Closing Bell - Closing Bell Overtime: Behind the Big Sell-Off 9/29/22

Episode Date: September 29, 2022

Another ugly day on Wall Street… leaving investors wondering what’s next for their money. Trivariate’s Adam Parker gives his forecast. Plus, top financial advisor Rich Saperstein explains how he is navigating the volatility. And, we’re digging in on a rare downgrade for Apple… what that could mean for investors and the broader market.

I'm Scott Wapner. You just heard the bells. We're just getting started here from post nine at the New York Stock Exchange. Micron and Nike earnings, they are imminent. Two big reports giving us a good read on some pretty important parts of the economy. The consumer, of course, and spending there, not to mention China and what is happening there as well. We'll have the numbers, the stock moves, everything else you need to know as we await all of that. We do begin, though, with our talk of the tape. It is this ugly market down again today and sharply after a one day reprieve and now fresh concerns about what lies ahead for your money. Let's ask Trivariates Adam Parker. He's the CEO and founder. He's right here with me at Post 9. We figured yesterday may be that reprieve on the Bank of England over in the UK. And here we go back to the same old story. Tech's getting wrecked and everything else is

going down. The two things we've been writing about at Triveric the last two weeks, I think they're coming together today. One is inventory. This idea that inventory might be building. We'll see what Mike Rahn says, but we know it's building in DRAM, and that's probably going to last longer than people think. And the second is, is the first half of next year really the trough, or could it be like a slower and longer trough? And I think those two things are both kind of in people's minds as we look at what's going on with some of the data today. Inventory building at the same time that demand might be decreasing. Slowing, right.

Right? Therein lies the problem. Now, as I said, Nike, Micron, Eminent, we'll get to the numbers and all of that as it comes. How much lower do you feel like we're going to go? I mean, you've been fairly negative. We seem to be set up for a bounce just because everybody was so negative. Are we still set up for something positive even in the near term? You could get these short-term bounces.

But I think the real issue is, in my mind, I'm not sure 2024 earnings now are going to actually be above 2023. I'm starting to warm to this idea that this might just be a little bit of a slow down cycle. And so, sure, we'll get some optimism and trades higher, 5% here and there. But if you're looking here at 3640, and I say to you, gun to your head, next 10% up or down, it kind of seems 50-50 to me. I'm not really confident that the risk reward is very good. And so I'm still looking at two-year yields and yeah, I probably could buy that and hold it for two years and I'll get my guaranteed plus 4% per year after taxes. That looks pretty good. Most important thing right now for stocks is it yields? Yields around the world, really, but especially looking at the two-year and the 10-year, the volatility that we've had the most volatility in bond yields in, gosh,

since like 07. Yeah. If you're a bond vol trader this year, you're probably one of those bright spots in your firm's P&L. I think it's even more than looking at twos, tens. Scott, you probably have to look at something called Fed fund futures, which is really the perception the consensus has about future rates. And that's probably what's going to drive stocks, right? That whole thing, like, are they going to get dovish? What you're really saying is, will in the future we get rates where we think we need them? See, this is what we thought could be the case.

We were just talking about Micron, which our reporter is currently going through, and Christina Partsenevelos is going to come on momentarily and give you all of the details that you need to know. So don't go anywhere for that. But you're seeing a stock sell off near 4 percent. Big question coming in. Weaker PCs. You've heard it from everybody else. So why wouldn't it be evident here? Weakening demand as a result of that. They already warned a month ago. Has the situation

deteriorated any more so, which we've seen from some other companies that have warned and then had to come back and say, you know what, it's worse than we thought. A stock's already down 40% year to date. You're a former chip analyst, so you watch this kind of stuff closely for the bigger implications on the economy. I think the big implications are, and I haven't looked at the report. I'm sitting here next to you. We'll get to Dietz in a second.

