Closing Bell - Closing Bell Overtime: Andreessen Horowitz’s Katherine Boyle On Investing In “American Dynamism”; Unity Software CEO On Strong Quarter 5/11/23

Episode Date: May 11, 2023

Dow closed lower today, dragged down by Disney. The S&P 500 also fell while the Nasdaq ended in the green. 248 Ventures’ Lindsey Bell and Annandale Capital’s George Seay talk today’s market action. CFPB Director Rohit Chopra, who sits on the FDIC Board, discusses the FDIC’s proposal to replenish its $16B hole in deposit insurance after a string of bank failures. He also talks the CFPB’s new guidelines for personal financial data. Unity Software popped after a strong quarterly report; CEO John Riccitiello discusses what’s next. Andreessen Horowitz’s Katherine Boyle joins on the firm’s new investing in “American Dynamism” fund and why founders are excited to invest in companies that move America’s institutions forward. Plus, MoffettNathanson’s Michael Nathanson talks the Disney bull case after its worst day in six months.

Range bound and down, at least if you're the S&P or the Dow. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. Coming up this hour, we're going to talk to CFPB Director Rohit Chopra, who is also a member of the FDIC Board of Directors about the latest turmoil in America's banking system as regionals tumble once again in trading today.

Plus, Andreessen Horowitz, general partner Catherine Boyle, will join us to discuss the firm's half a billion dollar bet on companies that support American progress. Let's get straight into today's market action. Joining us now are George C. from Annandale Capital and Lindsay Bell from 248 Ventures. She is also a CNBC contributor. Good afternoon to you both. George, I'll start with you. NASDAQ finished the day up slightly, and it really was tech stocks that kind of buoyed this market and staunched the launches from being any worse. Your thoughts? Morgan, hi. It's a very thin, it's a very, very rarefied air market right now. The big tech stocks are holding the

market up and propping it up. It seems like just about everything else wants to go down, especially banks and energy. So I don't know how much longer they can keep propping it up, because the market really feels heavy right now. But it hangs in there. And it's mainly because of all these wonderful big fang stocks and tech stocks that have had such a good year so far. Yeah, Lindsay, it really feels like the bulls and bears are locked here. We're in this very tight trading range and we have been for some time for the S&P. What breaks us out from here, either higher or lower? Yeah, I know it's a great question. I think it's one that everyone wants the answer to, right? And the bulls and the bears, they both have their case and both are strong cases, in my opinion. Of

course, I lean a little more towards the bull case, but I can understand the bear case. And right now, I worry that in the near term, the breakout might be to the downside. Medium term to longer term, I'm certainly much more optimistic about where we go from here. But to me, it's all about the Fed and inflation. And of course, you've got the sideshow of the debt ceiling, too. So I think those are the things we're going to have to watch. And what we saw over the last two days is that the market didn't really react to what were pretty decent inflation numbers. And so I think the VIX isn't moving. And so I think what we're going to have to see is really what does that mean for the Fed?

I think investors are starting to get complacent. And I think that that fed pause has really been priced in but i do think that inflation still remains quite high versus the fed's target rate of two percent so i think that there's still going to um there's going to have to be a meeting uh of the minds here within the fed because you still have a strong jobs a strong jobs uh market you still have inflation that is hot and you still have all these other worries that are out there, too. So I don't know that the Fed can completely take their pedal off the metal. Yeah. And of course, that's in focus today, George, right? Because you did

have that PPI number headline cooler than expected core basically in line. But then claims we did see a big jump in initial jobless claims. I think something like the highest in in 18 months. There's something for everyone here in terms of the macro data. And it's continuing to stoke that debate about hard landing versus soft landing. How do you see it? Yeah, I think the Fed is critical here. I would agree with those comments. And I think that the initial bank failures you can really blame on complete malpractice by the bankers and the ones that went down early. But I now think the Fed kind of owns that. I think the Fed has raised rates so

much that they're starting to break things. And you're having some banks that really aren't that poorly managed. Some of them are well managed and they just got a mismatch on their asset liability sheet. And now you've got the commercial real estate issue coming up. And I think the Fed's going to have to be really reflective about what they do going forward. And I do think that they're going to have to start thinking about cuts. I'm not expecting cuts like the market is this year, but the Fed may have to change their tune on that if things start to really soften out. And they are getting some of the softer data that they've been trying to get for quite some time. But whether they can engineer that soft landing, they keep saying they're going to pull off or not, we've yet to see.

