Closing Bell - Closing Bell Overtime: Anduril Co-Founder On Raising A New Round; Claudia Sahm On If Sahm Rule Is Being Overused 8/14/24

Episode Date: August 14, 2024

Anduril co-founder Trae Stephens talks the company’s new factory and its latest funding round. Former Fed economist Claudia Sahm on if her rule, the Sahm rule, is being overused by investors right now. Plus, The Hartford CEO Christopher Swift on the continued rise in insurance costs and our Phil LeBeua gives the latest on the Southwest activist battle with Elliott Management.

That's the end of regulation. Carter Hannafin bringing the closing bell at the New York Stock Exchange. Transcat doing the honors at the NASDAQ. The Dow jumping and small caps pulling back after another cooler inflation print showed price growth falling below 3% for the first time since 2021. That is the scorecard on Wall Street. But the action is just getting started. Welcome to Closing Bell Overtime.

I'm Morgan Brennan. John Ford has the day off. Well, coming up this hour, it's a big hour. The creator of the much cited SOM rule, Claudia SOM, joins us with her reaction to the latest economic data and if she thinks a recession is on the horizon. Plus, we will be joined by Trey Stevens, the co-founder and executive chairman of Andral, the red-hot defense tech unicorn that just raised another $1.5 billion in a Series F round. And we're awaiting breaking news this hour, including earnings from tech conglomerate Cisco and a possible wave of 13F filings, outlining major positions of some of the biggest players on Wall Street. But first, let's break down today's action with our panel.

Joining us now is Barbara Duran of BD8 Capital Partners and Osung Kwon of Bank of America. It's great to have you both here. Osung, you're here on set with me. I'm going to kick this off with you because we did have stocks finish fractionally higher today. CPI basically in line. This puts claims data perhaps in even more focus tomorrow.

What are you watching? Yeah, thanks for having me today. I mean, data perhaps an even more focus tomorrow. What are you watching? Yeah, thanks for having me today. I mean, we get some more economic data tomorrow and big earnings tomorrow. So those are some of the things that I'm watching. And I think it's really about growth going forward. I mean, the market's basically telling us that inflation is no longer a problem. I mean, we have seen limited actions today. I mean, we kind of pre-traded that yesterday after PPI. But if you look at things like five-year break-evens, it's below 2%. So the market is basically telling us that inflation is no longer a problem. And going forward, it's really going to be about growth.

Barbara, I want to get your thoughts on if this is about growth going forward, how do you position yourself as an investor? Does tech still belong in the portfolio, especially when it's perked back up so far to start this week? Or do you look to the other 493 stocks? Yes. No. Well, I think tech, you know, when everybody thinks it's done and over and crowded, we have a little bit of a correction, a little bit of give back. And I think what you saw in this last week, you know, when we had the Monday flash crash, if you will,

is that people leapt in to buy back these big tech names because they do have the growth that is sustainable for some time to come. So I think you still have to be in the big tech. You can add when you have these moments in time. And I think, though, it's tough right now in terms of seeing a rotation to other areas or to spreading it out. Yes, I still think you can be rewarded for stock picking. You're getting moments like Chipotle, you know, with that amazing news yesterday about the CEO leaving to join Starbucks and Chipotle sold off. I think it's a great buying opportunity. You know, there's names like that that or CrowdStrike, which really got hurt by that bug in their system that shut down a lot of things. So you're getting opportunities, you know, in these growth names of grand franchises. So I

think you continue to look there. But I do think the emphasis will continue to be on growth in the economy. You know, as Osung just said, inflation looks and the investors in the Fed looks like it's the inflation is pretty much under control. So now it's really about the jobs. You know, we get an important jobs number September 9th before the Fed meets the next time. And I think that's going to have a big impact in terms of whether they raise or they, excuse me, or they cut 25 pips or 50 pips. So I think all eyes are on what's happening with jobs because obviously that fuels consumer spending in the economy. Okay. So if growth is in focus right now, why buy cyclicals, which I know you're arguing for? Yeah. I mean, so at the index level for the S&P 500, we are more neutral. We see more opportunities within the index, namely the equal-weighted S&P 500.

And post-CPI, not the one from today, but from last month, we highlighted three reasons to rotate into cyclicals. Number one, rate pressure is easing. Number two, I think growth is ultimately reasons to rotate into cyclicals. Number one, rate pressure is easing. Number two, I think growth is ultimately going to be supported by the Fed. If inflation is no longer a problem, growth becomes the Fed's sole mandate, and I think it's going to be ultimately be supported. And number three, and most importantly, earnings are broadening out. In Q2, the other 493 posted its first positive earnings growth since Q4 of 22, growing earnings by 8% year over year, actually beating consensus numbers by 1%.