But I think the issue is everyone knows that the numbers were too high. Some of the analyst estimates look stale, I think, on Micron. So I'm not sure what was in the price in terms of people thought they were going to miss. I think the issue is the inventory. Because this is a company where if they produce too much, the perishability of the excess is massive, meaning that pricing comes down a ton. Other businesses, if you produce too much, you don't have to crush pricing. They make memory products, both that require power and don't, non-volatile memory. If they make too much, the pricing gets creamed. So I think that's the issue with the Exxon's

inventory that's built the last couple of quarters here at Micron. So you'll have to tell me what they said. Of course, and Christina will. And be careful what you glean from an initial stock move, right? Of course, always. As we even see now, the volatility in overtime on this stock is rich. The idea that Stan Druckenmiller put forth yesterday at Delivering Alpha, that's our big annual conference that we have, that you could get at minimum a hard landing, right? You're going to get a hard landing, and you might get something worse than that. What do you think about that? Well, I do think that businesses,

you know, I focus on the public equities and less the economy, right? But I'd say in the public, on stocks? Well, you have to focus on both. I mean, if you're going to get a hard landing or worse, then... But what I mean is the biggest 500 companies are better than the economy. You know, they're by definition better businesses. So it could be worse for the broad economy than, say, the S&P 500. But even adjusting for that, most public equities have grown. Long-term revenues in consumer, industrials, the things we're talking about today, somewhere between 6% to 8% per year. And most of them grew their revenue 15% to 25% the last 12 months. So we know the revenue is going to roll over. And I think the challenge is if inventory builds and they've spent more capital spending, the margins might surprise the downside. And that would be a real

reason why stocks should be 10, 15 percent lower than today, six, nine months from now. It looks like we have an outlook issue for Micron. Christina Partsenevelos, is that the problem with this report and why the stock initially was down some 4 percent? Yeah, that's a huge part of it because their Q1 guidance or revenue, they're putting it at $4.2 billion. The street was estimating $5.62 billion. So that is over, that's $1.4 billion less than what the street was anticipating. That was the guidance for adjusted EPS again for Q1. So we're talking about the forward statement. $0.04.

That's what they're expecting. $0.04 in adjusted EPS. The street was anticipating $0.64, so a huge discrepancy right there. In terms of this latest quarter, Q4, what are we seeing? Earnings per share at $1.45 beat the street at $1.30. Revenue, though, came in light at $6.64 billion. I was also just quickly going through the report. What we're seeing from the CEO, and this is a quote I'm just going to read to you, we're taking decisive steps to reduce our supply growth, including a nearly,

and this is an important point, 50% wafer fab equipment CapEx cut versus last year. And we expect to emerge from this down cycle well positioned to capitalize on the long-term demand for memory and storage. That was a big concern there. They had already warned back in August they were meaningfully going to cut CapEx. But again, so Q1 guidance a lot weaker than the street anticipated. And then Q4 revenue came in lighter. And you can see CapEx as well still an issue. Scott? Yeah. Yeah, Christina, thank you. You come back to us if you see anything else we need to know on that. So, you know, Adam,

another quick comment from you here. So, you know, the guidance is light, but the street probably likes the fact that they're cutting costs to the degree in which they are to try and come out better on the other side. Yeah, I mean, so you got to, you know, I think you got to do the read across. Is that bad for lamb? How much exposure do they have to memory? What about, you know, people saying they like micron at book value, but if the book value can come down a ton on one earnings report, maybe the valuation isn't there. I mean, there's a lot Micron at book value, but if the book value can come down a ton on one earnings report, maybe the valuation isn't there. I mean, there's a lot of variables at play here. But I think the main issue is when you overproduce consumption, your numbers get creamed in very commodity businesses.

And this is still a very commodity business. There's other parts of semiconductors that you're going to prefer at this point in the cycle. All right. Let's expand the conversation. Bring in CNBC contributor Stephanie Link of Hightower Advisors and Malcolm Etheridge of CIC. Well, it's great to have you both with us. Malcolm, I'll just stay on the Micron point in thinking about tech, which has been a wreck and was ugly today, too.

