Closing Bell - Closing Bell Overtime: Ark’s Cathie Wood On Tesla, Growth Stocks; Wes Edens On Connecting Orlando To Miami And The Bank Crisis 4/20/23

Episode Date: April 20, 2023

Stocks closed lower today but off worst levels. Vital Knowledge’s Adam Crisafulli and Northwestern Mutual’s Brent Schutte give their take on the market action. Fortress Investment Group’s Wes Edens sat down with Morgan Brennan in an exclusive interview. He discussed the next phase of Brightline’s high-speed train in southern Florida: connecting Orlando and Miami, plus Brightline’s plans for the West Coast. Edens also talked the banking crisis and the natural gas market; hear what he calls his “hot stock tip.” Ark Invest’s Cathie Wood joins in a two-part interview to talk her top holdings, including Tesla after disappointing earnings, plus the macroeconomic picture and what the Fed should do next. Our Hugh Son gave his regional bank report card after a week of earnings. Plus, Morgan reports on today’s SpaceX launch.

Well, off the lows into the close. That's the scorecard on Wall Street. But winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. And coming up this hour, Cathie Wood on the record. The ARK Invest CEO is going to join us exclusively with her reaction to Tesla results and the latest thinking on her other major holdings. Plus, we'll talk to billionaire investor Wes Edens about infrastructure, the credit market, and his prediction for natural gas prices. Now let's get straight to our market panel. Joining us now, Adam Christofouli from Vital Knowledge and Brent Schuette from Northwestern Mutual Wealth Management. Guys, welcome. Adam, my takeaway from the market action from earnings thus far is things aren't that bad, but they aren't good either. So you think the market's prepared for another rate hike even after May if the banks don't slow down the

economy enough? No, it's a great point. I mean, you really have a lot of mixed news that investors are being forced to digest in this market just in the last several days. Even today, you know, a stock like AT&T gets crushed on earnings, a home building, which is the most rate sensitive part of the market, surges on a very strong report. So I definitely think the economy is performing much better than people thought just a couple of weeks ago. And that brings into question, you know, the upcoming path of monetary policy. So it looks very certain that the Fed will move forward with 25 basis points on the third. You saw two more officials today, Mester and Williams, both hinted that the

market's fully pricing that in. And then the question becomes, you know, what comes after that in the second half of the year? You're pricing in about a 50 basis point cut in the final months of the year, approximately, you know, four and a half, four to four point six percent funds rate. I think if you kind of strip away the March bank turmoil, you are seeing the economic data begin to move again in the Fed's desired direction. I think it's been accelerated a little bit by what happened in March, but I think the kind of trajectory was already in place. So even if you dissect today's Philadelphia Fed, there were some very strong disinflationary forces within it.

And you are seeing the labor market start to deteriorate further on the margin, too. It's not collapsing, but it's kind of normalizing back to, you know, back to where it was before the pandemic. So claims numbers continue to creep higher. And even a company like Manpower, which is very leveraged staffing, you know, had an underperforming, had an underwhelming quarter today and provided soft guidance. Moving slowly in that direction, though. Like when I tell my kids it's time to practice piano, they move slowly toward the piano. Brett, even before we get to the second half,

I'm wondering about the debt ceiling situation here. We've got a House speaker trying to push the president to negotiate over it, a president who says he won't, and then a GOP whose loyalty to the speaker's agenda looks iffy. This all plays out probably over the next 10 weeks. What probability do you assign to market chaos from this? I don't know that there's going to be market chaos, but certainly it's another thing that will impact the markets. Look, I think we're already headed to a recession, if not in one. The data has certainly gone back and forth, but contemplate that retail sales essentially are flat since October.

Look at industrial production, which I believe is flat since December of 2021. Think about the jobless claims. The continuing claims are at 576,000. And so I think you're pushing closer, if not already in a recession. Today's leading economic indicators, I believe, down 8.8% on a six-month annualized basis. We've never not had a recession where we're there. And so I think the next few months are going to be that time period that causes more volatility. Certainly, I don't think we're moving towards chaos, but I think we're kind of in one of those periods of time where you're going to have a volatile back and forth, which to us means that you want to invest in higher quality fixed income

from an intermediate term perspective. Okay. Higher quality fixed income. Brent, do you go anywhere near equities right now? Do you see opportunities, especially given the fact that so far earning season hasn't been as bad as feared? I do. I see opportunities for people to start thinking ahead and thinking to the opposite side of what I think will be a mild recession. And so I think about the narrative that stocks are too expensive. I think the S&P 500 is expensive. I know it's higher quality. I heard the conversation on the show before about Procter & Gamble. I think the reality is a mild recession will lead to something better on the opposite side. And so I started thinking again about small caps and mid caps from a longer term perspective,

which trade at 12, 13 times earnings that have already been marked down and will do well on the opposite side of this. So I think there's going to be good opportunities in the coming months for people to add to those. Yeah, Adam, I would put the same question to you, especially because the S&P 500, it's been in such, I feel like we could play a drinking game across the days and the weeks using this term, but it's been such a trading range, a narrow trading range. I mean, what breaks it out? Or do you look elsewhere? No, I mean, that's a great question. The market has failed to kind of get above that 4,200 level, but it's also had an enormous amount of ostensibly negative news thrown at it now for the last several weeks. So I kind of just always take a step back and look at where the core macro themes are heading.