Yeah. Lindsay, along those lines, I mean, we're showing the chart right there of PacWest today, down 22 percent. I mean, this is a stock that's had multiple trading halts on it over the past week or so. Just this morning, disclosing something like almost 10 percent in deposit outflows in a week. We've seen it cut the dividends. We've seen it confirm that it's looking at all strategic options, including the possibility of a sale. I mean, we've heard these types of developments from other companies before. Is the contagion contained? It's a great question, Morgan. And I do think that the contagion has been contained in an orderly fashion. What I would say is the hysteria around the regional

banking crisis has at least been cooled. I'm not saying that we're out of the woods and there's not going to be another shoe to drop. But I do think that the Fed, the FDIC and the Treasury Secretary have really made a point to take action around this and really try to calm markets to the best of their ability, that they are looking into this issue and they're trying, they are really trying to assuage things. Now, the thing is, is that we have to, these banks, the regional banks in general, really are in a show me stage. We need to see that this industry is getting their deposits under control, that they are returning to a sticky stage, if that even exists anymore in this technologically driven age that we live in.

But also we need a better understanding of what this commercial real estate issue is, who's going to be impacted, and by how much. So the problem is it's really hard for buyers to come into these stocks, even at these really low levels. So that's something that the regulators are looking into. And it's going to be something that really does continue to take up space in the media and headlines going forward, I think. Yeah. I mean, we just covered quite a number of the bricks in the wall of worry for investors in this market right now. George, how do you position yourself, given all of the uncertainty and all of the concerns?

Yeah, that's the right question. And I would just say I don't think the Fed has has cured the hysteria in the regional bank market yet. I feel like they're more Kevin Bacon and Animal House telling everybody to remain calm all as well. And nobody believes them yet. So I think they've got more to do there. And what we're doing is we're writing some call options on some of the big tech stocks that we don't have conviction can go a heck of a lot higher. And we're really already kind of nibbling a bit on regional banks and energy and value stocks and some international stocks that we think have been unfairly left behind by this market right now. But it's kind of trimming and doing things on the margin. It's not anything with super high conviction yet. We need to see things quite a bit lower to really take a full deep dive plunge into things. So we're being patient and calm and

reflective on where we reallocate things. Yeah. And of course, we did end today with a mixed picture for the major averages with the Nasdaq in the green, but the S&P and the Dow both down. The Russell, the underperformer, down by nine tenths of one percent and Treasury yields under pressure as well. Lindsay and George, thanks for kicking off the hour. CNBC senior markets commentator Michael Santoli joins us now from the New York Stock Exchange. Mike, what's on your radar? You know, Morgan, just trying to broaden out the frame a little bit on the market.

If you think the S&P 500 didn't move all that much today or this week, take a look at where it is two years ago, right in the same spot, between 4,100 and 4,200. As a matter of fact, the low for the day, May 11th, 2021, was 4,110. Just about the same as today. So it sounds like really not a lot of net progress. Obviously, we've had a huge rush to a new high and then a plunge down to last October's low. I do think that there's something to perhaps remain hopeful about, which is you do have this pattern here. These series of higher lows on the way up.

At seven months tomorrow is the low in October. That's a pretty long stretch without threatening a low like that. Now, it's also been a very unimpressive advance in terms of the number of stocks participating, in terms of the momentum, in terms of really even the fundamental storylines that are backing it. So I do understand a lot of the back and forth and the uncertainty

and really the ambiguity surrounding this environment. But so far, this general pattern has remained intact. And by the way, when you buy the market, when it first got to this level two years earlier, if you go back through history, it's not the worst time on a forward looking basis for a multi-year return. Now, take a look at the S&P excluding financials relative to the S&P itself and then, of course, bank stocks. This is over a one-year period. Now, the S&P X financials usually, as you can see over this period, really does track the overall S&P. It's financials about 13 percent, 12.5 percent of the index. But you see what happened to banks after SVB. And that's opened up this little bit of a lead in terms of performance. But it also, that ex-financials version of the S&P also looks a little bit better structurally. It's been holding up more. It's above the highs from earlier in the year. So it's not to say that the only problem is the banks or that most other stocks are really working well. But it does show you that we do have one acute problem with this market, along with some of the other chronic issues, Morgan. Yeah, I like that you disentangled those and sort of gave us a little more context there.