So earnings are broadening out, and I think so should the market. But aren't earnings expectations also, or earnings estimates, I should say, aren't those also starting to revise lower for the second half of the year? In Q3, we saw about 2% cut so far, but that's basically in line with the historical trend. Heading into earnings over a three-month period, heading into earnings, we typically see 3% cut in EPS for the following quarter. So it's not unusual to see a cut into earnings. We're waiting on Cisco results, Barb. How important are those going to be both as a macro bellwether for IT spending and also as maybe perhaps another data point or another

indicator for where this AI investment is headed and how quickly it comes to fruition? Well, I think, you know, it's a good question, Morgan. I think on the margin, there's going to be some good information, you know, to be had. I don't think it's going to be major. I think, you know, it's a good question, Morgan. I think on the margin, there's going to be some good information, you know, to be had. I don't think it's going to be major. I mean, they are trying to grow. They just acquired with Splunk. And their big problem is right now networking demand is pretty soft. And we haven't seen many green shoots there.

We need to see what's happening. So apparently a lot of their customers are taking resources away from their budget to spend on AI. And of course, they are trying to get into the AI play. They probably have visibility on about a billion dollars in AI networking equipment. And we'll see what they have to say and how much that will pick up. But I think expectations are pretty low going into the print in terms of revenue growth. Speaking of, we do have those Cisco earnings. They're out. Seema Modi has the numbers. Seema. Morgan Cisco's earnings came in two cents above estimates at 87 cents adjusted.

Revenue of $13.6 billion, also a B, driven in part by software that saw a 15% jump in subscription sales and product order growth of 6%. That excludes Splunk is higher than what Wall Street was forecasting. Cisco did announce a restructuring plan, pre-tax charges of up to a billion dollars consisting of severance and other one-time termination benefits. So clearly job cuts are a part of this.

We'll look to the earnings call to get more details on that. The call begins at 4.30 p.m. Eastern. We're looking at the stock up 5%. Worth noting that in addition to what we're anticipated to hear, Morgan, Cisco did announce layoffs of around 4,000 workers in February amid sluggish demand and efforts to increase efficiencies in its business. Back to you. Okay. Sounds like we got a beat and raise for Cisco. Shares are up 5%. Don't miss an exclusive interview with Cisco chairman and CEO Chuck Robbins. That's going

to be tomorrow morning. Squawk on the Street kicks off at 9 a.m. Eastern. Barbara, I'm going to go back to you on this one. Your reaction to these numbers we just got. Well, it's interesting, you know, because they're really expectations, they said, were very low. The stock's selling at 13 times, which would be a trough multiple for them. The fact that they beat on both the EPS and revenues is interesting. And probably, and they, and, you know, your reporter made the point that it really wasn't from Splunk, you know, because that's obviously they're hoping to offset their own slow growth, which probably means the security platforms, they've introduced some five different platforms over the last, say, 15 months. And that's important in terms of their growth. So I suspect that's really what's kicking in here.

And so we'll see, because they had, you know, competitor extreme networks. They reported and they did not see much pickup in the core business of networking among their customers. So I think it's probably really security that's done it here. We also want to see what's happening with gross margins, because the last quarter they were up 310 bps. And that was a combination of things of new products, was a bit of splunk was freight cost was a bunch of things. So very curious to see what happens with that here. OK, Osang, quickly, speaking of gross margins, what matters more now for the market? Is it maintaining and growing profitability for companies or being able to maintain growth for revenue as we see that top line begin to slow down in a disinflation environment?

I think it's really going to be about top line. I mean, so far, this earning cycle, the up cycle has really been driven by better margins rather than better sales growth. There's only so much you can do in terms of margins if top line is not growing as much. So going forward, I think it's really going to be about top line growth and incremental margins coming from it.

All right. Barbara, Osang, thanks for joining me. Good to kick off the hour with both of you with all the major averages higher, except for the Russell 2000, which ended down about half a percent. Now let's bring in senior markets commentator Mike Santoli for a look at how the dollar and commodities reacted to the CPI report. Mike. Yeah, Morgan, the dollar pretty much flattish, but did have a downside bias for much of the day. If you look at the U.S. dollar index and that's been continuing a move that we've seen recently. Take a look at a one year basis. It has sort of sagged down toward the lower end of its range. U.S. dollar index around one or two. Now, that makes some sense.