On earnings, you know, the Q1 season, it certainly has its share of issues. But I think corporate America overall is going to fare a lot better than the narrative around U.S. GDP is concerned. And I think that, coupled with the inflection point that you're going to see in inflation monetary policy globally, will provide some relief on the multiple front. And then as we head into the summer and you start to look to 2024 estimates, that will help the optics around equity multiples. And so that will help the market look cheaper than it currently is. So, again, this is not an easy market by any means. The upside isn't necessarily all that compelling at these levels. But I continue to push back against some of the extreme bearishness that's really been thrown at the market now since late last year.

Brent, Adam, thank you. Morgan, I can't get anybody to talk to me about the debt ceiling. It's like everybody wants to be like, oh, it always works out. But we did just have the speaker spectacle that we had, and there are certainly echoes of 2011 here. You could say there's echoes of 2011, but it's like all things with the market, right?

You could say this about supply chain. You could say this about geopolitics. You could say this about D.C. politics. The market shrugs it off until it actually becomes a moment or on the precipice of a moment of crisis. And we're not necessarily there yet from a market standpoint. But we also know... Yeah?

Yeah. Earnings season is a bigger deal right now, right? I know, but... Fed speaks the bigger deal right now. Yeah, and the journey. You raise a key point, but 10 weeks in the world of markets that's moving on headlines on an intraday basis, it hasn't impacted it yet. True, but we were just talking about the second half and what's going to happen. And the second half is July.

This is June. That's all I'm saying. Okay. All right. We'll see. Anyway, expectations. We've got a lot of hour to get through in the meantime. Expectations for recession in the U.S. are weighing on the dollar index, which has turned negative for the year.

CNBC senior markets commentator Michael Santoli joins us now from the New York Stock Exchange with more on that. But first, Mike, what's your take on the debt ceiling? Let's let's bring you to that conversation. I'm sort of in that camp of where it mostly serves for now as something that builds up the wall of worry, which can sometimes work in in markets favor. But yes, you have this slowly ratcheting, slow, I guess, slow moving panic that might actually get you to a critical point. We're not really there yet. I'm open to the idea that we have a different dynamic in D.C. than we've had in the past. But I look at that chart. People are passing it around today of how much people are paying for credit protection on the U.S. government. And you see these spikes in 2011, in 2013 and again this year. And I look back at those other peaks and say, did it feel

smart to pay up for protection against the U.S. default at that point? Or did people just feel like I'm willing to put some money into that pot in case of a what if. So I think we're on that same kind of treadmill. U.S. dollar index is not completely independent of that of that debate. And I'm kind of counterintuitively sometimes rallied when people are worried about default as a safety haven on a two year chart, though. It looks kind of interesting. The bottom here in May and then twice last May and then twice this year, right around the 101 level. We're just above that right now. But you see well above where we were before the Fed started tightening. So in addition to the macro concerns and the relative growth issues of the U.S. versus places like China and Europe,

you also have the possibility that the Fed is ahead of other central banks and is likely to pause, be at the end of its tightening cycle before those. It's a similar picture if you look at a two year of the broad commodity index, actually, where, again, it's been faltering. It's risking kind of breaking down from this range it's been in. But look how much higher it is than 2021. So, again, we're talking about moderating of trend. People thought we were in a little bit of a new era when we were chasing inflation and when the Fed was rushing to tighten. And now it's about where to and are we pretty much done? Is it going to be able to settle out of the place that's more tolerable? We're going to muddle through or do we have more economic pain to sustain?

Yeah, when I when I see this chart looking at commodities, when I see this breakdown in the dollar, which are two topics we have talked about before, but certainly the very visual impact here with how you're breaking it down. I can't help but think this is going to be good fodder for our conversation with Kathy Wood when she comes on the show later this hour, Mike. In the meantime, I'm going to ask you the same question we just talked about earlier. What is it going to take for the S&P to break out of this trading range one way or the other? Do we know yet? We don't really know.

I think it's going to have to be a combination of time, clarity on the Fed, and then we'll see if earnings really fall apart or if they're already discounted, as it has seemed in the last week or so. All those things together, we didn't get super overbought, even though we were at the top end of the range. So I'm not sure how much of a retrenchment we need to do right now. But unfortunately, markets can stay range-bound and sideways for a prolonged period of time, certainly in a mutually assured frustration mode for a time. Mike Santoli, thank you. CSX earnings are out. Frank Holland has the numbers for us.