And we can go through some more of the specifics there. But what does this mean to you when you see what Micron reported in the context of what is already an ugly looking part of the market? Yeah, I like the way Adam termed it as far as chips being perishable. Right. If they oversupply, that's a way that's a really good way to put it. I do think that there's risks specifically within the chip sector. But I think those risks were there long before Micron's earnings came out today. Like if we look at tech on pace for its six negative week and seven, more layoffs are

coming, growth rates are slowing. And that's not even, you know, the thing I'm most concerned about, right? Tech investors should be concerned about the way that the dollar index has reached a 20 year high, right? And how that's going to impact their portfolios in the upcoming upcoming earning season, especially since some CEOs have already come out and issued guidance, restated their guidance and warned that revenues are going to look light compared to the first two quarters of the of the year. And according to a note by Morgan Stanley earlier this month, they expect the dollar's current strength to account for something like eight percent in lost earnings this quarter for S&P companies. I have to imagine it's going to be even worse for tech companies, right? If I just think about the fact that Apple, Facebook, or Meta, Google, and Microsoft all earn somewhere between 50% to 60% of their revenues from outside of the United States, that alone suggests the sector is in for a tough earning season, which will inevitably bring down the rest of the market

with it. Yeah. Steph, what's your take, given what we got from Micron? No, you haven't had a big chance to go through the whole thing, but it comes at a time that's somewhat precarious for technology stocks. For sure. And I don't think this report is really all that surprising. As you mentioned, they warned on August 9th. We knew about PCs, handsets, a little bit on data center as well. And we also knew inventories were going to be up something in the order of 15 to 16 percent. And, you know, I've been talking about double ordering. Now it's coming home to roost.

They're double they double ordered. And now you have supplies getting easier. So you've got this double whammy happening and pricing is going down. This is a very leveraged model. I think the reason the stock is not down more is absolutely the CapEx cuts of 50% to WFE. That actually, by the way, is negative for Lamb Research and Applied Materials. So let's watch to see how they trade. But these stocks are down enormous, right? And so I don't know how much downside, more downside there is, but there's just so much uncertainty. So I think you've got to let the dust settle for now.

But that WFV CapEx cut at 50 percent, people were thinking it was going to be something like 30. So it's much, much more severe. How much more does the dust, Adam, have to settle in mega cap? I mean, it's ugly. You look at the stocks that have hit 52 week lows recently. You can throw NVIDIA, since we're talking chips, into that basket, too. It's meta-alphabet. I mean, Apple is not at a 52-week low,

but that stock got creamed today. How much more damage is in the wait? I would say at least as much damage as the market overall takes, if not more. It depends on this particular security you're talking about. But if the economy is going to slow and slow steadily for another few quarters, they can't be immune. The ones that have ad spending, we've already seen that that could maybe be worse than people think. And so I'm a little bit more worried about, hey, I'm bullish.

I'm just going to go buy and buy big cap tech. I think their estimates are just as—they're too high. They're too high, and we're going to start seeing that over the next few months. Adam sets you up perfectly, Steph, because you say today that you're tempted to buy Alphabet at a 52-week low. What do you make of what he just said? Look, I think that it's going to be volatile for sure, but you know I sold- You can call me stupid on the air. It's fine. I'm not calling you stupid. This is what makes a market, Adam.

You know that, right? So I sold Alphabet in January. I sold Alphabet in January, right? And that's when it was trading at 29 times forward estimates. The stock is down 33%, and it now trades at about 16.5 times forward estimates. Now, I know the macro is really hard right now, but their business model is very much intact. And they do have a lot of areas of growth. YouTube Shorts, they get 30 billion daily views, right?

That's a big number. That's size and scale for sure. Clouds growing 36%. We know that story. We know they're cost cutting. So they're not immune to digital advertising and the weakness there, but there's other things that they can do and in the meantime the ceo is adamant about not only cutting costs but also remaining increasing the capex so that they can continue to grow in the in the out years five ten years down the road so i think the valuation is very compelling i'm not there yet scott because i'm not sure the market

it's just still unsettled and i think we have a couple more weeks of volatility and we have to get earnings overall but i do think the valuation is much more compelling than when I sold it. You know, I mentioned. Yeah, go ahead, Malcolm. Go ahead, Malcolm. Yeah, I just want to I'm going to get to something else and come back. But please. Yeah, I wanted to add something to what Steph just said really quickly about the idea of being tempted, because I'm starting to wonder if we're not witnessing some once in a decade opportunities beginning to emerge here, thanks to the Fed and their hawkishness to go and scoop up some companies that we really were impressed by pre-pandemic and for whatever reason maybe didn't pull the trigger or we got out of.