We're pricing in the potential for more Fed rate cuts. What I do find notable, though, is this latest little bump lower in the dollar relative to the yen and other currencies has not created instability in the stock market. Remember, that big short squeeze in the yen, rise in the yen over the dollar was a big catalyst for the shock we had and the last part of that recent pullback in stocks. And as you see right now, this last little bit has been accepted fine by equities. Clearly not as much capital market stress or unwinding of leverage that we saw before. So that's probably in the good or benign

column. And then if you want to look at commodities, I think it's very interesting is gold versus the broader GSCI commodity index. This is over 18 months. And you see, obviously, gold is just pulled away from more economically sensitive commodities such as energy and others. Obviously, that means goods inflation has not been the issue for a while right now. Whether that's raising global growth concerns or not, I think it's debatable. At this point, it much more just seems like we're well supplied and the global economy plugs along, if nothing else. You do have to wonder, though, how much of this is tied to, especially when you're talking about some of the industrial commodities and even arguably gold when you have central banks

stockpiling gold right now and veering away from the dollar to a certain extent. How much of this is tied to China and slowing growth that we're seeing there? I mean, just in the last 24 hours, you had the world's largest steelmaker out of China saying that he's expecting a, quote, harsh winter when it comes to steel making. We've seen iron ore prices fall. Steel has been coming off as well. Copper as well, although we've got a strike at a major mine and that could potentially shift things, at least in the near term. Well, I mean, I think that's all happening. And China is sort of the marginal demand for most of these things.

I do think when it comes to gold, there's many explanations for it. It's rising in the face of higher real interest rates. You know, obviously the Fed's going to cut, but it doesn't seem to be about that. I do agree. It's about central bank stockpiling. And it's essentially, you know, capital leaving perceived unsafe places for things like gold, gold even outperforming crypto in this last little stretch. I agree with you on copper, although it's holding up better than a lot of other commodities, but at an absolute price level of $4 a pound, a little more than that.

We traded here like a dozen years ago. In 2011, copper was at this nominal price. So I still think it doesn't get in the way of feeling as if you can have decent growth without a lot of inflation. Okay. Mike Santoli giving us the nuance as always. Thank you. We'll see you a little bit later this hour. Coming up next, Claudia Somm. The creator of the Somm Rule joins us with her read on the economy ahead of tomorrow's jobless claims report and reaction

to some criticism about the fervor around her recession indicator. Plus, the CEO of insurance giant The Hartford discusses the still sticky inflation showing up in motor vehicle insurance prices, which rose more than 18 percent from last year. Overtime, back at two. Welcome back. Today's CPI report for July showed inflation rose 2.9% from a year ago. That is the lowest level since 2021. So does the report solidify a September rate cut? Well, joining us now is Claudia Somm.

She is the chief economist at New Century Advisors. She's a former Fed economist that created the Somm rule, an indicator for the early stages of recession. Claudia, it's great to have you back on the show. I want to start right there, and that is the fact that we had an inflation report that came in basically in line with expectations, but it's still stubbornly, when you look at the core CPI, still stubbornly stuck above that 2 percent target for the Fed. How does this position us for an FOMC meeting in September? Right. So the Fed has told us all year they want more good inflation data. Today was good inflation data. It wasn't great. I think Fed Governor Waller likes to give letter grades.

I think he might give this one a B plus if he's being generous. But that's what they need is that further progress. So this checks the Fed's box on that good inflation data. But frankly, the conversation has moved past that to some extent in terms of, you know, can we keep waiting on more and more inflation data to really get going with the rate cuts? It's a key point. And before I dig into that a little bit deeper with you, I do want to get your thoughts on the shelter component, because that looks like it's starting to reaccelerate or firm up a little bit more. Again, we know the housing situation continues to be particularly unusual. You've got high mortgage rates, high prices. Those haven't

really come down in a meaningful way. So how worrisome is that? Right. Well, it's it's worrisome in the sense that the Fed has been very focused on anything that might be an upside risk to inflation. Right. They want the good data. They want to be convinced and confident that inflation is going sustainably to two percent. Right. So if there's any like slow poke in that movement to two percent%, it's going to create potentially unevenness month to month and might look like we're backtracking and cause problems. So we had thought last month when we saw the shelter numbers that things had really moved down into a pre-pandemic pace, which is what we absolutely needed completely to move the needle

on the CPI because shelter is so important in CPI, but also on PCE. You're not getting back to 2% with shelter being elevated outside of some really bad, you know, unhealthy economy situation. So last month, like, oh, we turned the corner, that risk is really, you know, shut off that we're going to get stuck with shelter, and it's going to take a very long time. And then we saw the, you know, a pop back up this month and it's probably some of it noise, but it does reinforce that that piece of shelter, just when you look at the headline number or the core number, it's going to keep sticking it higher. But the problem is, is the Fed in reacting to that can get us in a lot of trouble because what's pushed up