What I think is pretty interesting, too, though, is that it's not even financials that are the worst performing sector year to date, despite all the bank turmoil. It's actually energy. Right. Yeah, a little bit of that is the pacing of it. So, in other words, yeah, energy has been weak. Of course, it was the best performer last year. So you're working with about a 55, 60 percent gain last year. And then with financials,

they really did have a run higher into the early part of this year before SVB went down. And then it's just been, you know, you couldn't even get in the way of that decline that's happened, at least in pure banks. Keep in mind, things like MasterCard, Visa are now in the financial sector. They were just moved there recently, and they're both within a few percent of their 52-week highs. Yeah, and of course, when we're talking about regional banks, we're also talking about some of the stocks that are comprising the Russell 2000, which we know has been hit pretty hard in the last couple of months as well. Mike, we'll see you later this hour. Thank you.

Up next, we're going to talk to FDIC Director Rohit Chopra about the latest pressure on the regional banks and also news today surrounding who exactly will pay to reimburse the FDIC's deposit insurance fund following the collapse of Silicon Valley Bank and Signature Bank. Stay with us. We have got such a big show ahead. Welcome back to Overtime. The spate of recent bank failures cost the FDIC's bank insurance fund nearly $16 billion. To fill that hole, the FDIC plans to apply a special fee to about 113 of the largest U.S. lenders, according to a proposal the commission voted on today. This, as questions remain around the status of some regional banks, PacWest is in the crosshairs again today, falling more than 20 percent after the firm said deposits dropped nine and a half percent last week. And you can see all the red regional bank names behind me.

There's quite a few, three that are not. To put it in perspective, joining us now is Rohit Chopra, CFPB director and a board member of the FDIC Board of Directors. He is also a member of the Financial Stability Oversight Council. So great to have you here and on set with me. Appreciate it. I do want to start with that vote this morning and this news. You voted in favor of this special assessment fee that's going to go to the more than 100 or roughly 113 largest banks. Why and how is this going to work? Well, we took some emergency actions in early March to stem the tide and impact of the failures of Silicon Valley Bank and Signature Bank.

Under normal circumstances, there wouldn't be much cost to the deposit insurance fund because those two banks were heavily dependent on big uninsured deposits. We wanted to safeguard the financial system, but it came at a cost, and the law allows us to assess that cost on those who benefited from it. And it was the biggest banks in the system that were dependent on uninsured deposits, and they will pay the bulk. The biggest banks on Wall Street got tons of new accounts and deposits because many depositors saw that those banks would be safe. And that's who is going to pay for this special assessment. So you focus on consumer protections within the financial sector. Aren't you concerned that

pushing additional costs onto those biggest banks to make up for this insurance hole is ultimately going to find its way back to consumers, whether it's through tighter lending standards or ultimately through higher fees. Well, really what we see is those largest banks, the banking industry over the last two years made hundreds of billions of dollars in profit. This charge is a small sum of that. Much of that went to executives and shareholders. So here's what we want to make sure of. Banks that are badly managed, when they fail, the shareholders need to be wiped out. Management is removed, just like they were at Signature Bank and Silicon Valley Bank.

We, of course, took steps to protect the entire system and want to make sure that those banks that benefited are paying for it. There is more work to do to make sure something like this doesn't happen again. We need to undo some of the lax oversight and regulatory rollbacks, and we need to take a hard look at those banks that are heavily dependent on uninsured deposits. Consumers, they should know their deposits are safe. And for, I think, 99 percent of accounts in America, they are under that FDIC insurance limit. And they have in the 90 year history of federal deposit insurance, they have not lost a penny. So in terms of some of the regulations from your standpoint that you would like to see manifest from this, What are they? Well, we need to make sure that shareholders have more skin in the game. We can't have a system where executives take big risks only to privatize the gains and socialize the losses. That means

real capital standards. It also means that banks need to have enough cash on hand, enough liquidity. And there was changes made a few years ago that relaxed some of those standards for big banks, not the very biggest. The assumption was these big banks that aren't the very largest can't cause harm to the economy. What we saw was a need for decisive action because they were about to fail. So we need to make sure that we regulate them appropriately to stop potential consequences to the whole economy. Yeah. I mean, you're also a voting member of FSOC, which is the Financial Stability Oversight

Council, which is the council that oversees SIFIs and GSIBs and all of these banks that were deemed, through the great financial crisis, too big to fail. So how do you ensure that those big banks don't get bigger and the competition among regionals and community banks and some of these smaller lenders doesn't get wiped out in the process? Well, part of it is making sure that we are holding accountable and using the laws on the books to not allow the biggest banks to essentially feel like they can get free deposit, unlimited deposit insurance. We need to change and adjust some of our deposit

insurance pricing. We need to make sure small banks, when they fail, they don't really cost much because they're easy to resolve. They don't lead to systemic risk. There's a long list of making sure that we don't have blow-ups that can really lead to broader contagion. Okay. I just hear all of this and I just can't help but think that this is going to mean higher costs for consumers in one form or another at some point. Well, we need a competitive market where when there that risk is priced appropriately and the truth is sometimes competition can lead to better prices for people one of the things the

