Closing Bell - Closing Bell Overtime: Advice for the Fed, Betting on Silicon Valley, Energy M&A Outlook 4/10/23

Episode Date: April 10, 2023

Stocks finished mixed in an up-and-down session as Wall Street awaits inflation data later this week. G Squared’s Victoria Greene and Venu Krishna from Barclays square off in a bull-bear debate about the market’s next move. Mark Zandi from Moody’s shares his advice for the Fed following Friday’s jobs report. Meantime Pioneer Natural Resources jumped on a reports of talks with Exxon. Analyst Neal Dingmann discusses the probability of a deal and which other names could be in play. Plus the latest on Apple, chips, and how a plumber could save the box office.

Well, there you got your scorecard on Wall Street, but winners stay late. Welcome to Closing Belt Overtime. I am John Fort with Morgan Brennan, and earnings season kicks into high gear this week. We're going to get a taste of the action this hour when cannabis company Tilray reports results. Plus, we'll talk to Moody's chief economist, Mark Zandi, ahead of this week's key inflation data as Wall Street looks for clues about the Fed's next move. But now let's get straight to our market panel. Joining us now are Victoria Green from G Squared Private Wealth

and Venu Krishna from Barclays Investment Bank. Tempting to call this a bull-bear debate, but Victoria, you're just kind of like barely a bull, kind of a reluctant bull, a bull maybe for a few weeks. Why so reluctant? I think you've got to be ready to pull the ripcord on your bull thesis, you know, as we get more data with earnings. But look, this market has legs. I know everybody hates it. Everybody does hate a bull market rally off of those October lows, but that uptrend's not invalidated. Yes, the macro looks horrible. There is no question the bond market's pricing in

recession. Everybody's pricing in that we're going to hit a wall. But really you know we are a little bit no man's land I think we could maybe like up close to that forty two hundred before we do hit that wall. I do think everybody needs to be prepared to be a little tactical right

now. Data is coming fast and furious I do think the fed still goes twenty five basis points in May. But then there will be a pause I'm not sure we're going to get the cuts everybody wants but I do think there will be that that very well desireddesired pause here, John.

Well, 4,200 is not a lot of upside. Venu, you think that the earnings are going to be sobering. Why? I think the estimates are way too optimistic, John. So that is our principal concern. And I think as inflation moderates, our central thesis is that it's going to trigger negative operating leverage, which is nothing but saying that margins are going to be under pressure. bottom-up consensus numbers, incredibly they are pricing in not only roughly a mid-single-digit growth in sales versus the trend before COVID, but also a 9% increase in earnings. In other words, margins expanding. We just don't think that's going to happen. In fact, as inflation comes down,

companies are going to lose pricing power on the top line, but their cost base is going to be more sticky, as we've already seen, especially in the wage front. And that is going to cause margins to shrink. So I think that has to play out. And it hasn't happened as yet. Yeah. Venu, we also haven't gotten a lot of pre-announcements, which you typically tend to see, you know, ahead of the earnings season kicking off in earnest. I wonder whether you think that there's anything to be read from that. And if earnings need to come down versus what the expectations are right now, how does it speak to the mismatch in terms of fundamentals?

Yeah. So what I would say is that, you know, you saw earnings coming down roughly 10 percent in the second half of last year. But then this year they have stalled, right? And then that's a wait and see. I think part of that is just the macro uncertainty. Analysts are on a wait and see. They haven't gotten guidance yet. But we are a lot more confident about earnings coming down. In fact, our earnings estimate for S&P this year is 200, which is quite meaningfully below where the bottom of consensus right now is at 220. So I think it's just a matter of time before those earnings start coming down, and the market has to price it. In fact, the market's behavior has been that the multiples

have expanded very sharply. They went down to about 15.5 times in October of last year. But since then, earnings trend has been generally flat or down, but multiples have expanded three and a half points. But I think so there's a mismatch and there's a risk both on the multiples front and on earnings. And on the multiples, based on what we see today in terms of inflation, interest rates, and growth outlook, I think the fair value is closer to 15 times. So I think there's a lot of risk which is not adequately captured today. Okay. Victoria, what would you be buying right now? Well, first off, I want to talk a little bit about margins. You mentioned the multiples. We've already seen EPS expectations for Q1 to come down at 8%. So when we're looking at this

and we're seeing cost cutting as a number one way to protect margins like FedEx did, I think some of this bad news is really priced in. But what am I buying right now? I'm buying quality. I'm buying cash flows. I'm not chasing after things that don't have earnings. I want things that have the ability to raise capital, have good debt ratings, have solid, sustainable cash flows, and have a pathway to growth, even if we see a contraction a little bit in consumer spending, because last issue, we haven't seen drop, right? When we look around the markets, people are still spending money. We assume the consumer is going to break, but they just haven't. Similar to how unemployment will not break right now. We're stuck at a three and a half percent unemployment

