>>> MARKETS SELLING OFF BADLY
AGAIN TODAY.
STUART VARNEY SPEAKING TO
SECRETARY OF THE TREASURY STEVE
MNUCHIN, WHO HAD A LITTLE BLAME
ON WHY THE MARKETS ARE GOING
DOWN.
LET'S GO TO IT.
>> DO YOU THINK THE MARKET
REACTION WAS OVERBLOWN TO
WHAT -- TO THE FED'S MOVE
YESTERDAY?
>> I THINK THE MARKET REACTION
IS COMPLETELY OVERBLOWN, AND YOU
KNOW, IF YOU LOOK AT THE U.S.
GROWTH VERSUS EUROPE, VERSUS THE
REST OF THE WORLD, THE U.S. IS
STILL GOING TO GROW
SIGNIFICANTLY HIGHER.
YOU LOOK AT A SLOWDOWN IN CHINA
AND THE EMERGING MARKETS, SO WE
CONTINUE TO SEE, WHEN I SPEAK TO
BUSINESSES, I STILL SEE A
TREMENDOUS INVESTMENT DOLLARS
COMING INTO THE U.S., PEOPLE
INVESTING IN THE U.S., AND I
ALSO THINK YOU'RE GOING TO SEE A
BUNCH OF REBALANCING.
THE BOND MARKETS HAVE RALLIED
SIGNIFICANTLY.
YOU LOOK AT WHERE THE TEN-YEAR
IS, I THINK YOU'RE GOING TO SEE
REBALANCING OUT OF BONDS INTO
EQUITIES AT THESE LEVELS.
STUART: I HAVE A THEORY THAT
PART OF THIS VOLATILITY IS THE
RESULT OF ALL THIS COMPUTER
TRADING, ALGORITHMS.
ARE YOU WITH ME ON THIS?
>> I AM COMPLETELY.
I THINK THAT WITH THE ADVENT OF
COMPUTERIZED TRADING WHICH HAS
SUCH A BIG PART OF THE MARKET
NOW, COMBINED WITH THE VOELKER
RULE WHERE YOU CAN'T HAVE MARKET
MAKERS COMMIT CAPITAL, YOU JUST
HAVE MUCH BIGGER MOVES IN BOTH
DIRECTIONS.
I THINK CLEARLY, YOU HAVE A
SITUATION HERE WHERE THE MARKET
IS OVERREACTED TO THE FED'S
COMMENTS AND YOU SEE PROGRAM
TRADING TAKING OVER.
>> SO MICHAEL, EVERYTHING'S
GREAT, THE MARKET'S FINE, THE
ECONOMY'S STRONG, AND IT'S ALL
THE PROGRAM'S FAULT.
WHAT'S YOUR TAKE ON THAT?
>> WHERE DO I BEGIN?
LET ME BEGIN BY SAYING THIS.
I'M NOT GOING TO SIT HERE AND
POINT FINGERS AT HIGH FREQUENCY
TRADING OR ALGOS BUT I WILL SAY
SECRETARY MNUCHIN SAID SOMETHING
INTERESTING A FEW DAYS BEFORE
THAT, WHERE HE SAID SOMETHING TO
THE EFFECT OF THIS IS ALL ABOUT
MARKET STRUCTURE, AND IN 2019 WE
NEED TO ADDRESS THIS.
FACT OF THE MATTER IS MARKETS
HAVE BECOME MORE VOLATILE, MORE
WHIPPY, I SAID TO MY CLIENTS WE
LIVE IN A WHIPPY AGE WHERE THERE
IS JUST A LOT MORE MOVEMENT.
LOOK, THAT GOES IN BOTH
DIRECTIONS.
WE SEE IT IN THE WAY UP WITH THE
FANG STOCKS AND HOW THEY ACT.
WE SEE IT IN THE NASDAQ STOCKS
AND IN THE CANNABIS STOCKS.
TESLA, WE SEE VOLATILITY IN THAT
NAME.
FACT OF THE MATTER IS THIS.
LOOK, MNUCHIN'S OLD FIRM,
GOLDMAN SACHS, WHEN I WAS A
HEDGE TRADER AT A HEDGE FUND, I
COULD CALL THE GUYS AT GOLDMAN
SACHS AND SAY I GOT A MILLION
PFIZER FOR SALE.
THEY WOULD BUY IT ON THE WIRE.
NOW YOU GET A 25-YEAR-OLD KID AT
A PLACE AND THEY PUT IN THE
ALGORITHM AND IT GETS CHOPPED UP
AND MARKET INFORMATION AND
DISCOVERY DOESN'T EXIST ANYMORE
AND THINGS FLY AROUND.
AS SOMEONE WHO USED TO TRADE
CUSTOM ORDERS, I BABYSAT 50,000
SHARES OF SUPPOSEDLY LIQUID
STOCK SO HE'S ON TO SOMETHING
SAYING MARKET STRUCTURE.
THAT'S NOT THE WHOLE ANSWER
HERE, THOUGH.
THAT'S PART OF IT.
LAUREN: I LOVE THE FACT THAT
HE'S BLAMING THE MILLENIALS.
IT'S THE 25-YEAR-OLD'S PROBLEM.
EVERYTHING IS ABOUT THE
MILLENIALS.
THE HIGH FREQUENCY TRADING
OBVIOUSLY AFFECTS INTRADAY MOVES
BUT OVER LONGER PERIODS OF TIME,
THAT SHOULD ALL PLAY OUT.
I THINK THERE'S A BIGGER ISSUE
HERE IN TERMS OF THE FED
DEPENDENCY AND THE FACT THAT THE
MARKET IS SO CRAZY OVER THE FACT
THAT WE HAVE RAISED RATES
ANOTHER 25 BASIS POINTS.