CFPB is doing is trying to make it easier for consumers to switch their accounts to get better prices to use their own personal financial data to shop and switch so there's lots of things we can do, but I don't think we want a system where everyone is paying for the costs of someone else's risk-taking. Yeah, agreed. So one more question on this, and then I do want to talk more about the personal financial data rights rulemaking, which is one of the reasons that you are in town. But we've seen what's playing out with PacWest as the most recent bank example. Is the contagion contained? You know, I don't want to comment. We don't comment on any individual

institution. But the way I think about is the regulators always need to be prepared for any type of shock, for any type of issue that comes. pandemic taught us we obviously have a lot of people thinking about the debt ceiling and what would happen if there if there was pain from that so I take a view of let's always be prepared let's always make sure we take the appropriate actions and to really look at every moment on how things are moving okay so let's talk about this personal financial data rights rulemaking. You're unveiling an update on this. I guess walk me through what the problem is and what you're looking to change. Well, I think what we see is lots of different new firms, especially using new technologies, are trying to offer consumers, businesses,

new products outside sometimes of the normal banking system. We also see banks wanting to compete more for people's business, but it's often so hard to switch your bank account. It can be a bureaucratic mess to refinance your loan. So what we're trying to do is create an open banking ecosystem. We've seen this being done in other jurisdictions around the world that make it simpler to switch. We think the benefits of that will really accrue to consumers in the form of lower prices and better service. We got to worry, though, about privacy and data

security to make sure that when people's financial data is being given to new firms, that it's not being abused or exploited. So that's what we're setting up and we're hoping to accelerate already some good developments in the market. Yeah. Finally, you mentioned debt ceiling. I think everybody's watching this closely right now. Implications for consumers, for the financial sector, if we were to see this get to the 11th hour or even, heaven forbid, we see some sort of technical default? Well, I think there's less attention sometimes to how it affects the individual family. Yes, there's some projections that it could lead to job losses, other turmoil, but we could also see some very quick increases

in the rates to borrow on a credit card, on an auto loan, on a mortgage. And if that goes up steeply, that could be hundreds of dollars a month in extra payments for households. And that will have a real effect on people, especially those who live paycheck to paycheck. All right. So much more I could ask you. I think we're buttoned up against a commercial break, though. We really appreciate the time. Great to be with you, Morgan. Wide-ranging interview. Rohit Chopra, the CFPB, say it three times fast, director here on set.

Thank you. Well, shares of Unity Software are getting a big boost today following solid earnings and an upbeat forecast. We're going to talk to the company's CEO about the quarter and the outlook for the gaming market and whether mobile ad market has bottomed, too, when overtime comes back. Welcome back to Overtime. It is time now for a CNBC News Update with Bertha Coombs. Hi, Bertha. Hey, how are you, Morgan? Here's what's happening at this hour. Staffers from the White House and Congress met on Capitol Hill today to continue debt ceiling conversations. Meeting lasted for two hours. President Biden is scheduled to meet with the big four congressional leaders again tomorrow to continue their negotiations from Tuesday's meeting at the Oval Office,

though it is still unclear just how much progress is being made. The National Transportation Safety Board said today that it will investigate yet another Norfolk Southern train derailment in western Pennsylvania. No injuries were reported and no hazardous chemicals were on the nine rail cars that derailed Wednesday in Newcastle. This derailment is only about 20 miles from February's fiery derailment of Norfolk Southern cars in East Palestine, Ohio, that released toxic chemicals and led to local evacuations. And the UK today supplying Ukraine with long range cruise missiles as military aid continues to flow into the country. These so-called storm shadow missiles are launched from jets and have a range of over 150 miles. Supply comes as Ukraine prepares for a

counteroffensive operation set to begin any day. Morgan, back over to you. A lot of focus on that. Bertha Coombs, thank you. Take a look at shares of Unity Software closing in the green today, thanks to a revenue beat in yesterday's earnings report. The video game software developer is also raising its full year revenue guidance and said it is well positioned to benefit from AI. Shares finished up 13 percent. Joining us now is Unity Software CEO John Riccatello. John, great to have you back on the show. Great to be here, Morgan.

So you did raise your full year guidance. You said you're working towards profitability through the embrace of artificial intelligence. What does that embrace entail? Well, first off, we are profitable and we just beat our profit number two. So just throwing that in there. What I mean by embracing AI is really two things. One is, you know, we're the primary creation platform or where game developers go to make games or digital twins. One of the leading platforms there, for creating digital twins of factories and other types of facilities.