rate. It's not moving in the right direction. Consumer spending is also staying strong, even with all those charts showing how much more expensive debt is, how high debt levels have raised. Has the consumer finally stopped spending in Q1? I don't think so. So Venu, what do you sell in this environment? I mean, everything is not, you think that there's a lot of downside for earning, sure, but there gotta be some things that are more vulnerable than others where they're going to be better strategic levels later this year, next year, maybe heck even year after. So what do you just get away from here and have a higher degree of confidence that it's the right move?

So two things. I think tactically, I would agree with my colleague over here, because we would say that you want to stay away from low quality stuff. So that is for sure across sectors. But coming to sectors, let's first start with where there is most margin risk. From our perspective, it is cyclicals and within that specifically discretionary. There are parts of cyclicals where you can still hide for the next six months, for example, industrials, where backlogs and continuing recovery from COVID and the international sales exposure, which benefits from China reopening, all that will provide some sort of protection over the next six months. But that is more than price-tuned. But still, if you want to hide in cyclicals, that's where it is. Then defensive, of course, like we like and then energy. Energy is very cheap. We're about to talk about energy. And before we do that, Victoria, I want to get back to you real quick.

What about fixed income? I mean, it seems like if rates aren't going that much higher, then there are multiple reasons, both the yield that you get and relative price safety to lock some stuff in. Absolutely. And if you're looking at it, 2023 may be the year of gold and fixed income. We've already seen fixed income clock a really strong key one. But if we continue to see kind of a ceiling on that 10-year treasury, this flight to quality, I wouldn't necessarily chase credit. I might look a little bit at duration. You want to start maybe locking in some of these rates. I know everybody would love to see 5% on the two-year again. And we all had a time machine. We'd go back and buy the heck out of that. But we don't. So we have to look around the markets and say, what's the possibility? Right now,

a lot of these yield moves are a little less about what the Fed's doing in this flight to quality and safety. So I think you want to start looking at locking in some duration. You just want to be careful on that credit front because credit spreads are still way too narrow, I think, for the amount of risk in that part of the market. All right. Nice word of caution. Victoria, Venu, thank you. Well, we just teased it. We're going to talk about energy, which was one of the best performing sectors today in the S&P. Natural gas rising 7 percent. First or best day, I should say, since early March. And on the equity side,

Pioneer Natural Resources jumping after the Wall Street Journal reported ExxonMobil has held early stage talks to acquire the natural gas and oil exploration company. Let's bring in a truest managing director, Neil Digman, to discuss. Neil, I want to get your thoughts on this. A, is Pioneer a takeover target? And B, is Exxon in the market to expand when it comes to oil and gas production? Thanks for having me, Morgan. I think the answer is yes and yes. I think not only Pioneer, but you have Pioneer and a slew of my E&P stocks that are all trading close to their historical lows.

So again, I think that the valuation makes it compelling. And then secondly, when you look at even large caps like majors like Exxon, you know, one thing that they're always looking for, they always want to increase their inventory. You know, people forget about energy is the one sector that if you stand still, about almost a third, you know, quarter to a third of your production declines each year. So these companies are always on the hunt for inventory. And given the valuations right now, I think it makes a lot of sense. I was just going to ask you about valuations, because energy is one of the few sectors we've seen rip higher in the last couple of years. So you're still saying that there are names here that are attractive takeover targets. What are they?

Yes. I mean, I look right now and I think guys want inventory. So if you stick with the Permian, I think maybe not as large as Pioneer, but you have other public companies like Matador, MTDR, you have Permian Resources, two smaller ones. Maybe even if somebody would take a look at the Eagleford, which I think is equally as compelling as the Permian, somebody could look at Marathon Resource, MRO. And again, what's the same for all three of those very cheap stocks just on a relative and on historical basis. But, Neil, if we get a recession, a global recession even, won't energy stocks take a hit? Good question, John.

They will. But, you know, just a week or so ago when OPEC Plus came in i you know again where there was and there is concern about demand taking a hit because of inflation i think now the new supply you know what i'd say the new floor that's been put in by opec plus i believe materially outweighs that i mean you you definitely have some some anxiety about what could happen with uh demand but i think anything that happens opec plus basically stated, look, they're willing to come in and keep cutting as much as necessary. So I think, look, I think you have a floor at least at seventy five dollars, which makes this group look more attractive than it has in years.