the shelter inflation that we're seeing right now is a big surge in market rents that happened in 2021 and 2022. Like the Fed can't go back. There's no Fed funds rate that can go back and take demand out of the apartment market in 2022. And so there's this kind of tricky piece there. Okay. Some good context there. So the SOM rule, it's been getting quoted far and wide, I think on a daily basis on CNBC for a number of weeks now, very focused on labor. Two pieces to the question here for you. The first is at a time where we're having more and more guests come on and say, labor data is going to matter more now than inflation. what do you think? And just as importantly, how do you react to perhaps some of the criticism, Rick Reeder from BlackRock being the most recent example yesterday,

that the SOM rule is being taken out of context or being overhyped? Have a listen to that. I think there's some interesting things around the unemployment rate. The SOM rule has gotten a lot of focus, I think way too much focus. You're bringing a lot of people in the labor force. That's move. So how do you define what are the metrics you're thinking about? Your thoughts. I think we should be talking about the labor market, not just the bad part of it. Right. I think the SOM rule, you know, it kicked off normally

when it triggers, it's we're in a recession, not forecasting one, like we're months into one. This time, the economy does not look like it's in a recession. So, okay, so what's going on here? All right, let's have a really good discussion about, yes, there's weakening, there's some unemployment rise, that's a problem. The Fed is putting downward pressure on the economy, right? So, like, this is not an accident that we're slowing down. So let's talk about that. And then, oh, some of this looks like supply coming online, the labor market's actually better off than the summer or the unemployment rate would tell us. And it's like, okay, there is nothing to fear from the Fed of a strong labor market if it's strong, because there's more supply, like get out of the way, right? So it actually is telling it, like, really thinking hard about what's happening

in the labor market. It gives messages to the Fed both on the risk to inflation, like more labor supply, you can actually be disinflationary. That's a good thing. Or this risk to the other side of their mandate. And, you know, so I think it's important that we've switched the conversation. You know, I hear you. Like, it's not a perfect metric. It wasn't supposed to turn on outside of a recession. Like, this is not, you know, and it gets misunderstood. And some of that's, you know, it's a simple measure. Simple measures fall apart under stress of a particularly complicated time.

But this conversation is one that we absolutely should be having and the Fed absolutely should be having, too. Claudia Somm, great to get your thoughts on all of it. Appreciate it. When we come back, the co-founder and chairman of Defense Startup and Rural Industries joins us fresh off a massive new funding round that pushes the company's valuation to a staggering $14 billion. And later, Alphabet shares getting hit today after reports said the DOJ could look to break up Google as part of its antitrust case against the company. But could Google be worth more in pieces than as a whole? We're going to discuss that ahead on Overtime. Welcome back to Overtime. Berkshire Hathaway's 13F report is out, and Contessa Brewer has the details.

Contessa. Hi, Morgan. Berkshire Hathaway disclosing the size now of its Apple stake at the end of the second quarter was 400 million shares. Of course, Berkshire announced recently that it had decreased its Apple holdings by 49% during the quarter, so now we know that it stands at 400 million holdings by 49 percent during the quarter. So now we know that it stands at 400 million shares. OK, wait a minute. During the quarter, it also revealed small new stakes in cosmetics company Ulta and Heiko, which makes aircraft components. It increased its holdings in global insurance giant Chubb to 27 million shares, up about a million shares. Remember, that was revealed as Berkshire's mystery stock. And Berkshire decreased its stake in Capital One, in T-Mobile, in Floor & Decor,

and Louisiana Pacific, a materials manufacturer, and entirely dissolved its stake in Snowflake, the AI cloud computing company. And Snowflake is off by more than a percent at this point, too. We'll keep watching those. Morgan? All right. Contessa Brewer, thank you. Let's bring back Mike Santoli for reaction to this Berkshire filing. Mike, beauty. Beauty is beautiful. Ulta, it hit pretty hard. So it's interesting to see the pop here. Yeah. Beauty at a price is beautiful to Berkshire Hathaway is the way I would say. This used to be, you know, kind of a high momentum growth stock with a really demanding valuation, about 40 times earnings, obviously falling on a couple of rough quarters now under 13 times earnings. I think that's why you see the dramatic price reaction to that new stake. Now, you have the standard disclaimers here. One, you don't know if it's