And what we mean is those that create those platforms or that type of content, they'll be able to do it faster, better, easier using AI. And then some of the AI tools we offer, like we've recently been talking about one of our tools called Barracuda, it enables content that was never before possible. Where the world's, for example, in a video game, the characters in the game can be alive in a way.

They can talk to you like they would, say, on a chat GPT application. They're not just scripted. The world can feel alive in ways that no one's ever imagined before. Yeah, I do. I mean, I do. Just to go back to the profitability standpoint, just in terms of metrics, I mean, based on, I guess, adjusted profitability, it is a 67 cent loss. You're talking about adjusted EBITDA. So our EBITDA number of the last quarter was 32 million dollars. And so, you know, we feel very good about our numbers. And, you know, there might be some miscommunication, which you have in front of you.

But we were profitable for the first time in the fourth quarter of last year and more so this quarter. And we guided for the year for increased revenue versus our prior guidance in the street consensus and for an increase in our EBITDA number. We had previously guided at the bottom of range for 230 and we brought that up to 250. So those are positive numbers and we feel great about them. Great. So there's some mixed, I guess, response on the streets today. Benchmark analyst Mike Hickey, for example, said that he's rating Unity's stock a sell. He says, quote, we believe AI and machine learning can be destructive to both Unity's growth and profitability and added that it's possible a

startup could make similar products as Unity at lower expenses and possibly taking market share. Why is he wrong? Well, first off, look, I think a lot of your audience probably has tried ChatGPT and use natural language to get an outcome from that. But you also use Word as a tool or Google Doc as a tool to edit that. Unity is is an editor and so it embraces both natural language and the tools you need to create things and so when we think about whether it's a natural language model or a content model like many that are out there generative art model they're going to need an editor and that's what we primarily provide we also provide technology that really no ai can provide which is a runtime which basically if you're hitting a triangle button on your PlayStation I'm hitting

the X button that interaction needs to be ingested in the moment and an AI is not going to easily accommodate that so simply put we think we're in a brilliant position to help our creators produce content better faster cheaper and also have them do things like I was talking about, the characters in a game. That's possible because we can run AI on a mobile device using our Barracuda technology. The last time you were on the show, which was a couple of months ago, we talked about the strong growth you were seeing in Create, regardless of the state of the economy and the strength you were seeing in Grow. And one of the things you talked about was the advertising business was kind of the question mark, the headwind. Can we safely say now that the mobile ad market has bottomed here?

Bottomed is probably not the term I would use, although, look, it's been solid for the last several months. And there's increased user engagement, meaning more players. And wherever there's more eyeballs, more players, you're going to see a northernly move in the market. But we did not count on that as we guided for the year. So we're gaining market share. We're reflecting that in our guidance, hence the increased revenue and increased profitability. And we're confident we can do that for the long term. All right. John Riccatello, great to have you back on the show. Stock finished the day up 13 percent on a strong earnings story. Appreciate it. Breaking news on the debt ceiling debate. Kayla Tausche has the story for us. Hi, Kayla. Hey, Morgan. Well, a meeting between

President Biden and the four top leaders of Congress that was scheduled to take place tomorrow morning at the White House has been postponed, according to a White House official. I'm told the meeting is now set to take place sometime early next week before President Biden is set to travel to Asia for several days and that this meeting postponement, according to a source familiar with the matter, should be taken at least as a positive development that staff in their closed door meetings have been making progress behind the scenes. And according to this source, it just wasn't the right time to bring the principals back in the room. Now, of course, this is news that is coming out after market close. Of course, any news related to the debt ceiling is material to the markets, to the economy. So,

of course, we're going to get as much information as we can about what is happening in those staff meetings where both the Biden administration representatives and the congressional representatives are talking specifically about possible spending cuts that could be introduced to spending cap deal for the next couple of years and possible introduction of permitting reform, which both parties have been in favor of, although the different types of permitting reform that they have favored look a little bit differently. So clearly, pencils are still at work. They are still talking through these negotiations. And so that meeting at the White House with the top leaders and the president won't happen tomorrow, Morgan, but it is expected to happen early next week. Back to you.

It sounds like it's a very promising development. And I realize that there is a very wide divide by which lawmakers and the president and everybody involved in this process have to cross to be able to get to a deal. But is there a growing expectation or growing hope, perhaps, that we could actually see this happen before the end of the month? Well, that is, of course, the hope, Morgan. I think from all sides involved that do not want to see anything close to a default on the nation's debt. Our producer, Karen James Sloan, was on Capitol Hill earlier today, saw Louisa Terrell, the chief of legislative affairs here at the White House, meeting with many of those chiefs of staff from the various congressional offices in a meeting that was over two hours long.