Yeah. And we've talked about it over the past week, this idea of an OPEC put in the market. Where do you think crude prices go from here? And just as importantly, where do you think NatGas goes? Good, both good questions. I think if right now, if John mentioned it, look, if inflation dies down and demand starts to take off, you know, definitely there's possibility of getting towards this triple digits, towards $100 oil. You know, gas, on the other hand, we're all waiting to 2025 when LNG, there's a lot of projects that have been FID'd. I don't think gas does too much until maybe a little bit this winter. But again, beginning 2025, when all this LNG demand comes in, you could really see gas take off.

I'm talking $4, $5, $6. But again, that's probably not until about 2025. Something we don't talk about very much, MLPs, Master Limited Partnerships. They tend to behave kind of similarly to REITs given the tax advantage status. Given the interest rate environment, should we be talking more about these? Is there opportunity here? I do. We also cover a number of midstream companies that make a lot of sense. A lot of them, even some of the bigger ones, are yielding 6%, 7%, 8%. But it's still hard to compete with a lot of these EMPs if you include their variable dividend.

You know, the likes of Marathon or Devin or some of these others are, you know, Devin especially, or even Pioneer, the one we're talking about, both have yields over 10% if you include their base plus variable dividend. So as much as I like some of the midstream, as much as some of these MLPs you mentioned with a nice dividend makes sense, the upstream these days provides with a nice dividend makes sense, the upstream these days provides even a higher dividend. So that seems like where investors are sticking. All right. Neil Damien, thank you. Good to see you. Thank you. Now coming up, filling the void left by SVB. Merchant bank Rain Group just announced its

first ever acquisition, buying a boutique investment bank in San Francisco. We're going to talk to Rain Group's co-founder about why they're making a big bet on Silicon Valley next. Welcome back to Overtime. The Rain Group, a merchant bank focused on media and tech, is making a big bet on Silicon Valley, announcing its first ever acquisition to buy boutique investment bank Code Advisors, whose clients have included Twitter and Spotify, to name a few. Joining us now is RAINN Group co-founder and partner Joe Ravitch. Joe, welcome to the show. It's great to have you on. Thanks for being with us. Thank you for having us. Okay. Why Code? Why now? Code is easy. We've known Quincy and Mike a long time.

Their depth of relationships in Silicon Valley, I think, is unique. I think their approach to relationships and to being an idea-driven firm is what attracted us to them. But most importantly, they're good guys and they're a great culture fit. We've grown our people organically over our 14-year history. We've never made an acquisition before. But I think this is actually a great addition to our team. It deepens our presence in Silicon Valley. In a world where we're betting on Asia, we're betting on convergence across the industries that we operate in,

having that kind of presence that Quincy and Mike bring to our team is of immense additional value. So highly complimentary. Yeah, a lot of focus right now on deal making and what this landscape is gonna look like where tech is concerned, Silicon Valley is concerned in the wake of the failure of SVB. How long has this deal been in the works and what does the current landscape now mean in terms of opportunity for you to execute on this acquisition?

I mean, I think there's already a number of projects we've been discussing. This has been an ongoing conversation with the code team for a while. And it was part of finding all the areas of complementarity. But if you look around the world, the presence of these Silicon Valley firms, whether the giant fan companies or some of the startups, that culture is everywhere. It's happening in Southeast Asia. It's happening in Los Angeles. The big companies like Apple and Netflix and others are making a big impact right now in Los Angeles because content, entertainment, music, sports are all become highly relevant to what they do. Music as well, all the areas that we focus on. So it makes a ton of sense for us

to tie all this together. Our presence in Northern California is not what it should be. And I think having Mike and Quincy there is going to be enormously impactful. But Joe, Northern California and Seattle right now are kind of cloudy places and not cloud in the good way. So talk about maybe the strategic belief and bet that you have to make in order to do this. I mean, the M&A market is not rip roaring right now. There's not a lot of money to be made. Some people are running from Silicon Valley. Why double down?

I actually don't think people are running from Silicon Valley. I think what's happening is that people are sitting on the sidelines. I think they're scared of market volatility. And there's a concern. There's so many potential black swan events out there. They're concerned things could get worse. Valuations could come down. But there's plenty of money.