Hi, Frank. Hey there, Morgan. Cheers to CSX. Up 2.5% right now after a beat on revenue and a beat on APS. Profit 5 cents above estimates. The real story here is the merchandise segment that beat estimates. That's where this East coast rail gets more than 50% of revenues. Think about chemicals, food products, and autos in that merchandise segment. It also had volume increase of 4% overall revenue per unit in the merchandise segment was up by 8%. The company also said

its fuel surcharge helped boost the revenue. The one thing that you want to look at here is also a miss in operating ratio. Operating ratio came in at 60.5 versus an estimate of 62.9. Actually lower, excuse me, it beat the estimate. Lower is better when it comes to this metric. So again, beat on revenue, a beat on profit. Shares of CSX up almost 2.5%. Back over to you.

All right. It's going to be interesting to see when we start to get more rail earnings in the coming days, too, whether they have been able to take market share from Norfolk Southern in the wake of the derailment that that company has been dealing with. Frank Holland, thank you. Don't miss an exclusive interview with CSX's CEO tomorrow on Squawk on the Street at 10 a.m. I will be there having that conversation. Join me. Still ahead, Tesla Super Bowl. Kathy Wood joins us with her first take on that company's earnings. The stock closing down nearly 10 percent

right now. And up next, billionaire investor and Milwaukee Bucks owner Wes Edens talks infrastructure, credit markets and more. We'll be right back. Welcome back to Overtime. Brightline is America's only privately owned and operated passenger railroad. It currently connects Miami, Fort Lauderdale, and West Palm Beach in Florida. But soon the Orlando leg will come online with a train station there just unveiled today. Earlier, I spoke with Brightline Chairman Wes Edens, who is also the co-founder of Fortress Investment Group and the founder of New Fortress Energy. He said he expects to begin passenger service between Orlando and Miami this summer. And I asked him how ridership and pricing for the parts of the

railroad that are open has been going so far, especially coming out of the pandemic. Have a listen. A year ago, we did about 70,000 rides in March. This year, we do about 170,000. So the uptick has been tremendous. And a big milestone for us, the first month we actually made money on an operating basis was March. So we never really intended to make money on that segment on a standalone basis. So to do so well and be profitable is amazing. But the real focus for us is getting to Orlando. I think connecting Miami, Orlando, that's the goal of these inner city rail businesses. And so that's going to happen here in just a few short months. How are you going to take this business model and expand it to Brightline West as that goes to regulatory approvals and begins to get built as well?

Yes. So Brightline West has been a project that's been in the works for a long time. And it is really at the last phase of it right now. And we expect to break ground on it sometime later this year. So when you look at the rail pairs, the city pairs that make the most sense, it's two big metropolitan areas that have got lots of travel between them that are a couple hundred miles apart. So the kind of too far to drive, too short to fly is what we say. Vegas, L.A. is probably the best rail system in the world that doesn't exist. So we've got 100 percent of the right of way. We have all the permits we need to start work,

analyzing up our final construction contracts and financing. And so this thing is just about ready to go. Yeah. And that's a $10.5 billion project. You recently applied for a grant, I think, of up to $3.75 billion to start the funding process for Brightline West. I guess walk me through that process and how it speaks to the government dollars that are now flowing into more infrastructure projects and possibilities. Yeah, the big numbers on the Brightline West, the actual project in total, including financing and soft costs, is about $12 billion. We applied for $3.75 billion. That application goes in actually officially tomorrow.

It's 4,300 pages long, so it'll take a little while to get through it. But we think that, number one, it is by far the most advanced high-speed rail project in the country. In a little contrast, China has 26,000 miles of high-speed rail. In the United States, we, a little contrast, China has 26,000 miles of high-speed rail. In the United States, we have zero. That's just not right, right? So this will be the beginning of the high-speed rail industry as well as just the project itself. So we think American-made, union-built, you know, trains made in America, you know, all those things are good. Of course, the two catchwords for it is both green and it's safe. We've spent about $600 million thus far, Morgan, just to get to the starting line. So

it's kind of a crazy commitment that we've had to get here. But we are, we know we are the best project in the country at the right place at the right time. And we think partnering with the government creates a real blueprint then for how we can do this all over the country. So this is, it's a big moment for us, but we think it's really now the beginning of the next phase of our development. We've been hearing so much talk that you're starting to see a seizing up of credit availability in general right now, particularly in the wake of the SVB collapse. And I just want to get your sense of what the climate is like out there right now. Well, I think, you know, these financial

crises tend to happen periodically. I've been around long enough to have seen a few of them happen. I think the good news is the banking system itself appears to me to be in very good shape. That having said that, though, there's definitely going to be a move of deposits, a move of assets to the money center banks. And there's an inevitable contraction of credit that's going to happen as part of that. I think that, plus uncertainty on the economy, creates a more challenging financing environment. But there's no doubt that you can get financing for the right projects that have got the underpinnings and the viability that are necessary. And we think our training in Vegas and L.A. is certainly on that list. So it's a tougher environment, but it's