They're basically scraping away all of that froth that was created with the three rate cuts in 2019, almost down to zero toward the end of 19. And in doing that, it feels like they're inadvertently just giving us a second chance to go back and scoop up names that we won't know that the buying opportunity was now until a few years into this decade, but we'll be glad we did when we get there. Yeah, I did mention, and you make a good point,

Apple was down 6% today. Some suggest it has a lot further to go. We'll get to that in a minute. But if you want to say adding insult to injury, do we have Steve Kovac ready to go? Steve, you see this report that was moving within the last, let's say, 45 minutes or so about a well-known executive who's leaving. What do you know? Yeah, that's right, Scott. So this is Tony Blevins. He was the VP of procurement for Apple and Apple confirming to me that he has left the company. This is coming after Bloomberg put out a report just a couple about last hour saying he appeared in a TikTok video from Daniel Mack, who's famous on the platform for going up to people in expensive cars and asking what they

do for a living. In that video, which we've seen, by the way, Blevins is in his Mercedes and he's asked what his job is. And he gave a foul answer that I really can't say on air. But look, Blevins was in charge of negotiating prices with suppliers for Apple, and he had a really strong reputation for muscling them into favorable deals. Look, that's part of the operation set up by Tim Cook when he first joined Apple back in the late 90s, and that's now run by COO Jeff Williams today. By the way, the Wall Street Journal profiled Blevins nearly three years ago, giving him credit for keeping Apple's costs low and improving margins on hardware. WSJ saying he was known internally as the Blevinator for his negotiating tactics.

Now, look, no details from Apple other than saying to me, quote, Tony is leaving Apple, Scott. But look, he was a big force inside the company, not necessarily in the leadership team, but he did lead a big part of that procurement team and the operations arm of Apple. Bigger picture, Steve, you just don't hear about this kind of upheaval, if you want to use that word, very often from a company like Apple. I mean, the most senior of executives tend to stay there for a while. Yeah, that's right. And he's been there over 20 years. So it's not like he is an Apple veteran, to be sure.

But look, the Apple is very careful about the behavior of people. And it's clear this caught the attention. There's already debate going on online since the story first broke that whether or not this is a justified firing because he was actually quoting a movie in jest. It's very clear that was in jest. But, look, they have a high standard there, and he's no longer at the company, Scott. Yeah, appreciate it. Steve Kovach with the update there on an interesting and developing story. Adam, to the degree that Apple is an important linchpin to the market overall right now,

I've had some fund managers tell me today that the market can't bottom until Apple bottoms, and Apple's not near bottoming. What do you think? Yeah, I don't know. It's an interesting thought. I don't know if you could say one stock even as big as Apple is all that matters. Yeah, it's big. It is. I would just say if the estimates are between 10 and 15 percent too high for 2023, which is my current view, I would assume apples are at least going to come down by that much, right? I think that's reasonable. They have a lot of consumer exposure. They have a lot of cost exposures. I wouldn't worry that the next procurement person won't be able to get good costs. When you buy millions of things from your suppliers, you can pressure them. So I wouldn't worry about that particular margin issue.

But I do think that they're just going to have a demand issue. I feel like two weeks ago, though, that this stock was at like one sixty four. Yeah, not not two weeks ago. And now here it is once again at, you know, one forty and change. I understand that Nike is out as well. Those earnings are Sarah Eisen, of course, has that for us. Hi, Sarah. Hi, Scott. Looks like it is a beat for Nike on the bottom line. Ninety three cents per share. The expectation was around ninety two cents. Also on revenues, higher than expected on Nike, 12.7 billion was the revenue number. The expectation was more like 12.2. I'm sort of digging into some of the key numbers here. North America saw growth, 13%. That's good for Nike bulls because they want to see growth in the key home market.