And there's plenty of interest in what's happening in terms of technology change. We've just begun to look at some of what's happening around AI. If you think about what could happen with TikTok, frankly, remarkable that it is soaking up three trillion minutes of American leisure time every year. If it gets banned, what replaces TikTok? This is all going to come out of Silicon Valley. It's all going to come out of that technology world. And frankly, in our business, we haven't really seen much of a slowdown. There's tremendous interest in content, tremendous interest in sports, tremendous interest in music and the technology that

makes it more attractive, whether that's in the form of commerce, whether it's transactional. There's new forms of modernization coming out all the time. So Joe, how much of the M&A that you expect to happen soonest is going to be M&A of necessity rather than opportunity? Look, that's a really good question. And I think for our business, it's a combination. It's really a combination of both. It's not fair to say one or the other. There is certainly going to be a forced rationalization amongst some of the big media and tech companies in a world where the stock market doesn't like these giant companies and likes breakups. Look

at the recent announcement by Alibaba. Look at what's happening in terms of companies trying to define themselves more. And it's the nature of cycles. I've been doing this for more than 30 years. You go through a period where the market rewards companies that are out there making lots of acquisitions, trying to occupy every space and be big in every area. If you look at sort of what are the ambitions in Southeast Asia, what are the ambitions of the Tencents and the Alibabas in Asia, it's to be these super apps. We've heard Elon Musk talk about trying to build a super app concept, all things to all people through one app. I frankly think that's too late for that to happen in the United States. I think in the United States

we're too set in our ways, and we're going to use different kinds of apps and different kinds of technology. I think we'll all become reliant on one single provider, and you'll continue to see these companies, if you will, break themselves up, separate themselves up into pieces, and then re-conglomerate together again. So we're looking at a tremendous landscape in terms of M&A, in terms of big corporations spilling off pieces of themselves and opportunities as these tech companies have to move into other areas

to become effective players in the content world. Yeah. Speaking of M&A and something that's more bread and butter for you, you mentioned media. You're involved in the WWE UFC deal with Endeavor that was announced last week. I know you've been involved in some of the sales that we've seen of English and European soccer clubs as well. How does it speak to the ever-growing power and importance of live sports programming and the opportunities there to make money?

Well, I mean, I would say this is one of our core theses, which is fundamentally the intrinsic value of intellectual property and content, and nothing is more valuable than live sports. You know, again, I've gone through a lot of cycles. I've been involved, very fortunately, in working with a lot of leagues, creating leagues, selling teams from Indian cricket teams to Japanese baseball to every American kind of American sports team. And you've only seen asset values continue to increase. That's the bed of the WWE and Never Deal, which unites some really powerful content and is going to be incredibly valuable going forward. It's why the Phoenix Suns just traded at a $4 billion valuation. And if you look at particularly at some of these European clubs, think about Manchester United,

which is a club which we've been retained by the board to consider options for. There's at least a billion global fans for Manchester United, highly sticky, multi-generational, very focused, and in love with this club. It's a 150-year-old club, probably the most famous sports team in the world. If Twitter has 200 million MAUs and it's worth $44 billion to Elon Musk, if you don't think about Manchester United as a football club and you think of it as a media brand, what could it potentially be worth? And obviously, we think about that and talk about that when it comes to almost any kind of sports team across different leagues around the world. It's fascinating. And we're watching that Manchester United potential deal closely. So you'll have to come back and join us if and when that happens. Joe

Ravitch from the Rain Group, thanks for joining us today. Thank you so much for the time. We appreciate it. Well, Tilray earnings are out. Christina Parts Nevelis has those numbers for us. Hi, Christina. Hi. Well, we're seeing revenue beat at $ Parts Nevelis has those numbers for us. Hi, Christina. Hi. Well, we're seeing revenue beat at $145.6 million, higher than the anticipated, or I should say, sorry, lower. So they missed on revenue, $145.6 million, lower than the estimate of $150.5 million. And then loss per share came in quite high. They posted a loss of $1.90. The reason being is there's at least a $1.1 billion impairment due to higher interest rates as well as a decline in market cap. The company didn't post any guidance for Q4 or the full year, but they did announce they're going to be making an acquisition of Hexo worth about $56 million U.S.

And this is another micro-cap cannabis producer. So that's the news that we're getting from this report right now. They had revenue that came in less than anticipated on a loss per share of $1.90 due to a large $1 billion impairment. Guys? All right. Christina Partsenevelis, thank you. Up in smoke? Wow.

Up next, Moody's chief economist Mark Zandi has some advice for the Fed following Friday's jobs report. He's going to tell us what it is and preview this week's inflation print when overtime comes right back. That one was in the weeds. Welcome back to Overtime. It is time now for a CNBC News Update with Pippa Stevens. Hi, Pippa. Hey, Morgan. Well, here's your CNBC News Update at this hour. The Justice Department is trying to block a ruling that restricts access to the abortion pill Mifepristone.