one that is very actionable still right now. I do want to shift gears in terms of infrastructure, talk to you a little bit about NatGas, because you do have New Fortress Energy. How quickly can you bring more capacity online, since I know that's very much in focus and has actually been pressuring the price of NatGas here in the U.S.? And how does that continue to speak to energy security, which is such a key global topic right now? Yeah. Well, first of all, we think we're 60 days away, roughly, from floating away from the docks in Corpus Christi and moving our first liquefier offshore, Mexico. We expect the first LNG to be produced in July. So we are really just minutes away

effectively from producing that. And we've got a number of other projects behind that. And the shortage in Europe is obviously the topic people want to talk about. But the bigger and broader topic for us has always been the shortage of electricity, period. So when you look around the world, Jamaicans use 10 percent as much electricity as Americans, Kenyans 10 percent as much electricity as Jamaicans. So 40 percent of the world's population needs energy they don't have. That's what the business is all about. And that gas, we think, is the real bridge fuel to getting there in combination with

the renewables. That's the big picture for us. Is your expectation that we are going to see some sort of rebound in pricing? I do. I think that the U.S. has the cheapest natural gas in the world. So my hot stop tick would be buy U.S. gas. I think actually just the commodity itself, I think, is structurally under pressure because there's a lot of associated gas and et cetera, et cetera. Connecting the domestic markets to the international markets is the goal. That's the goal for us. That's the goal for

producers here. And I do think you're going to see a markets is the goal. That's the goal for us. That's the goal for producers here. And I do think you're going to see a rebound in prices over time. You know, the broad-based demand for gas worldwide is gigantic. It's hard to really kind of put any superlatives on it that describe it properly. But we think the demand long-term was actually unbalanced before Russia. You look at the prices that happened in the summer before the Russian invasion, they are much higher than they are today. So we think there's imbalances that existed then.

They've only been exacerbated by what's happened. And we think long-term there's a huge amount of demand for it. And, of course, New Fortress Energy will be reporting earnings next month. In the meantime, Edens is also the co-owner of the NBA's Milwaukee Bucks. The Bucks are one of the favorites to win the championship as the playoffs get underway, tying up their first round series one-to-one against the Miami Heat last night. Eden's telling me that he's excited to have new co-owners, Jimmy and Dee Haslam, on board now, too, after they did purchase that stake from Mark Lazzari, a process that went through just earlier this month. He has his hand in a lot of different things and so tends to be

very tuned into many different aspects of the economy and the investing landscape. The bottom line, buy gas and credit markets not seizing up too much, at least if you're a billionaire. Yeah, and in some ways that conversation kind of reminded me of what Larry Fink from BlackRock said on our air post that company's earnings last week, too. The fact that you have basically three big infrastructure bills, stimulus bills that are working their way through the U.S. right now. You have you have the infrastructure bill deal itself. You have the IRA. And then, of course, you have the CHIPS Act. And so there is money flowing into certain types of projects.

And when you see that government stamp of approval, these are arguably areas where you're going to see the private funding come in alongside it as well. All right. Great insight. After the break, ARK invests Cathie Wood on Tesla's post-earning sell-off and where else she sees opportunities in this market. Overtime. Be right back. It is time for a CNBC News update with Contessa Brewer. Contessa. John, thank you for that. A U.S. judge halted most of the lawsuits alleging Johnson & Johnson's baby powder and talc products caused cancer during a hearing in New Jersey. It comes as J&J tries to reach a permanent settlement with the plaintiffs. The company said it has general support for a

proposed $8.9 billion settlement. The U.S. deployed additional troops to a base in East Africa in case U.S. diplomats or civilians need to be evacuated from Sudan. The country has seen heavy fighting since last week as the Sudanese army continues to fight a rival paramilitary force. The conflict has caused millions of Sudanese to be in the crossfire here, and rival groups are battering residential areas with artillery and airstrikes. And Alec Baldwin's attorney said charges against the actor in the fatal rust shooting have been dropped by prosecutors in New Mexico. Baldwin's attorneys encouraged a, quote, proper investigation into the facts and circumstances of the tragic accident in a joint statement. Cinematographer

Helena Hutchins was shot and killed by a gun Baldwin was holding in October 2021 while filming that movie. Morgan? Contessa Brewer, thank you. Check out shares of Tesla. The EV automaker closing the day down nearly 10 percent in today's trading session after reporting earnings last night. Analysts expressing concern over the automaker's price cuts and the impact to margins. Tesla is Cathie Wood's top holding in her ARK Innovation Fund, her flagship fund. And Cathie Wood joins us now exclusively. Cathie, it's so great to have you on the show. Thanks for being with us. Thank you, Morgan. Happy to be here. So much to discuss with you, but I do want to start with Tesla.

