile swings. adam, i want to come back to this notion that the underpinnings are fine, fundamentals are fine, that might win out. do you see anything jeopardizing that? >> i think there is policy uncertainty in a lot of places. you look at the upcoming election. if some of the rhetoric is true and we do start rolling back some of these tax cuts the
democrats have their way, that that could -- that is concerning for both american families and american businesses. we recently came out with a report showing that the average american family could be $46,000 poorer if the tcga were repealed and that ripples through the economy in any number of ways. i think we need to make it clear that the pro-growth policies are here to stay and businesses can count on them for the future. neil: it's interesting, christine, on the tax cuts and whether they are a good thing or galvanizing thing for voters, you know, this fox poll that's out today shows that when americans judge the issues that matter the most, health care was number one and taxes were dead last. were you surprised? >> you know, that is surprising to me. i think the intended consequence or goal of the tax cuts has not been fully realized. i'm not sure if we are going to see that it is. i mean, we have seen the numbers
in the deficit rising and i think the idea when tcga was implemented, it was you know what, we are going to give these companies tax cuts, they are going to then filter that through wages, bonuses, they are going to invest in r & d spending and that will get filtered back through the economy. we really haven't seen it to that big of a scale. sure, some companies have increased salaries for employees, given one-time bonuses. we thought consumers would go out and spend that. retail spending has been just sort of mild. but now we are actually seeing companies spend most of that money on stock buy-backs. stock buy-backs are up 50% first quarter of this year versus last year and business investing is up about 19% over that time so that's a welcomed increase, but it's just not keeping pace with where we're seeing share purchases and goldman is predicting those purchases reach $1 trillion by the end of the year. i don't see any reason to believe they are going to change that or propose any sort of big investment, you know, spending proposals and again, like i said
just early on from this earnings season, we are seeing a bit of caution in some companies sort of pumping the brakes. when that happens, they certainly tighten up and become a lot more conservative with spending. so i wouldn't expect to see that necessarily go to employees. that's a little bit worrisome for 2019. neil: all right, guys, thank you for all this breaking news. i appreciate your patience and insights. the dow down about 437 points right now. 28 of the 30 issues are down. interest rates, though, are stabilizing a little bit. oil is stabilizing, actually going down right now. so sometimes we will get swings in other markets. the money right now, though, is seeking out a safe haven and for the moment it is not stocks.
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neil: all right. charles payne promises you will make you money. man, oh, man, does he have pressure on now. hah, charles. charles: thank you, neil. this is "making money." the market under pressure rocked by growing geopolitical pressures. central bank president mario draghi issued a stern warning with the european rules, europe in midst of exiting eu, full defiance of the arrangement, this whole thing could unwind. imagine what that means to the global economy? shortly after that communique, came word that treasury secretary steve mnuchin will skip the saudi investment conference. now larry kudlow saying china is