The DOJ filed a request in federal appeals court today in response to a ruling from a Trump-appointed judge that will suspend the FDA's longtime approval of the drug. That ruling is set to go into effect at the end of this week. The mother of a six-year-old boy who seriously wounded his teacher with a gun in January will face charges in the shooting, according to a new indictment. The mother faces charges of felony child neglect and a misdemeanor count of recklessly leaving a loaded firearm so as to endanger a child. The indictment comes a month after prosecutors said they would not seek charges against the student. And the State Department has officially designated Wall Street Journal reporter Evan Gerskovich as, quote, wrongfully detained after his arrest in Russia on suspicion

of espionage. This new designation came with unusual speed and will provide new government resources to help free the reporter. John, back to you. All right, Pippa, thank you. Meanwhile, the March jobs report was in line with expectations on Friday and more data is coming this week. It's going to keep markets on edge as we await the Fed's May meeting. On Wednesday, we'll get March inflation numbers and retail sales are out friday joining us now though mark zandy chief economist at moody's analytics and mark you say the fed should pause rate hikes but in that jobs report we saw a labor market that's still strong at an unemployment rate that actually ticked a little lower. So why pause?

Yeah, John, that's right. If I were King, I would pause the right hikes. I do think job growth is slowing. And here's an important statistic. In this month of March, labor supply, that's the growth in the labor force, is now growing more quickly than labor demand. Labor demand is in jobs plus the number of unfilled positions. That's the first time that's happened since the teeth of the pandemic shutdown.

So what that means, John, is that the unemployment rate, which, as you pointed out, is low, 3.5 percent, is now going to head north. And then you throw in the moderating inflation and throw in the banking situation. I think that's the recipe for a pause in interest rates. So is the risk now so much on tightening too much on raising rates too much that there's not much risk of a pause letting the economy run too hot? Well, I think the risks are increasingly on the side of over tightening that the misstep here isn't the fed uh not raising rates enough to quell wage and price pressures but over tightening raising rates too much and undermining economic growth and uh you know i given that the balance of risks and just given where all the trend lines appear to be pointing with regard to jobs, with regard to inflation,

and still the, you know, the considerable amount of uncertainty with regard to what's going on in the banking system, financial system more broadly, given these high rates, feels like this is the right time to just take a pause, take a look around. And if I'm wrong and, you know, the economy remains stronger, inflation more persistent, the Fed can start raising rates again later in the year. Mark, how important is core CPI in the reading we get this week? Because there is this expectation that we could potentially see that climb for a second consecutive month. It's important. I think, you know, you're right. I think the forecast, our forecast is for the whole to remain unchanged. So I

think it's just a little over 5% year over year. The top line number, though, is going to look really good. Some of that's just base effects given the high rate of inflation energy prices this time last year. So we could see inflation, top line CPI inflation go from 6% in February to something closer to 5%. But here's the thing about CORE. I think what we can state with a reasonably high level of confidence is that is going to moderate here in the next six to nine months as the cost of housing services slow. As you know, the cost of housing services is the biggest component of CPI, over a third of the index. And that's tied directly to rents. And rents have gone flat to down here over the

past three, six, nine months. And that will translate through to lower cost of housing services here through the end of the year. So even if this number doesn't show any significant improvement in core inflation, I think that's dead ahead. Yeah. And certainly it's part of the reason Wall Street's been focusing on so-called super core and stripping out those shelter prices, to your point. The flip side of this, the fact that the market is pricing in in the second half of the year, not one, but potentially multiple rate cuts. What would it take, even if the Fed stopped pausing at the next meeting or at the meeting after, what would it actually take for the Fed to start cutting? Yeah, I don't think they're going to cut unless we go

into recession. So if we go into recession, which means lost jobs, jobs are declining and unemployment is rising very rapidly, I think that's very unlikely that the Fed will start cutting interest rates that quickly. So I think the bar is really very high for them to actually cut rates. Because you go back to inflation, even though I'm arguing it's going to moderate, it's going to take a while for that to get back into something that they feel comfortable with, anyone feels comfortable with, closer to their target. And that's not going to happen before the end of the year. That's something that won't happen until this time next year. So I'd be very surprised if they start cutting interest rates, barring a recession. And that, to some degree, is what the markets seem to be signaling.