Your reaction to those results we did get yesterday, and specifically the fact that the operating margin dropped pretty dramatically to 11.4%, certainly in focus for trading today. Does this change your outlook or your thesis around Tesla? Not at all. In fact, curiously, we want Tesla to scale its units because each one of them now represents the potential for a robo-taxi and a robo-taxi fleet. Now, Elon says it's possible that he could launch that fleet this year. We think it's more like last year. But the robo-taxi fleet is really going to be, or the robo-taxi service, is going to be, from a margin point of view, more like a SaaS business. And so we think that it's very smart to maximize units

because they have so much option value now. Yeah. I mean, but we've been hearing about the robo taxi fleet for some time. There's a lot of regulatory barriers to all of that and certainly technological barriers involved, too. So how soon can we actually see that realized? And given the fact that you tweeted earlier today that you've got a new valuation assessment of Tesla coming out, how does that how does that fit into your price target for the stock going forward? Well, the price target for our stock, and I think it's just hitting now for 2027, because we do have a five year investment time horizon, is our expected value is roughly $2,000. And that's within a range of $1,400 to $2,500, our bear and bull case. Now, Morgan, on the regulatory side, I actually think regulations are working in Tesla's favor. For, I think, roughly three decades,

the number of auto fatalities in the United States fell, fell to the low 30,000 range per year. And they've turned around in the last five years and moved up to 45,000 plus. And I think the pressure is on the National Highway and Transportation Safety Association to change something. So it is looking carefully at Tesla's data. And during Investor Day, Tesla released some data that we don't think many people paid enough attention to. The most important one is that with full self-driving, a Tesla vehicle gets into an accident every 3.2 million miles. And that compares to one every 500,000 miles for the average car on the road. Okay, so Kathy, Ola, good afternoon. It's John Ford.

I just want to clarify, did you say a $2,000 per share price target? Tesla right now is under 200 a share. So even if you were to 10x that, that would be an over $5 trillion market cap? Is that what you're saying? That is what we're saying. We think that the robo-taxi opportunity globally will deliver $8 to $10 trillion in revenue by 2030 and is one of the most important investment opportunities of our lifetimes. Okay. And I think one of the reasons for that is it is going to save lives.

80 to 90 percent of auto fatalities and auto accidents are caused by human error. And auto autonomous driving is going to take away the human error, we believe. That's a lot of ground for that stock to cover in five years. It'll be exciting to watch either way. I want to get into some other names. You've had certainly some hits this year, including today. What's the stock that had earnings today that's one of her top holdings and spiked? Iridium.

Iridium. Up, whoa, is it 10%, 11% today after earnings? But some misses, too, over the years. A couple of years ago, you joined us on CNBC and told us about Invitae, I think it is, in molecular diagnostics. It was around 32 bucks a share that day. You said it was one of the most important companies in the genomic revolution. I think it's around $1.24 now. What happened there with your evaluation of that company? Well, a couple of things. One, they moved into a lot of different projects, and they have brought in new management to streamline.

We hit into the buzzsaw of a 20-fold increase in interest rates, which is a killer for long duration assets. And our life sciences stocks, Invitae, one of them, have been hurt very badly because they are early stage. They are often burning cash, and the market really assassinated stocks that were long duration. And genomics, or what we call it now multiomics, is one of the longest duration themes we have. A lot of our genomics names are in that category. But we do believe the breakthroughs that we're seeing, thanks to the convergence of DNA sequencing, DNA, RNA, protein sequencing, and artificial intelligence, are already delivering cures for disease. And so we still hold in vitae. And if anything, during this last two years, as the life sciences stocks have been pummeled, we have been increasing.

It's been hard work to keep our percentage in the flagship portfolio at roughly 30 percent because we think that the breakthroughs are going to be life-saving. And we're getting evidence in sickle cell disease, beta thalassemia, ATTR. These are being cured by gene editing today. And we're seeing the promise potentially of diabetes being treated by gene editing in the future. We did just mention Iridium. I do want to ask you about ARCX, the Space Exploration and Innovation ETF. That name is a top holding,

is the top holding in that ETF, but a privately held name as we're talking about Elon Musk here. SpaceX, huge historic flight test this morning with Starship. It failed mid-flight, but basically ushered in a new milestone in this commercial space era. I want to get your thoughts on that and want to get your

thoughts on how you're approaching that space ETF, which has stirred some debate about just how spacey, in general, the names in that ETF have been. Well, yes, Today was historic. And if you looked at all of the people witnessing that takeoff, and as I understand it, SpaceX actually exploded the rocket because of an engine failure, it's historic. They were cheering. They learned so much. It didn't explode until minutes through the launch, and I think lots of lessons learned there. And as we were watching it, we're saying, okay, we're going to make it to Mars. We are going to make it to Mars. So very exciting, we think. All right. Well, Kathy, stay with us because we're going to take a quick break.

But there's so much more we want to speak with you about. So on the other side of this break, we're going to get your views on the broader market, inflation and so much more. Stay with us. Closing bell. Overtime. We'll be right back. Welcome back.

ARK Invest CEO Kathy Wood is still with us. Kathy, thanks for sticking around. I want to take a bigger picture view here. You did just release your Q1 2023 quarterly report. And we've also seen the majority of your funds outperform the S&P to kick off this year. But it does look like net it's been outflows. So how are you categorizing performance and how is this dynamic impacting, if it is at all, the way you're thinking about your products? Actually, the outflows have been minimal. In fact, I think our flagship ARKK has been inflowing year to date, and the others have had some small outflows.