China was the worry going in. The China revenues were down 13 percent. So that was actually a little better than expectations, both at the company and on Wall Street. Europe is also seeing growth at 17 percent. Of course, you've got to strip out the currencies for some of these growth numbers because Nike's getting hit by the strong dollar. The weak spots in the report, margins, gross margin 44.3 percent. That was a decline of 220 basis points. The company addresses it right up top in the release. They say that was because of elevated freight and logistics costs, something we know Nike's been dealing with, lower margins on our Nike direct business, driven by higher markdowns. This was the worry, right? All this inventory was starting to

come in. The ship's coming into North America, the company has to discount the merchandise to just get it out of the stores. Not to say that they're not selling merchandise at high prices or at full prices, but they have to sell some of the last season stuff. And that hurts margins. Also, the dollar is weighing on the overall margin picture as well. The other sort of point that analysts are going to look at here are the inventories, which were elevated still 44 percent higher. So on that conference call, we're going to want to hear how temporary the situation is, how long it's going to take to clear these inventories. But overall, I think better than expectations on growth. But clearly, they're dealing with the promotions and inventories, which was the concern, Scott, going in. We're going to also

get guidance on the call, hopefully, as we usually do. And let me just ask you a quick question, because you know this company so much better than I do. I thought it was expected that because of the growth of their DTC, their direct-to-consumer business, that margins were going to hold up better than feared. And the story you seem to be telling me from what you're reading in the release and what you know is that maybe margins took a bigger hit than we otherwise thought they would. So absolutely the bull case, Scott, on Nike, and this has played out over the past few years, is the shift to direct consumer has been better for profitability and for margins because they're selling direct. They're not going through the wholesalers or the department stores.

But now, because of all the COVID abnormalities and disruptions in the supply chain, they didn't have enough supply over the last few quarters. Now they have too much. And it's coming in, and it's coming in at the wrong season. So what's on the shelves right now, oftentimes they have current season, but they also, and they've been ordering, and they're bullish on the demand,

but they also have back season, and they have to unload that. And inventories at 44% means that there's a problem there. So they have to be promotional. And that's going to weigh on margins. And hence, the direct margins getting hit. So the question I think you raise, and this is a key one on the stock, is how long that's going to last.

Because part of the bull case on Nike is that they have pivoted to direct. And they're continuing to see growth. Digital sales were up 16 percent. It's how long that's going to weigh on profitability. And also the strong dollar is wreaking havoc on this report. Yeah, bad, bad in the interim for the business. Good for the consumer. If you're going to get a piece of the swoosh, you get a little cheaper. Sarah, thank you. That's Sarah Eisen with the update there on earnings. Steph, you own Nike, but I recall you thinking over the last, you know, I don't know, couple of years that the stock was expensive, not cheap.

Yeah, no, but I mean, it's lost seven multiple turns since the beginning of the year. So it trades at 20 times 2024. Look, I think that there's a positive and there is a negative to this report. I don't think it's thesis changing either way. I think the bulls stay bullish. I think the bears stay bearish. But to see North America sales up 13 percent, China was supposed to be down 15 to 20 percent, down 13. OK, that stinks, but it's a little bit less bad.

And Europe at 17 percent. I want to dig through the numbers and see what kind of product by product. I think Sarah is 100 percent right on DTC. They have too much inventory. Inventory up 44 percent is huge. Last quarter, it was up 23 percent. So I want to hear what they have to say there. But it's not again, not a surprise. They didn't have the inventory. So they flood the system with the inventory. And and now they have to you have to wait another quarter or two to get this run down. But to me, this is a quality company on sale, down 42% year to date. And if you're selling it on this quarter, that's silly, because you really want to own this for the next three to five years.

This is blue chip on sale. Right. Your last word, AP, before I give Malcolm his. Bloated inventory levels are a key part of your thesis in a number of stocks which you gave us, which you think get hurt from all this. Nike's not on your list, by the way. Right. Maybe it should be. NVIDIA, Intel, Nucor, Clorox, Best Buy, Newell, PVH, Gaps. You got some retail on there.

Yeah. What we did in our note when we previewed what we think is going to be the key performance indicator for earnings, which is inventory. You're seeing it from the reports today. I think the challenge is stocks generally don't work when their gross margins are going down at a surprising rate. You need margin expansion in general. And so if you build too much inventory, it's very hard for you to have gross margin expansion at the same time, and that's why that's the key focal point.