So clearly there is a lot of meat to discuss in this agreement where they're trying to figure out where that middle ground is. And it appears that there is quite a bit of it, or at least they're trying to figure out where that middle ground is. And it appears that there is quite a bit of it, or at least they're trying to find where it is, Morgan. Yeah, going to be a key one to watch. And of course, when you start talking about permitting reform, what that means for energy and utility companies. And of course, when you talk about spending cuts, what that's going to mean for things like defense potentially too. Kayla Tausche, thank you. Sure. After the break, Mike Santoli takes a closer look at the popular narrative around the correlation between tech stocks and treasury yields. And check out Tesla getting a boost in the final minutes of trading today after Elon Musk said he has picked a new CEO for Twitter.

Though he didn't provide a name, Musk said he will transition to the positions of executive chair and CTO. Shares of Tesla up 2 percent. We'll be right back. Welcome back to Overtime. Mike Santoli joins us again from the New York Stock Exchange. What are you watching, Mike? Morgan, look at a couple of intermarket relationships that give some sense of what the market's been dealing with here in terms of the cyclical weakness, especially here's the copper price, along with the Russell 2000 small cap. So obviously not the most direct link, but they've had very similar trajectory over the last couple of years, as you can see right here. Copper kind of breaking down. There was a bit of a false rally that we got in the China reopening hopes. And that has sort of settled down. Although, importantly, both of these remain above the third and fourth quarter lows from last

year. And then also over to the large cap growth side of things, the Nasdaq 100 obviously been a leader recently, just as it was a leader to the downside last year. And its relationship with treasuries and therefore interest rates has been, you know, something of a debate. Most people got overly comfortable last year believing that just higher rates, meaning lower bond prices, equals lower tech stock prices. Well, it's not always a simple relationship. Over the long span of time, it doesn't really hold. And here you see we've disconnected a little bit. NASDAQ 100 pulling away even as Treasury bond prices remain relatively settled on the long end. This is because growth is perceived

as more scarce. Earnings are flattening out elsewhere. Earnings estimates are going up for these big growth companies, which seem like they have reliable profit paths. So I think that we can kind of say, yeah, this is holding the market together for now. And it's not just about interest rates. But I guess the big question is, for how long can we have this narrowing of the tape that we've experienced? Yeah, I feel like we've been talking about this a lot, but it continues to. We absolutely have. It hangs in there and it sort of goes back to this idea of mega cap tech as an almost defensive play in this uncertain market.

It certainly is, yep. Mike Santoli, thank you. Up next, Andreessen Horowitz, general partner Catherine Boyle on her firm's huge investment in early stage companies, building what they call American dynamism. Stay with us. Welcome back. Breaking news from the Fed. Leslie Picker has the details. Hi, Leslie. Hey, Morgan. Yes, the Fed balance sheet shrinking barely, but for the seventh straight week with bank reserve credit reported to be $8.47 trillion as of May 10th, that figure still higher than the size of the balance sheet before the March banking turmoil began. The bank term funding program that was created in March to help financial institutions get access to quick liquidity amid depositor volatility that grew

week over week to $83 billion. I'm also seeing a higher amount of primary credit banks borrowing at the Fed discount window. There was a big drop last week, so this is in some ways normalizing. That figure for the week was $9.3 billion. This is the so-called H-4-1 release that represents a balance sheet for all 12 reserve banks and is published every Thursday at about 4.30 p.m., guys. All right. Leslie Picker, thank you for bringing that to us. As Steve Leisman has nicknamed it, the salad buffet. That is the Fed balance sheet data.

All right. Venture capital firm Andreessen Horowitz announcing this week it's putting half a billion dollars to work, focusing on early stage companies that are building what they call American dynamism. This includes themes such as reshoring U.S. manufacturing, enabling home ownership, improving defense, creating reliable clean energy. The new fund builds on investments the firm has already made in this area, which includes companies like SpaceX and defense tech name Andrel. Joining us now is Andreessen Horowitz, general partner Catherine Boyle. Catherine, great to have you on the show. Great to see you, Morgan. Thanks for having us.