You know, given the amount of caution we see in the marketplace today, we are actually gratified by our asset retention. We're seeing massive cash positions. The ratio of stocks to bonds hasn't been this low since the, I think it was since 2009. And so this is an environment, this kind of cautious environment to see inflows at all, which we are seeing in ARKK, even if not in some of the others recently. Our asset retention in the last two years, I think many in the industry would say,

has been stunning given how difficult the environment has been for long-duration assets. Let's talk a little bit about ARK Venture Fund, which you launched last fall, ARKVX. The impetus for this fund and what it means for more investors being able to get into the private markets, especially as we have seen the IPO pipeline seize up and the SPAC market, which was so crazy a couple of years ago, basically fall off a cliff. And also the fact that you have cut those fees recently as well. Yes, well, the impetus of the fund, we've been researching private companies since the firm began. We have to because we're focused on nothing but disruptive innovation. But we wanted to be a part of democratizing the venture capital world, opening it up to retail investors who have been frustrated by the need

for accreditation, at least financial accreditation in terms of income and asset threshold with the traditional venture world. And so our venture fund, you can get into for $500. It's ARKVX. And for $500, we have quarterly liquidity up to 5% of NAV. And we think that's an attribute that our retail investors like as well. And we just think that the amount of innovation that's taking place today is astonishing. And we wanted to start a venture fund during downtime so that we can be part of the solution to the problem that they are finding themselves in right now, which is a venture capital funding drought. Yeah. Well, Kathy, I want to get your thoughts. Also,

you mentioned that rising rates hammered some of the stocks that you bought in 2022. How are you modeling the possibilities for this debt ceiling debate? Even if we don't get a default, if we get something closer to that 2011 scenario where things look iffy, what's that going to do to the category of stocks that you hold? Well, I don't think it'll be if they defaulted. It wouldn't be good for any market. I'm happy to hear more politicians from both sides talking about what a disaster it would be. I'm happy to hear that come out of their mouths and hoping, therefore, that there is some rapprochement here and believe there will be. We have a five-year investment time horizon. This will sort itself out and maybe in the meantime

create more opportunities for us. As you know, during risk-off periods, we concentrate our holdings towards our highest conviction names. We're quite concentrated right now, but that doesn't mean we wouldn't concentrate more. So, again, it's a short-term phenomenon, and we think they'll work it out as they always do. How messy it will be, I have no idea. Yeah. You've been on our air a number of times to talk about the disinflation dynamic. Given the fact that we do have a Fed that is potentially, at least the market's pricing in, the likelihood that we're going to see one more rate hike next month, so much debate about recession, the breakdown of the dollar, a number of other dynamics that are

really causing cross-currents in the market. Your take, especially as you did release this quarterly report, your take on the markets right now and where we're headed into the second half of the year. Well, I think the markets are leading the Fed. And I was struck today to learn that the one-month Treasury bill yield is 140 basis points, so 1.4 percent below the of how quickly the Fed was going to ease once it realized how much trouble we were in. And in terms of the bank crisis, I don't think it's over. I don't know what's going to make deposit flows back into the banking system. So that's a problem. So I think that what killed long duration strategies, including the bond market last year, it had the worst performance since the 1700s, was a 20-fold increase in interest rates in one year's time. Never happened before.

And I think there are going to be ramifications. I think the market's saying we're probably either in or moving close to something harder than just a soft landing, which seems to be the consensus view out there. And I think that will turn interest rates and continue to push inflation down. We think that the greater risk here in the next year, next six months to nine years, is deflation, not inflation. And some of it's good deflation. Tesla's price cuts are good deflation. They can cut prices because their costs are coming down.

And they can respond to weak consumer demand because their costs are coming down. That's good deflation. But there's going to there are a lot of industries that cannot adjust their prices down because they're mature. And we think it's going to be problematic. And again, deflation will be the watchword, we think more and more often during the next six months. Yeah, we just went full circle on Tesla. So I think we're going to leave the conversation there. Cathie Wood, great to have you on. Thank you so much for joining us today.

Thank you so much. Up next, Mike Santoli breaks down the unusual outperformance of J.P. Morgan versus the regional banks and what that could mean for the rest of the banking industry. We'll be right back. Welcome back. ARK Invest CEO Cathie Wood is still with us. Cathy, thanks for sticking around. I want to take a bigger picture view here. You did just release your Q1 2023 quarterly report and we've also seen the majority of your funds outperform the S&P to kick off this year, but it does look like net it's been outflows. So how are you categorizing performance and how is this dynamic impacting, if it is at all, the way you're thinking about

your products? Actually, the outflows have been minimal. In fact, I think our flagship ARKK has been inflowing year to date, and the others have had some small outflows. You know, given the amount of caution we see in the marketplace today, we are actually gratified by our asset retention. We're seeing massive cash positions. The ratio of stocks to bonds hasn't been this low since the, I think it was since 2009. And so this is an environment, this kind of cautious environment to see inflows at all, which we are seeing in ARKK, even if not in some of the others recently. Our asset retention in the last two years, I think many in the industry would say has been stunning, given how difficult the environment has been for long-duration assets.