So our note a couple weeks ago when we previewed this and talked about it was here's the ones that have really seen a big growth in inventory to sales. And I think those are the ones that you sort of flag as potentially at risk. Okay. Malcolm, your last word is what? I am fearful that the next couple of weeks, probably next four weeks, going into Q3 earnings season are going to be even worse than where we feel we are right now. I'm similar in the camp as your friend, Professor Siegel, that it's fearful that the Fed's going to

keep on hiking well past the point where they should have stopped all in an effort to make up for lost time and maybe even prevent themselves from looking like the Bank of England. And so I wouldn't be jumping in with both feet right here, but I would be updating my watch list and setting my price targets because I think we're about to get some really interesting buying opportunities. All right. We'll make that a good last word. Malcolm, thank you, Steph. Thank you. Of course, we'll see a little bit later on AP. We'll see you next time. Good to see you. That's Adam Parker here. All right. Let's get to our Twitter question of the day. Now, we want to know, given our conversation about mega cap

tech, what is the best one to own right now? Is it Apple? Microsoft? Been at a 52-week low. Amazon? Google? 52-week low. Head to at CBC Overtime on Twitter. Cast your vote. We'll share the results coming up later on in the hour. We are just getting started, though, here in overtime.

Up next, navigating the volatility. Top-ranked financial advisor Rich Saperstein is with us. What he is telling his clients. You know they're calling. We'll find out what he's telling them. As the S&P 500 hits a fresh 52-week low. We're live from the New York Stock Exchange. Overtime is right back. All right, we're back in overtime following another big sell off on Wall Street today,

the S&P 500 touching its lowest level since November of 2020. So what should you be doing with your money as stocks continue to fall? Our next guest, one of Barron's top-ranked financial advisors. Let's welcome in Rich Saperstein. He is CIO of Treasury Partners. Good to see you. Welcome to Overtime. Thank you.

What are you telling your peeps? I know they're calling. They've got to be calling saying, what are we supposed to do? How much worse do you think it's going to get? What's the best strategy? What do you say? Well, Scott, as you know, we've been negative since all my appearances on Halftime. We've been negative all year.

And events have been unfolding as we've been looking for. In February, after Putin invaded Ukraine, we put out a client note saying if the markets survive Putin, they still have to deal with Powell. And that's exactly where we're facing right now. So we don't think it's a time to get aggressive or add equities, even though prices have come down. We're in the midst of a period where the monetary landscape is changing. And investors should focus on the return of capital versus the return on capital. So you're as negative as you've been. You want to use any sort of

rally to reduce positions that you may still have? Yeah, absolutely. So we've had nearly 15 years of an environment where there hasn't been a market-determined level of interest rates. And interest rates are the traffic signals that basically control the monetary highway. And they've been flashing green for years. That's led to a lot of leverage, excess speculation, and rising asset prices. Now everything's turning.

So in that turn, it's changing the dynamic of valuation. And that's what we're facing right now. Well, how much worse do you think it's going to get? I mean, you're painting a pretty nasty sounding scenario. Well, lots of talk about recession. OK, so we've got to think we price that in. Not yet. You know, even though we've had two quarters of negative GDP growth, six months of declining leading economic indicators.

We've got credit card debt up 18 percent. Housing is slowing. We're slowing, but we're not yet in recession. Labor market still really strong. Labor market's strong, and our expectation is that companies will be slow to lay off workers because there's a labor shortage. But nevertheless, expectation for earnings is going to go lower. You like bonds better than stocks? I like cash better than everything right now. You have more cash now than you've had in how long? Forever. Really? We have the highest cash positions we've had in years. Look, let's look at the market. Let's look at valuation. There's sales, there's margins, and there's multiples. All three are going to have

to come down. So sales have been elevated because inflationary push has gone through to consumers, but that only lasts for so long. Margins will be under pressure simply because of inflationary pressures and labor costs. And then multiples, you know, where are they going? Multiples have to be reset lower. So put 15 times on 220 earnings on the S&P and you're at $3,300. Oh, but you're still getting to 220. Some people have $200. Yeah. Trenert's out for $200. There's others that are all over the place. But, look, if we can look at different levels of market declines, $3,600, the market is probably a little bit overpriced. $3,300, I think you start looking at the market. If it ever gets to $3,000, I think stocks will be trading very attractively.