Warren Buffett or the other investment managers at Berkshire who are doing the buying. It's a relatively small stake, as Contessa mentioned, and it can change at any time. But it is interesting because retail is not really an area where Berkshire Hathaway has done a whole lot over the years. I mentioned that the very small position in floor and decor was reduced. So it seems like they weren't necessarily hunting for a specialty retailer because that's not their mode, but it came into the valuation zone, presumably. And of course, Berkshire's bread and butter is insurance. Perhaps not surprising to see that they have up to their stake in Chubb. The Snowflake sellout is interesting as well. I mean,

stocks down one and a half, almost two percent right now. I realize that they have had this big position that they've been selling out of an Apple, but in general, I wouldn't necessarily historically think Berkshire and tech or software, etc. Well, certainly also not necessarily, you know, relatively early stage expensive software stock like Snowflake. It doesn't seem like, you know, the kind of franchise that Berkshire would say, OK, this is going to be around for 50 years and we're going to, you know, own it forever. So, again, you never know if this was just sort of a tactical position that was put on somewhere in the in the portfolio. But, yeah, that's that's the other one that seems like it was, you know, an exit after a maybe half hearted entry. Gotcha. All right, Mike,

thank you. Well, shifting gears, defense startup Andrel recently raising $1.5 billion in a Series F round, bringing the company's valuation to $14 billion. Part of the funding will go towards its manufacturing platform, Arsenal, that will power a new 5 million square foot factory called Arsenal One, capable of producing tens of thousands of autonomous military systems per year. Joining me here in a first on CNBC interview, Andrel co-founder and executive chairman Trey Stephens. He's also a partner at Founders Fund. And Trey, it's good to have you on set. Welcome. Thanks, Morgan. Good to be here.

All right. Congratulations on the round, on the raise, I should say. Five million square feet. That's big. It's really big. It's a lot of square feet. Okay. How does this build out happen? What does it mean in terms of production and how quickly you can bring that online? Well, I think one of the things that oftentimes people miss is that you don't go to war with the things that you're developing. You go to war with what you have today. And we are in this place where our entire weapons inventory needs to have literally another zero at the end of it. And maybe we're OK on day zero. Maybe we're kind of stretching our limits on day 30.

But we're definitely nowhere near having the equipment that we need if we were to be in a conflict in day 300. And that's really what we're trying to solve with Arsenal One. OK. How quickly does it happen? I mean, this will be a staged process in the next couple of years. We have to identify a site, work out the arrangements with the state that we're going into,

and that will be a process that we'll be figuring out in the next couple of months. And then as far as build-out and things like that, obviously it depends on the site and how ready it is to scale. But I would imagine that in the next couple of years, we'll be into those first couple of million of square feet producing. Yeah. I mean, it does cast a light on something I've been covering for the better part, I would say, three years with the publicly traded, more traditional

defense prime companies, which is supply chain and the defense industrial base and how brittle it has been. So what's so fascinating to me about Anduril is that software company within hardware. You're doing both and you sort of have a different business model in terms of how you approach development and then selling those products to DoD and elsewhere. That's right. The traditional defense industry is built around exquisite systems. You know, they're building multi hundred million dollar fighter planes, bombers, multi-billion-dollar aircraft carriers.

These are low-volume systems that are incredibly complicated, that are very, very inflexible in our supply chain to be able to shift from making a Stinger missile to making a Patriot to making a fighter plane. And our goal at Anduril is to really focus on how can we build a software-defined architecture in manufacturing as well as in our products so that we can move really quickly to change course when we need to change course to be able to manufacture in a modular sense rather than getting stuck in these exquisite kind of pipelines. That sort of reminds me a little bit of the Tesla model in terms of software taking a bigger role on the factory floor. I was speaking to General Jay Raymond, retired now, but the first ever chief of the U.S. Space Force, about how the business model

is changing. And we were specifically talking about space, but how it's changing, how the rise of commercial space is enabling the government to think about risk differently. And using the example of the shift away from very expensive so-called exquisite satellites that take many years to build, there's one-offs, to partnering more with commercial space companies for faster, cheaper, more proliferated spacecraft that can be launched more quickly to orbit. I want to play the soundbite for you about how he's thinking about this business model and what it means. If you have a different model that has satellites coming off of an assembly line, you might be able to take a little bit more risk. One, because the numbers are greater. Two, if something fails, another one's coming off the assembly line right behind it.

And three, it doesn't cost, you know, you're not breaking the national treasury. And so this new business model that started out, you know, first with our missile warning, missile tracking redesign, will now progress into other capabilities as well. And I think that's a significant opportunity for a commercial industry. You're interacting with the DOD on a daily basis. Are you seeing that shift? Yeah, I mean, I think what General Raymond is describing is perfectly analogous to what we're working on at Anduril. And it is a cultural shift that is beginning to happen in the department. You see things like the replicator initiative that has been spearheaded by Deputy Secretary Hicks. And that's really what we're leaning into at Anduril,

is how do you produce these high-volume, much less expensive systems where you can afford to take risk and iterate much more quickly than you would in a multi-decade weapons platform. All right. Trey Stevens, thank you so much for joining me here on set. Thanks. There's always so much to talk to you about, so come back. I will be back.