Let's talk a little bit about ARK Venture Fund, which you launched last fall, ARK VX. The impetus for this fund and what it means for more investors being able to get into the private markets, especially as we have seen the IPO pipeline seize up and the SPAC market, which was so crazy a couple of years ago, basically fall off a cliff. And also the fact that you have cut those fees recently as well. Yes. Well, the impetus of the fund, we've been researching private companies since the firm began. We have to because we're focused on nothing but disruptive innovation. But we wanted to be a part of democratizing the venture capital world, opening it up to retail investors who have been frustrated by the need for accreditation, at least financial accreditation in terms of income and asset

threshold with the traditional venture world. And so our venture fund, you can get into for $500. It's ARKVX. And for $500, we have quarterly liquidity up to 5% of NAV. And we think that's an attribute that our retail investors like as well. And we just think that the amount of innovation that's taking place today is astonishing. And we wanted to start a venture fund during downtime so that we can be part of the solution to the problem that they are finding themselves in right now, which is a venture capital funding drought. Yeah. Well, Kathy, I want to get your thoughts. Also, you mentioned that rising rates hammered some of the stocks that you bought in 2022. How are you modeling the possibilities for this debt ceiling debate? Even if we don't get a

default, if we get something closer to that 2011 scenario where things look iffy, what's that going to do to the category of stocks that you hold? Well, I don't think it'll be if they defaulted. It wouldn't be good for any market. I'm happy to hear more politicians from both sides talking about what a disaster it would be. I'm happy to hear that come out of their mouths and hoping, therefore, that there is some rapprochement here and believe there will be. We have a five-year investment time horizon. This will sort itself out and maybe in the meantime

create more opportunities for us. As you know, during risk-off periods, we concentrate our holdings towards our highest conviction names. We're quite concentrated right now, but that doesn't mean we couldn't—we wouldn't concentrate more. So, again, it's a short-term phenomenon, and we think they'll work it out as they always do. How messy it will be, I have no idea. Yeah. You've been on our air a number of times to talk about the disinflation dynamic, given the fact that we do have a Fed that is potentially, at least the market's pricing in, the likelihood that we're going to see one more rate hike next month. So much debate about

recession, the breakdown of the dollar, a number of other dynamics that are really causing cross currents in the market. Your take, especially as you did release this quarterly report, your take on the markets right now and where we're headed into the second half of the year. Well, I think the markets are leading the Fed. And I was struck today to learn that the one month Treasury bill yield is 140 basis points, so 1.4 percent below the low end of the Fed funds rate. I remember in 08-09, the Treasury bill rates were an early indicator of how quickly the Fed was going to ease once it realized how much trouble we were in. And in terms of the bank crisis, I don't think it's over.

I don't know what's going to make deposit flows back into the banking system. So that's a problem. So I think that what killed long duration strategies, including the bond market last year, it had the worst performance since the 1700s, was a 20-fold increase in interest rates in one year's time. Never happened before. And I think there are going to be ramifications. I think the market's saying we're probably either in or moving close to something harder than just a soft landing, which seems to be the consensus view out there. And I think that will turn interest rates and continue to push inflation down. We think that the greater risk here in the next year, next six months to nine years,

is deflation, not inflation. And some of it's good deflation. Tesla's price cuts are good deflation. They can cut prices because their costs are coming down. And they can respond to weak consumer demand because their costs are coming down. That's good deflation. But there's going to there are a lot of industries that cannot adjust their prices down because they're mature. And we think it's going to be problematic. And again, deflation will be the watchword, we think, more and more often during the next six months. Yeah, we just

went full circle on Tesla. So I think we're going to leave the conversation there. Kathy Wood, great to have you on. Thank you so much for joining us today. Thank you so much. Up next, Mike Santoli breaks down the unusual outperformance of J.P. Morgan versus the regional banks and what that could mean for the rest of the banking industry. We'll be right back. Breaking news on the Fed. Bertha Coombs has details. Bertha. Hey, John, the Fed out with its weekly borrowing report.

The Fed's balance sheet at $5.6, $8.56 trillion. That compared to $8.58 trillion last week, so that edged down slightly. But primary credit or borrowing from the Fed discount window rose to $70 billion from $67.6 billion a week ago. That marks the first week in five that we have seen this borrowing rise. It had been down four weeks in a row, despite what we've been hearing from the regional banks during their earnings calls, that deposit outflows have been stabilizing. Meantime, the bank term funding program or lending facility, those totals $74 billion, also up from what we saw a week ago. And loans to FDIC bridge banks were unchanged at $172.6 billion. That's been unchanged for a while now.