I remember a time where the mantra was buy American. Now we're talking about invest American. Yes. What do we mean by that and why do this now? So we define American dynamism as companies that are actively supporting the national interest. It's a broad category of companies, as you mentioned, everything from housing, education, transportation, but also companies that sell directly to the U.S. government. So aerospace, defense, national security, companies that historically have sold through procurement channels. And what we're finding is that founders are extremely excited about building for the national

interest. I think it's a huge difference from the types of companies that were being built 10 years ago. And there's a few reasons for that. Companies like SpaceX, Palantir, Anduril have really trained a generation of young engineers and founders to want to build for this country. So we're really excited. We're seeing a ton of momentum across the country in terms of people who want to build for the national interest. And we're excited to back them. Why do you think we have seen this, what I will call a fundamental shift in terms of the ethos around founders and around, by the way, Silicon Valley being willing to invest in those founders? Yeah, so I think there's a number of reasons for it. But namely, history has begun.

I mean, I think for a lot of young founders, this is the first time they've seen a live war. I mean, we're having a land war in Europe with the war in Ukraine. They also lived through COVID, and they're realizing that the resiliencies in this country, the defense industrial base in this country is not as strong as we once believed it to be. And so, you know, founders are seeing not only the opportunity, but they're seeing an important mission that they can work on, hard problems that, frankly, need their help. A lot of the companies that exist in the legacy industrial base, they do not have top-tier software engineers working on these problems.

And so we see this as a huge opportunity. Founders are seeing important problems that they can work on to bring next-generation software and AI into these spaces that have historically not had this type of engineering interest. Yeah. And you just mentioned AI. And certainly when you're talking about something like defense tech, you're talking about real world, real time applications for artificial intelligence that are already being deployed and generating money. But it takes me back to Marc Andreessen famously blogging in 2011 that software is eating the world. Some of these names, while there might be software involved, there's also hardware involved. And that wasn't,

at least up until recently, considered such an attractive investment, in part because when you're talking about something like space or defense or freight, when you're talking about hardware for some of these areas, very capital intensive can take a long time. Yes, they can take a long time. But what we've seen historically is that they actually grow to be very large, enduring companies. So if you look at the last year, SpaceX and Anduril were the two largest fundraisers in the venture ecosystem in the U.S. of the last year. Those are, you know, hardware companies. Yes, hardware, software hybrids. But they are, you know, capital intensive businesses that do require working in the physical world. And what we're seeing is that, you know,

investors are seeing that these companies have scaled to a tremendous size and are supporting unique interests of the U.S. government and commercial interests as well. So it's something that I think is leading to more and more founders being very excited about the opportunity, but recognizing that there are success stories. You know, 10 years ago, there weren't as many success stories in Silicon Valley of companies that were both hardware and software that had scaled and, frankly, trained a generation of engineers and new founders. That's the thing we're excited about. When we look at the legacy of something like SpaceX, not only is it that they've been able to deliver reusable rockets, it's that they've trained tens of thousands of Americans how to manufacture in the 21st century. So we're really excited to back those founders

in this next generation of companies that they build. Yeah. And of course, we're having this conversation. Policy and governmental policy is key to the discussion and I would imagine key to the ability or the sentiment to even begin to build some of these companies. But the fact that we are seeing infrastructure spending, we're seeing the CHIPS Act, we're seeing IRA, we're seeing all this money beginning to be deployed. Is that creating a floor or is that creating, I guess, a flow of funds to help support some of these initiatives as well? Well, I'd say that the movements are almost tangential.

So founders were starting to build these companies even before that legislation was passed. But I think in the same way that Washington is now recognizing that industrial policy is important and that these issues will require movement on the Washington side and on the policy side, founders are realizing that they can do things to build new technologies from the ground up. And at some point they will converge. But I do think that they are, you know, founders recognizing that these problems are important to address and they're building for those problems in the way they know how, which is, you know, building small series C and series A startups that then scale to become legacy institutions. And then Washington recognizing that it needs to deploy capital into these sectors if it's going to be able to procure technology.

The DOD has been historically very good at this, but now you're seeing it in other areas such as energy, such as chips, because industrial policy is so important right now. I think one of the most interesting things for me is the fact that none of your investments over the past year have actually gone to companies that are in Silicon Valley. It's been to other parts of the country. How does that speak to how you're thinking about the companies that you're going to make these investments, these early stage investments in and where you're targeting? Yeah. So I should reiterate that's the American