Talk about it even more. All right. That's Trey Stevens of Andrel. For more of my conversation with General Raymond, scan the QR code right there on your screen. You can listen to the full interview on my podcast, Manifest Space. That episode will drop tomorrow. Well, it's time for a CNBC News Update with Bertha Coombs. Bertha. Hey, Morgan. An immigration proposal that would let local police make arrests near the Mexican border will appear on Arizona's November ballot for voters to decide. It's the biggest push to draw local authorities into immigration enforcement since the state's 2010 law requiring police to question people's immigration status in some situations. The Delaware Supreme Court upholding today a blockbuster $267 million legal fee awarded to five law firms for obtaining a $1 billion settlement for Dell shareholders over a controversial transaction back in 2018 that marked Dell's return as a publicly traded

company. The fee is one of the largest ever for a U.S. shareholder litigation. And after Tropical Storm Ernesto pounded Puerto Rico with rain, triggering major flooding, the private consortium operating the island's electricity grid reported about half of its 1.4 million customers are in the dark. The National Weather Service warned while Ernesto, which is now a hurricane, is north of the island, the territory will continue to be affected by the storm. Tough for those folks, Morgan. Back to you. Bertha Coombs, thank you. Up next, would Google actually be worth more if it were broken up into pieces? Mike Santoli has the surprising charts that tell the story. That's next. And later, the CEO of the Hartford joins us to talk about the sticky inflation in auto

insurance that showed up in today's CPI report. And if any relief could be coming for policy holders. Stay with us. We continue to go through the 13 F's. This time it's Pershing Squares filing that's out. And we're going to get back to Contessa Brewer for that. Contessa. Morgan Pershing Square has revealed a new stake in Nike. It bought 3 million shares in the quarter and it decreased its stake in Alphabet in both Class A and Class E shares. We're also seeing a slight decrease in Chipotle and

restaurant brands. Other decreases here are Canadian Pacific and Hilton Worldwide. Morgan. All right, Contessa, thank you. We're going to go back to Mike Santoli, get his reaction on this one. Mike, we were just talking about Nike yesterday. Yep, we were. And obviously, it had sort of a fallen bellwether of consumer brands. And, you know, it's really fascinating about this. First of all, you know, it's a concentrated portfolio. There's only a handful of stocks. So you only want to buy things that you think could be in there for a while that are real opportunity.

Nike really cracked on the very last trading day after earnings of the second quarter. So it'd be really fascinating to know exactly when Pershing Square did buy the stake or when it was accumulating it, because that's going to tell you whether it was incredibly timely or a little bit ill-fated. And obviously, it's reacting here pretty strongly to the news of this new stake. So kind of interesting. We were saying just yesterday, a lot of folks feel like Nike is ripe for maybe a little bit of a rethink. It rallied yesterday on the replacement of Starbucks CEO. So see how that goes. All right.

Well, meanwhile, Google trading lower today after reports said the Justice Department is considering breaking up Google after last week's ruling that the company maintains a monopoly on online search. So is the company worth more in pieces? That's the key question here. Mike, want to get your thoughts. We don't know enough about what it would even look like if, in fact, they were required to divest a few things or separate some businesses. And I would also say I think it's been an element of conventional wisdom on Wall Street that it could very well be worth more in pieces if it were to happen that way to spotlight the incredible value of the core business and all the rest of it. What I think is relevant here is the fact that Wall Street's kind of wavering on exactly what Google is worth relative to peers. Here's 10 years of meta versus Alphabet. And you see kind of mostly staying in sync with one another, but really going opposite directions here recently. It's not just the antitrust. It's also AI is a threat to search,

of course. Now, take a look at the relative valuation of Alphabet versus the S&P 500. It's now at a small discount, about 90 percent of the forward P.E. of the S&P 500. Part of that, it's a mature company. It's not going to get the big premium it used to in the old days. By the way, Monday is the 20th anniversary of its IPO. This takes you back 15 years. So the market's not really assigning a ton of premium value to the business. Looking out from here makes the conversation more interesting in terms of, you know, what different parts of it are worth and how long this process might last in terms of Google fighting this effort to have them narrow their scope. It's really fascinating. I mean, it raises the question value stock or