Certainly, the bond market, the Treasury market is signaling that investors think we're going into an economic downturn before the end of the year. Mark, I know you're big picture, but are you going to be watching these regional bank earnings maybe closer than usual over the next, once we get into into them Friday and then the week or so beyond, because the bank situation seemed to factor so much into the Fed's thinking most recently. You have to imagine it's going to continue to factor in and how much they say about lost reserves, kind of what they say about the future seems important to the broader economy. Yeah, you underestimate me, John. I'm not that big picture. I will get down to the

5,000-foot level and take a look around, maybe even to the ground level at some points in time. But yeah, I think these bank earnings matter a lot, and particularly what the banks tell us about what's going on with their earnings and going back to their underwriting standards and what it means for the availability of credit, and most importantly, what's going on with regard to their outstanding loans, their net interest margins, importantly, what's going on with regard to their outstanding loans, their net interest margins, and ultimately, you know, what's going on with deposits. So, yeah, I think we need to listen to this very, very, what they have to say very, very carefully, because that's really critical to understanding what the impact of the banking crisis will be on credit flows and ultimately on the economy and ultimately what it means for

interest rates and monetary policy. Yeah, the clock is also ticking on the debt ceiling and the standoff we're seeing there. You saw Speaker of the House McCarthy make comments about the fact that this is actually becoming worrisome last week, the end of last week. Is this, in fact, becoming worrisome? Is this a growing risk right now that investors should be paying closer attention to, or do we still have time here? We got a bit of time, Morgan. And by our calculation, the Treasury is going to run out of cash to pay everyone on time. The so-called X date in mid-August, you know, right now we're estimating August 18th is that drop-dead date. So my sense is what will happen is we'll come back from July 4th holidays and we'll start focusing on this. And I think if it doesn't look

like lawmakers, Congress, and administration are getting it together reasonably so, I think angst in the markets will start to rise pretty considerably, particularly as we make our way into August. So obviously, the timing is bad, right? I mean, I do expect the economy to weaken here. Unemployment starts to rise. Once unemployment is rising, that's when the economy is most vulnerable to anything else that could go wrong. And, of course, you know, a breach of the debt limit or even threatening to breach the debt limit is something that I would qualify as something that could go wrong. All right. Add that brick to the wall of worry. Mark Zandi, thank you. Thank you.

Still ahead, does Apple have a demand problem? New data from IDC says Mac shipments fell sharply, very sharply in the first quarter. We're going to look at what that means for Apple's upcoming earnings and the entire hardware industry next. And do not forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. Morgan and I will be right back. Welcome back to Overtime. Apple was down about a percent and a half today,

and part of the reason might be questions about demand. IDC reporting that Mac shipments were down 40.5% in Q1 for the biggest drop among the major PC makers. So is that a big deal? Well, not yet. So here's the story. Shipments aren't the same as sales. Shipments get product into the store shelves. And Q1 shipments might have been down because retailers still had some inventory left from the holidays, when you'll recall there was spotty demand in December. And the first half of the year, seasonally weaker for PCs anyway. Plus, Apple CEO Tim Cook aggressive when it comes to managing inventory. So here's another wrinkle. TSMC, Taiwan Semiconductor, today reported a sharp drop in March revenue, down 15%. That might be a sign

the industry doesn't want to overbuild in a very uncertain macro environment. But you can't conflate that with Apple's shipment drop. Apple actually might be clearing the channel ahead of new product launches in the back half of the year, Morgan. And, you know, Apple's got WWDC coming up in June as well. We tend to get some announcements there. They're just about done with the transition to their homegrown chips. There are a lot of things that this could mean besides just demand problems in the channel. You just moved from our stage back here, our wall back here, so fast. Lickety split. I'm very inspired right now. I love moving around. It's been too long since I've been on set, so good to be back. Yeah, it's good to have you back here.

It is interesting to see Micron popping 8% today. You saw Western Digital, similar gains today on these headlines and this idea that maybe you're going to see a tapering in memory supply and what that means for future inventories. The entire, I guess, ecosystem seems like it's going through a correction right now and this inventory destocking and sort of this return to whatever normal is going to look like post-pandemic? Big questions about what demand and the overall economy is going to look like in the back half of the year, though. A lot of people are saying, oh, back half is going to look better. We're through this inventory now. But if there's a recession in the back half of the year, how's that going to affect demand? You know, Mark Zandi, we're just talking about that. Now we can start asking him questions about specific companies because he says he gets down to 5000.

You can see a lot at 5000 feet. Yeah. You can argue that Apple's a barometer for the broader market, too. We have that conversation a lot. All right. We got breaking news on some fresh comments from New York Fed President John Williams. Steve Leisman has those details. Steve. Hey, John, thanks very much. Fed President, New York Fed President John Williams saying that Fed rate hikes were not a driver of the trouble at the banks. It was sparked by by some of the stresses that were out there. He says the trouble

with these failed banks were unique to these banks. He says we haven't seen any clear signs yet of credit conditions tightening, even though, of course, his survey of consumer expectations today did show some of those concerns on the part of regular households. He is watching for the possibility. And he also stressed, by the way, that he sees the difference between monetary policy and regulatory tools. So that's kind of a way of Fed officials saying that they think they can hike and deal with the banking issues such as they are without changing what they think is the proper monetary policy. He says the expectancy unemployment rate rise gradually to four to four and a half percent. It's now around three five. It went down on Friday.