WE STARTED THIS EXERCISE IN
2007, RATES WERE AT 5.25%.
WE ARE NOWHERE NEAR THIS.
IF THEY HAD COME OUT AND SAID
WE'RE TAKING A PAUSE, IT WOULD
HAVE SENT A SIGNAL SAYING THEY
DIDN'T HAVE CONFIDENCE IN THE
STRENGTH OF THE ECONOMY SO IT
WAS REALLY A NO-WIN SITUATION.
I THINK THAT THE MARKETS SHOULD
HAVE PRICED IN THE FACT THEY
WERE GOING TO DO IT.
MAYBE WE GET SOME PAUSES COMING
INTO NEXT YEAR, BUT WE WANT A
FED THAT IS INDEPENDENT, WE WANT
ONE THAT IS DATA DEPENDENT AND
THE FACT THEY HAVE CONFIDENCE IN
THE ECONOMY SHOULD BE A GOOD
THING.
LAUREN: WHATEVER JAY POWELL DID,
THEY WERE BETWEEN A ROCK AND A
HARD PLACE.
THE MARKET PROBABLY WOULD HAVE
SOLD OFF ANYWAY.
WE HAVE QUANTITATIVE TIGHTENING
GOING ON, WE HAVE INTEREST RATES
GOING UP, ARGUABLY, WE DON'T
KNOW HOW MUCH.
TRYING TO FIND THAT NEUTRAL
RATE.
ON TOP OF ALL OF THIS, WE HAVE A
TRADE DISPUTE ARGUABLY TRADE WAR
WITH CHINA, AND NOW COMPANIES
ARE TRYING TO EXIST IN BOTH.
ALSO QUESTIONING HOW LONG CAN A
BULL MARKET RUN.
I REMEMBER WHEN THE WORD WAS
SYNCHRONIZED GLOBAL GROWTH IN
THE BEGINNING OF THE YEAR.
THEN IT WAS NO, NO, JUST THE
U.S. IS THE PLACE TO BE.
NOW IT'S LIKE SYNCHRONIZED
GLOBAL SLOWDOWN.
IT'S EVERYBODY'S FEELING THIS
PAIN.
>> HERE'S WHAT I'M WORRIED
ABOUT, VERY SIMPLY.
YOU HAVE OIL CRASHING, THE
TEN-YEAR YIELD COMING DOWN,
EVERYTHING AT NEW YEARLY LOWS,
AND POWELL AND MNUCHIN ARGUABLY
THE TWO MOST IMPORTANT MONEY MEN
IN THE WORLD, ARE NOT LISTENING
TO WHAT THE MARKET'S SAYING AND
HAVE THIS NONCHALANT
DEVIL-MAY-CARE ATTITUDE THAT
EVERYTHING IS GOING TO BE FINE
WHILE THE MARKET HAS A BULL HORN
YELLING AND SCREAMING AT THEM.
I THINK THAT'S PART OF WHAT'S
GOING ON WITH THE MARKETS ON
THIS LATEST --
>> I THINK GARY'S GOT THAT
RIGHT.
I DON'T THINK MR. MNUCHIN DID
HIMSELF ANY FAVORS THIS MORNING.
IF YOU'RE GOING TO BLAME
COMPUTERIZED TRADING WHEN IT
GOES DOWN, YOU GOT TO GIVE THEM
CREDIT WHEN IT GOES UP, RIGHT?
I DIDN'T HEAR HIM DOING THAT.
LOOK, THERE'S A LOT OF THINGS
GOING ON, MAKING THE MARKETS,
MAKING INVESTORS INCREDIBLY
CRANKY.
HERE'S THE GOOD NEWS.
NOBODY'S PAYING ATTENTION TO IT.
THERE IS NO BIDDING GOING ON IN
THE MARKET.
LAUREN: THERE'S NO REWARD.
THERE'S NO REWARD TO OWN IT.
>> WHY THAT'S GOOD NEWS, COME
THE FIRST OF THE YEAR, YOU COULD
SEE THE BIDDING KICKING IN
AGAIN.
LAUREN: THAT'S A GOOD POINT.
>> WHAT IS THIS REALLY ABOUT?
WE HAVE SLOWING GROWTH AND EVEN
THE U.S. IS SHOWING SLOWER DATA
HERE.
EUROPE AND EMERGING MARKETS HAVE
BEEN IN THE MUD ALL YEAR,
FRANKLY.
THEY JUST HAVEN'T BEEN BUYABLE.
THE U.S., NOW THE DATA IS
STARTING TO SLOW DOWN AND
MARKETS SLOWING DOWN HAS AN
EFFECT.
IT WILL BE AFFECTING THE DATA.
ON THE 31st AND THEN RIGHT AFTER
THE NEW YEAR, WE WILL GET THAT
CHICAGO PMI AND MANUFACTURING.
YOU THINK PURCHASING MANAGERS
ARE IN A GOOD MOOD WHEN THEIR
401(k)s ARE GOING SOUTH?
LAUREN: YOU ARE SUPPOSED TO BE
IN A GOOD MOOD NOW.
SANTA CLAUS RALLY.
CHRISTMAS, COME ON.
>> IT'S NOT ONE OF THOSE YEARS.
>> MY POINT IS THIS.
THERE'S A LOT OF PAIN OUT THERE
RIGHT NOW.
PAIN BEGETS PAIN.
WHEN YOU HAVE A DAY WHERE THE
STOCK MARKET'S UP BUT OIL IS
DOWN 7%, DON'T TELL ME FUND