a sign that online search has peaked for Alphabet, which is what Dan Niles was arguing yesterday, saying he shorted the stock. Mike Santoli, thank you. Up next, the CEO of the Hartford on the outlook for insurance inflation, which remains high even as overall prices decline. And check out shares of snack maker Kelanova, the big winner in the S&P 500 today, up almost 8%. The company, which was spun off from Kellogg last year, is being acquired by privately held Mars. That's the owner of M&M's and Wrigley Gum for nearly $36 billion in cash. Welcome back to Overtime, the S&P's property and insurance subsector hitting an all-time high today,

having one of its best days of the year. That's on the back of strength from names like Allstate and Progressive. After the July CPI print came in, about in line with expectations on the headline number. But take a look at the auto and home insurance numbers, continuing to be sticky. Auto insurance prices were up 18.6% versus last year. Joining us now is the Hartford Financial Services Group Chairman and CEO Christopher Swift. The company offers car, home, and business insurance along with employee benefits programs. He joins me now on set. Chris, it's great to have you back. It's great to be here with you, Morgan. Okay, 18 plus percent year over year. It's still very high. It's very sticky, but that does signal a little bit of a deceleration in the pace

of autoinflation that we've seen in recent months. Has it peaked? I do believe it's peaked, and it will begin to moderate slowly into 2025, but still remain higher than maybe consumers expect or like, principally because our cost of goods sold is still elevated compared to historical norms. And we could talk about it. I could give you three reasons why they're still inflated. And it's broad-based inflation. And we break down sort of the inflation components in our analysis into frequency components, into severity, both bodily injury and property damage. There's an element of

social inflation or legal system abuse. And then finally, there's a weather component of just more severe convected storms that affect both auto and the home line. But if I go into the details just a little bit more, severity, you know, for property damage is elevated, principally because used car prices are high, labor components are high, the replacement components with all the electronic gadgets that are in cars these days is high, and it just adds up, particularly given then there's delays in getting cars fixed with various repair shops across the country. Okay. On the bodily injury side, it's just more expensive to settle claims,

whether it be medical trends that are affecting, you know, getting people back to health, whether it be lawyers being involved earlier on in cases and demanding higher settlements. The average cost of claim settlements is up about 30 percent over the last four or five years. Wow. Is there a point at which, and we've seen it particularly elevated on the auto side, but it's happened on the homeowner's insurance side as well. Is there a point at which, and we've seen it particularly elevated on the auto side, but it's happened on the homeowner's insurance side as well. Is there ever a point where we get back to deflation or deflationary environment for consumers? No. No.

It sounds like now. I was going to try to be optimistic, but again, component cost on homes, commodities, labor are still elevated. What happens when there's larger catastrophes in an area, there tends to be surge pricing where demand goes through the roof. That affects things. But the changing weather patterns and the frequency of more severe convective storms, primarily in the middle of the country, even outside of hurricanes or earthquakes, wildfire is still elevated in the the middle of the country, even outside of hurricanes or earthquakes, wildfires still elevated in the western parts of the country. So the frequency of large losses is high, and I expect it's going to remain elevated at least for the next couple of years.

Okay. And of course, we did just get our third named hurricane storm or system of the season as well today. You have a robust employee benefits business as well. At a time where labor market dynamics are very much in focus, what are you seeing from your vantage point? You know, I would say, you know, steady as she goes. You know, there's been pockets of retreating of labor, you know, meaning layoff primarily, I would say, in the tech sector. But, you know, generally, you generally, from East Coast to West Coast, North to South, it's been steady. The change for us is in the prior two years, it was actually more robust. So there's much more employees being added. Wages were up,

which then affects our premium increases. So I would say we're getting back to normal with premium increases and growing our business in that 2% to 4% range. And we mentioned the fact that insurer stocks in general are trading higher today. Allstate, perhaps one of the reasons is because they're selling one of their employer benefits-related businesses as well. How are you thinking about your portfolio? Yeah, we love our portfolio. You know, we like to describe it as a diverse but yet complementary mix of businesses. If you really think about it, it's all underwriting-based businesses, P&C and benefits. They go together. They go together with our

claims function, customer experience. We're all aligned on it. So I like our business mix quite a bit. And our stock price has been up 35- plus percent this year. So I think investors like it, too. It does seem that way. Chris Swift of the Hartford. Thanks for joining me here on set. Thank you. Well, Appaloosa's 13F filing is out as well now. Contessa Brewer has those details. Contessa. Morgan, Appaloosa sold big tech with decreases of 7% of Alphabet shares, 9% decline in holdings of Amazon, 17% decline in Meta, 16% decline in Microsoft, and sold out of Microsoft puts. Appaloosa is also decreasing its exposure to the chips, NVIDIA, AMD, Micron, Qualcomm, Taiwan Semi, and Lam Research. And we're seeing a big increase in Lyft by 1,600 percent.