He says the stability of unemployment has been a striking development. He also sees inflation this year still well above the Fed's 2% target at 375. Expects to get down to 2% only by 2025, though he does see rent-related price pressures coming down sharply, he said. And then one other aspect which is good for long-term thinking, John Williams is a well-known expert on the issue of what the long term rate of interest is. And he says the natural rate of interest is likely still low despite things like deglobalization. Morgan. 2025. I just want to go back to that for a second. If you don't see inflation come down

to something closer to two percent, is there any chance, is there any possibility that the Fed would cut before that? So the Fed has used this phrase, Morgan, which they talk about being confident that it's on the way to the 2 percent target. Nobody is quite sure what that looks like. Nobody is quite sure what the Fed is exactly looking for. But you can imagine if inflation was falling sharply, you know, first you'd have a pivot and the Fed would pause and then you would maybe have some cuts if the economy looked like it was worsening, if indeed it looked like inflation was headed to 2 percent every month, month after month. But, you know, Morgan, the problem is we can't even put a couple of good months of inflation

numbers together. That's going to make this week's inflation data, CPI and then PPI, that much more important to watch. Steve Leisman, thank you. Sure. A controversial ruling surrounding abortion pills is causing an uproar in the pharma industry and calling into question the FDA's authority to approve new drugs. We're going to talk about the potential fallout for medical companies. That's coming up next. Welcome back to Overtime. A ruling by a Texas judge blocking the FDA's approval of an abortion pill is facing backlash from the health care community, raising questions about future drug development. Meg Terrell has that story for us. Hi, Meg. Hey, Morgan. Well, this is the first time a federal judge has overruled or overturned an approval of an FDA-approved medicine. So this is leading to concerns amid the drug industry that

this could set a precedent for future judges being able to issue similar decisions for all kinds of medicines. More than 200 leaders from the biotech and pharma industries wrote a letter over the weekend, and this morning it was signed onto by the president of Biogen U.S. and the CEO of Pfizer, saying, quote, if courts can overturn drug approvals without regard for science or evidence or for the complexity required to fully vet the safety and efficacy of new drugs, any medicine is at risk of the same outcome as mifepristone. I also spoke with one of the authors of that letter, Jeremy Levin, the CEO of Ovid Therapeutics, who noted, quote, unless this can be rolled back, this represents one of the greatest

threats to drug approvals in the last 50 years. Now, some of the therapeutic areas that legal scholars point to as being potentially particularly vulnerable are things like vaccines or contraception. But the HHS secretary over the weekend even noted drugs like the new Alzheimer's medicines could potentially be vulnerable here if people wanted to bring challenges and found, for example, a sympathetic judge. So the FDA has said it has appealed. We are going to see this work its way through the legal process, guys, but there is a lot of uncertainty here about what this means for the drug industry if the FDA's authority gets eroded in this way. Guys? So is this a risk that companies now have to factor in and whether they even pursue development

of certain drugs or is it too early for it to get to that stage? Well, it's certainly early at this point because we're waiting to see if this stands. And it is expected that this potentially gets up to the Supreme Court and that will really determine whether this is something that can happen. But if it does happen, I haven't heard about drug companies actually trying to game out how they're going to address this. They are just sort of warning that this could lead to a ton of chaos, uncertainty, higher costs. But you could see that they might think about which indications to pursue or what kinds of ingredients to use based on whether there could be sort of

political pressures around them. All right. Meg Terrell, thank you. After the break, the best person to fix a broken box office might just be a plumber. I'm going to tell you about the extra life that Super Mario is giving to the movie industry when Overtime returns. Welcome back to Overtime. It's-a me, Mario, the box office winner. The Super Mario Bros. movie smashing records this opening weekend, making $377 million worldwide.

Those numbers beating box office estimates and powering up shares of the production company behind the movie, Nintendo, and our parent Comcast. Another stock having a peachy day is AMC, the movie theater chain setting a record for revenue during an Easter weekend. It saw its busiest weekend so far in 2023 as more than 3.6 million people went to see Super Mario and other releases like Air and Dungeons and Dragons. Look at those shares, up 7% today. Super Mario's smashing box office performance could also boost stocks like Five Below. Roth MKM pointing out that the retailer may see a modest surge from Super Mario-related products. In fact, several items are already sold out online. And Jeffries says Nintendo could see $350 million in profits.