Dynamism companies that we've invested in. So, you know, we say we'll invest all over the country. We're looking for the best companies. And one of the things that we've noticed is we made over a dozen investments last year from this new practice and none of them were based in San Francisco or Silicon Valley. And I think what that is saying is that after COVID, a lot of founders said, hey, I can build a business in Austin. I can build in Washington, D.C. or Atlanta, Georgia. And there's a good enough tech ecosystem there, and there's unique problems that we can solve there that will ultimately scale and size. And so I think what we're going to see over the next 10 years is, yes, Silicon Valley will always be dominant. San Francisco will always be a hub for tech. But you're going to see a dozen more tech hubs just flourish in this country because founders

are excited to be able to build in other parts of the country. It's fascinating. I look forward to tracking how all of this progresses. Catherine Boyle, thanks so much for joining me today. Thanks so much, Morgan. Andrel, speaking of, is one of the names that Andreessen Horowitz is investing in. And we will speak with founder Palmer Luckey tomorrow at 4 p.m. I should note, Andrel is also on just released CNBC's new top 50 disruptor list as well. Still ahead, top media analyst Michael Nathanson makes the bull case for Disney, which was the worst performer in the Dow today, and why he thinks the stock is cheap following that big earnings sell-off. Welcome back. Disney, the biggest drag on the Dow after

losing 4 million Disney Plus subscribers. But our next guest makes the bull case for why investors should buy the stock on this pullback. Over time, we'll be right back. Shares of Disney, she said, plunging today after the company said it lost 4 million Disney Plus subscribers last quarter, finished the day down 8.5, almost 9%. It's the worst day since November of last year. Our next guest says the stock is undervalued. Let's bring in Moffitt Nathanson's senior managing director, Michael Nathanson. Michael, great to have you on the show. Why do you think Disney's undervalued here? Because I think the park business is such a good business that we've all been, including

myself, frustrated by the path of streaming growth in terms of profitability and ESPN's profits, but the park business is so solid and you don't have to really assert a lot of value to the other assets to get a much higher stock price. So I think this is a time for patient investors. Clearly, there's nothing in the next quarter that gets people excited. The keyulu, bringing Hulu in and taking out costs of combining Hulu and Disney Plus. That could be another two quarters away. I do want to get to the Hulu piece of this puzzle. But first, just in terms of the parks business, if we were to see a recession, we're already seeing consumer spending start to slow down and some signs of softness in the economy.

How real is that risk to your thesis? Yeah, that's a real risk. You know, so, you know, you know the reason well, like the parks, if we go into a consumer recession, parks will fall. But what's really interesting is that this has been such a strong park cycle and it's been led by pricing, not attendance. And typically what Disney does is they start discounting if there's a slowdown, they discount on pricing, and then the capacity comes back. So they have all the tools to kind of manage through this. It really depends on the depth of this slowdown.

We've been waiting for this now for a year. But that's a big risk, right? The big risk is that the parks really disappoint, and you can't get the benefits of cost savings from streaming. Quarter know, quarter to quarter, the parks look pretty good heading into the next quarter. So the fact that Hulu content is now going to start to integrate into the Disney Plus app, the big question mark was going to be what happens to Hulu at the end of this year and whether it gets sold to our parent company, CNBC's parent company, Comcast, or whether Disney takes over their stake.

Your thoughts now based on what we heard from Iger last night on the call. You know, we always thought that Disney is the buyer. Like, we've been confused that people want to debate this issue. I think Disney is the buyer. I don't think Comcast would be rewarded by buying Hulu in. So Bob is going to have to buy Hulu. And they really can't talk much about what does that mean to earnings for the company after they bringulu in. So Bob is going to have to buy Hulu. And they really can't talk much about what does that mean to earnings for the company after they bring it in. But our assumption is Disney

buys Hulu sometime in January of 2024. Okay. I do want to shift gears because one of the best performers in the S&P today was Alphabet. We saw that flurry of AI announcements from Google yesterday propelling the stock today. We're seeing a real AI war start to shape up here between Google and Microsoft? Yeah, it's funny. It's almost like the perception on Google for the past three or four months is they're a big share loser here to Microsoft. And it was decided in a matter of a week, right? And what they've done, I mean, what's funny is they've been talking about AI machine learning for like seven years now. And they've been integrating it into all their products.

They just don't have a product like ChatGPT and now Bards out there. So that's, you know, we have a buy and apple bet. We feel really good about that business. They made the right investments. So, you know, we're laughing because the market literally has discounted these guys that they'd be net losers out of the gate. And now slowly but surely, people see what they're offering, and they've rethought that position as being a big loser. So it's funny how the market flips on an edge that way. Yeah. Michael Nathanson, appreciate the time and the breakdown on two big movers in opposite directions today.

Just a quick last check on the market here. The S&P finished fractionally lower. The Dow was down the most in part because of that big move in Disney. But the Nasdaq finished the day slightly higher. In terms of what's on tap tomorrow, it's University of Michigan consumer sentiment. That's going to do it for us here.