Started from a pretty small stake here, 467,000 shares, now up to almost 8 million. Also, it's increasing Uber by 10 percent. So it's clear there's something to like about the ride share names. Morgan. All right, Contessa, thank you. Elliott Management launching a proxy fight at Southwest Airlines just a day after activism sparked a CEO change at Starbucks, or at least maybe perhaps helped contribute to it. Details about its latest battle for the boardroom when Overtime returns. Welcome back. Southwest Airlines is facing a proxy fight with activist investor Elliott. Phil LeBeau has the details. Phil. Morgan, we've known for some time that Elliott planned on increasing its pressure,

and boy, have they ratcheted it up. Yesterday afternoon, they announced that they are going to be moving forward with their push to nominate 10 new directors to the Southwest Board of Directors. There are 15 people on that board. They want 10 new people. We're not going to run through all of them, but they have vast experience within the airline industry, the travel industry. Elliott has 8.2 percent stake in Southwest. Once it gets over 10 percent, and that should happen relatively quickly, they will have what they need in order to force a shareholder meeting and a vote to take place. Remember, the poison pill kicks in if they go over 12.5 percent.

What do they want? They want changes at Southwest. And Southwest has responded by saying, look, we've already announced a number of major changes to drive greater revenue. Premium seats, assigned seats, red-eye flights. This is all going to be filtered into Southwest over the next 12 to 18 months. But Elliott also wants the removal of Southwest CEO Bob Jordan and executive chairman and former CEO Gary Kelly. They believe, Elliott believes, that these two are part of the problem at Southwest Airlines. We've talked to Bob Jordan. We said, look, they want you fired. What's your response? He says, oh, I'm not going anywhere. I've got plans

to improve this airline and improve it quickly. As you take a look at shares of Southwest, Bob Jordan, since he's become CEO, now admittedly, there have been some challenges that are beyond his control. Fewer, far fewer airplanes have been delivered from Boeing. But there have been some other challenges that Southwest, admittedly, they could do better at, far better at. The I.T. outage, a good example of late last year. Bottom line is this, Morgan, over the next several weeks, month, we will expect to see Elliott get to a point where they can call for a shareholder meeting. And then we'll see how many of those 10 people they want elected to the board may get elected to the board. We'll be watching this one closely. Bill LeBeau, thank you. Up next, the key earnings and economic data that could move the market, plus some exclusive new clues

on consumer spending. And another check here on Cisco that is moving higher after beating on both lines, announcing restructuring plan, it says, will impact approximately 7% of its global workforce. Shares are now up 6%. They also had stronger current quarter guidance. We'll be right back. Welcome back. The earnings parade marches on tomorrow. Walmart is the big name on the calendar, but we will also get results from Alibaba, Deere, Tapestry, Applied Materials right here in overtime. July retail sales is the big event on the economic front, as well as the weekly jobless claims report and the latest reading on homebuilder sentiment. Speaking of retail, according to exclusive data from NIQ, sales of fast-moving

consumer goods so far this year have increased 1.5% to $655.4 billion. That's thanks to a 1.2% rise in prices. Those are items that have high turnover on shelves, such as food and beverages, personal care items, and over-the-counter pharmaceuticals. But those higher prices may be contributing to slower demand, which weighed on sales by nearly $12 billion. That's despite increased promotional activity, which added $8.8 billion to total sales, and distribution, which contributed almost $6 billion. So bottom line there, it's what we've been talking about through this earnings season. Mike Santoli, who's rejoining me right now, is you're seeing that impact not only on a macro perspective, but on a micro perspective of inflation and how consumers are reacting to it right now.

And retail in particular has been seeing flat out deflation in some circumstances, which is going to make Walmart's report and comments tomorrow very interesting. Yeah, well, I think even more so than maybe the official July retail sales report, which sometimes is a little bit noisy and doesn't have a direct window into how some of the public companies experience it. So, yeah, I do think that's all paramount. Weekly unemployment claims, I also think, is a big part of it. It was a big, unexpected market mover a week ago when it reassured some investors that maybe the soft landing has not been called off. And that's what we're continuing to monitor with

all these numbers now that inflation seems to have been at least pushed to sort of the side of of investor sites, if not out altogether. And that sort of gets back to what Claudia was saying just earlier in the hour, that when you look at labor market dynamics, it's an increase in supply, which just bolsters the Fed case to cut come September. Exactly. It all moves in a similar direction. All right. Mike, thanks. That's going to do it for us here at Overtime. Fast Money begins now.