I think we got our Halloween costumes set up. Mario and Luigi, John. I didn't hear anything you said after It's-a-Me-A-Mario. You committed to that? I'm working with Kachati here, giving you the rundown on the Super Mario. I know. I'm impressed. And 80s me is just my mind is blown that we've got a Mario movie and a Dungeons & Dragons movie both doing well.

What's next? An Information Society biopic? Maybe. Never say never. Industrials turning in a strong session with Caterpillar by far the best Dow performer of the day. We're going to talk about what's behind the industrial strength next. Welcome back to Overtime, the industrial sector finishing at the top of the S&P 500 today. Names like Caterpillar and Stanley Black and Stanley Decker. Stanley Black and Decker, she said, leading the gains.

Let's bring in Milius Research Chairman and CEO Scott Davis. Scott, great to have you on the show. Thanks for being here today. Industrials ahead of earnings season. What are you watching for? Where do you expect to see some strength? Well, we have there's no shortage of stimulus out there, right? I mean, you've got all these mega projects that we've announced that we've counted up to about $400 billion that are driven by localization and the CHIPS Act and the IRA and the infrastructure spend that's going on out there is just massive. So this has been, I think, the beginning of perhaps one of the best industrial upcycles we've seen in a generation.

So we're going to be looking for signs of demand still strong and what's, you know, perhaps orders going into the backlog from all these big projects. And we're going to be looking for margins that come out of this. I mean, we should be in a great environment to make profits because price is up and costs are actually up less than price. So we should be able to make some money here. Yeah, it's that sweet spot that we've been waiting for companies to sort of realize. The question, though, is how sticky can those higher prices remain, especially if we were to go into, say, a recession later this year? Well, recession has a lot of different forms. I mean, I think a soft landing is something that

we don't lose a lot of sleep over. When you think about a hard landing like we had in late 2008, certainly then kind of all bets are off and projects get delayed and pricing goes down. But right now there's such a huge imbalance between supply and demand that folks have not been able to get the product that they've ordered perhaps even a year ago. And so there's not really a lot of excess out there as far as inventories or product in the channel at all. So I have a tough time believing that price is going to fall anytime soon because there's just not enough product out there. There hasn't been much shipped out yet. But Scott, if there's trouble in commercial real estate, particularly office and their demand concerns elsewhere, how does that not eventually trickle through to industrials?

It will. And I don't think there's such a thing as an upcycle. First of all, all upcycles are essentially in rate-tightening environments. So there's always some puts and takes into an upcycle. It's never perfect. Having said that, I think the size, the sheer size of the projects that we're seeing are so massive. Honestly, I thought we'd peak out. When we hit $250 billion, I thought we couldn't get any larger. We're up to $400 billion, and we only count projects over a billion dollars in size.

So a lot of folks are saying you could really double that $400 billion, perhaps even $700 or $800 billion in total projects. When you think about a non-residential recession, typically that would impact things to the tune of maybe $50 to $75 billion of projects that get canceled. So you can kind of think of the math here of $400 to $800 billion of new projects, perhaps $75 billion or so of stuff that could get canceled out. So it's just the math works very favorably. Yeah, we're getting Boeing orders and deliveries tomorrow. Is aerospace still the place to be,

especially when you think about a GE that's had such a strong start to the year? Or are there other industrials and specific names you like better? It's a bit of a rising tide lifts all boats. I mean, the reality is that aerospace was the hardest hit during COVID and the supply chain issues.

So it was a double whammy and should therefore be the one that comes up against the easiest comps and has the greatest upcycle here. And so we do expect the best earnings numbers out of aerospace plays this quarter, particularly commercial aerospace, not necessarily defense. But there are other names, though. I mean, if you take a look at a Parker Hennepin, at an Eaton, at a Rockwell Automation, I mean, anything that really touches the investment spend that's out there, these big numbers that we've been talking about, you should see pretty darn good numbers. All right. Scott Davis, thank you.

I'm happy to be here, John and Morgan. Take care. Take care. Now, we've got two great interviews coming up tomorrow on overtime that we've got to tell you about before we go. We're going to talk to Tilray CEO Erwin Simon. Fresh off earnings results this afternoon. That stock is still under pressure in the post-market session. Plus, CrowdStrike's CEO George Kurtz is going to join us as the company hosts its first ever government summit in Washington. And that's an area that's very important for companies these days. It's very important for companies, and it's an area where you're seeing that secular investment, regardless of belt tightening in other areas.

Yep, that's going to do it for overtime. Fast Money begins right now.