John? Bertha, thank you. Now more regional banks earnings rolling in today with more still to come tomorrow and next week. Let's get back over to Mike Santoli with a look at the performance of those names versus one of the country's biggest banks. Mike? Yeah, John, very stark divergence here. If you look at how JP Morgan shares have performed relative to the regional bank ETF, you see this is a 10-year chart and they were basically the same chart going into 2017. You see some separation as the cycle ages and the Fed starts to tighten a couple of different times. What you don't usually see, though, is an actual opposite directional move, which is what we've gotten here this latest period, especially since the SVB crisis. Take a look at the same chart on a relative scale, which is J.P. Morgan over regional banks as a ratio.

You see just shot to the moon here. The other time, of course, was the COVID panic. So this rush to safety has been very much in focus, but some signs perhaps that the spread is reversing. You barely see it, but it has come down this week. Regional banks have outperformed J.P. Morgan shares by about one percentage point week to date. So we'll see if the fever is finally breaking, John. All right, Mike, thanks. Now let's bring in CNBC.com banking reporter Hugh Sun for more on the banks. Hugh, for those who are looking at these regional bank

earnings through their fingers like this, it hasn't been maybe as bad as expected. Yeah. So two major takeaways from regional bank earnings so far, the first one being the bleeding has appeared to stop, at the very least, or been cauterized. So a few of the banks have talked about losing low single-digit deposit rates, 1%, 2%, 3%. There are a handful of exceptions. But for the most part, they're saying, we were losing deposits anyway because of the high rate environment. That accelerated after SVB, March 8th to March 16th or so was really bad. And then things stabilized. And for the most part, deposits have actually started to flow back. So Western Alliance is one example. That stock popped 24 percent yesterday,

when they said that we lost a ton of deposits, but we gained two billion since the end of the quarter. Yeah. I mean, these stocks were so beaten down ahead of their results as well. So perhaps not surprising to see some of these outsized positive responses, whether it's Western Alliance or elsewhere. I mean, can we say we've been hearing all this, you know, talk about the stabilization of the banking sector? Can we confidently say that's the case now, that we are past the worst of it, or are there still too many unknowns here in terms of the ripple effects? Well, the unknowns that are out there, the biggest one out there is First Republic. So that one, you know, they're reporting Monday, that still has to be resolved. You know,

they're getting advised by J.P. Morgan and Lazard about options, including selling themselves or finding an equity injection. That situation needs to be resolved. The longer-term issue is rates are still high. If they are higher for longer, that's going to be continued pressure. And how does that resolve itself? Nobody really knows. What about the regulation picture and what that does to these regional banking stocks? Well, yeah.

So one of the things the CEOs have talked about on the calls is basically like, you know, regulation is coming. We know that, you know, the context being after 2008, in which big banks were primarily the problem they caused, you know, financial crisis for the most part. Little banks got a pass. They essentially are more lightly regulated than all the top five or six banks. So we have a situation in which the risks that they held apparently are a lot higher than anticipated. They know regulation is coming. What that's going to cause is going to cause pressure for them to basically, you know, merge because, you know, for them to deal with compliance costs, for them to deal with technology costs, they're going to have to scale up. And so they're going to be forced to do M&A. All right. This is going to be a dynamic to watch, Hugh. Great

reporting today and all week. Thank you, Borg. All right. Houston, coming up be a dynamic to watch. Hugh, great reporting today and all week. Thank you, Borg. All right. Hugh Son, coming up, how today's mid-flight during its maiden launch. What that means for SpaceX and the rest of the space industry when overtime returns. Welcome back. A major space milestone today. SpaceX's Starship launching from the Texas coast this morning in an historic first test before exploding mid-flight and failing to reach space. There was no one on board. The mega rocket, now the most powerful to ever fly, launching from Texas, climbing to an altitude about 24 miles before spinning and exploding

over the Gulf of Mexico about four minutes into the flight. Some engine outages to blame with SpaceX saying, quote, with a test like this, success comes from what we learn. And we learned a tremendous amount about the vehicle and ground systems today that will help us improve on future flights of Starship. Prior to launch, Elon Musk had said just getting Starship to lift off would be a success, especially if it didn't damage the launch pad, tweeting today that another test could happen in, quote, a few months. And today it is the official relaunch of my podcast, Manifest Space. Speaking of launches

with all new episodes, you can follow and listen wherever you get your podcasts. It has been a big day for space. It has been a big week for space, John. Yeah. Big day would have been better if it hadn't had to blow up. Yeah. But, you know, baby steps with these things, I'm sure. All right. You did say to be sure to follow and listen to Manifest Space wherever you get the podcast. I did. And we will do that indeed. And tomorrow morning, we're going to get earnings results from Procter & Gamble, SAP, Regions Financial, and Freeport-McMoran. We're going to dig deep with Freeport-McMoran CEO

Richard Atterson on overtime on the quarter. That's right. He's going to join us exclusively. He's going to talk the outlook for copper prices, how that dovetails into the global macro picture, and of course what it means for things like massive EV adoption since there's a very big supply-demand mismatch that's poised to happen in the coming years. Mining equipment. So, dig deep. Dig deep, yes. In the meantime, we did see the major averages finish the day lower.

We've got more earnings, as we mentioned, tomorrow morning. That's going to do it for overtime. Fast money begins right now.