So when I asked you about bonds, I mean, specifically, you told our producers, avoid getting lured into the two- or three-year treasuries. Like, the two-year treasury is one of the hottest trades of the year. Yeah, here's why I'd avoid it. If we get a recession and rates start moving down, the two-year will get caught right in that downslope of interest rates. I want to have shorter-term treasuries, dry powder, let's say anywhere from one to nine months, because I want to start adding municipal bonds right now. So you like those specific, like what's the best muni that you've seen? I mean, I've seen some crazy ones with like 5%

coupon. Of course, the maturity is, you know, from here to eternity, you have to wait. But what's the best? Well, look at it this way. We're buying kicker bonds, meaning that they have a longer-term maturity, let's say 20 years, but they also have a call feature in, let's say, 8 to 10 years. So right now, with a 5% coupon, the yield to the call could be $380 to $420. And if it's not called in 8 to 10 years, then it kicks to, let's say, a 450, 475 yield. If you look at a 450 yield, that's a tax-free rate. And you look at the market over the last 40, 50 years, the average return, let's say, 8%, 9% of the long term, that's 4%, 4.5% after tax. So you can basically construct a portfolio with long-term market returns without that kind of volatility by approaching the muni market. Speaking of constructing the portfolio, last question, 60-40. Ken Griffin defended it yesterday and says it looks much better today, really, that at any point

in recent time is what he said. It sounds like you disagree with that, unless 60 percent is cash and 40 percent is split between stocks and bonds. Well, it's all about timing. So 60-40 didn't work this year. It's down 18% because the fixed income component, which normally supports the equity risk, was starting at a zero interest rate. So now the rates are higher. There's less duration risk in owning bonds in the 60-40. So I'd certainly consider that an asset allocation.

Okay. Good seeing you. Likewise. Great to have you in overtime. That's Rich Saperstein joining us here. It's time for a CNBC News Update now with Shepard Smith. Hey, Shep. Hey, Scott. From the news on CNBC, here's what's happening. President Biden warning from FEMA headquarters today that Hurricane Ian could be the deadliest storm ever to hit Florida. That's what he said. The death toll officially right now at seven across the state. A county commissioner confirmed six people died in Charlotte County in the Punta Gorda area. One other died in Volusia County on the east coast. The numbers, of course, expected

to climb. No reports yet from Lee County or Collier County. Search and rescue crews fan out across the region. Some of the hardest hit areas, the barrier island just west of Fort Myers. Much of Fort Myers Beach is destroyed and widespread damage on Sanibel and Captiva Islands. The bridge on the Sanibel causeway washed away, so there's no way to get cars to those islands. Governor DeSantis describing the storm surge there as biblical. And Ian is not finished. It's currently a tropical storm about 60 miles biblical. And Ian is not finished. It's currently a tropical storm about 60 miles east, southeast of Daytona Beach.

National Hurricane Center now forecasting it will strengthen to a hurricane, a Category 1, and come ashore for a third time. First Cuba, then Fort Myers, now near Charleston, South Carolina sometime late tomorrow. Tonight we're live on the southwest Florida coast with the rescuers and the rescued. Plus, we'll talk with the retired General Russell Honore, who coordinated military relief efforts during Katrina on what needs to happen now in a battered Florida on the news. Right after Jim Cramer, 7 Eastern, CNBC. Scott, back to you. All right, Shep, appreciate that.

We'll see you in a bit. Up next, too far, too fast. Ed Yardeni sounding the alarm on the Fed. What he wants Chairman Powell to do, what he wants him to avoid, what he's calling another big mistake. Next. All right, we're back in overtime following another big sell-off on Wall Street today. Stocks tumbling. Our next guest is sounding the alarm, saying, quote, the Fed is making another big mistake. Joining us now, Ed Yardeni.

He's the president, of course, of Yardeni Research. Ed, welcome back. You must have been having dinner recently with Professor Siegel because that's the case he makes. Why are they making a huge mistake? I agree with him. I think that they made their first huge mistake coming out of the pandemic when they prioritized bringing the unemployment rate down over keeping inflation down. And I think it's partly because it's taken them so long. For so long, they've tried to bring the inflation rate up above 2 percent. They couldn't do it.

So they figured, you know, it's going to stay low. And instead, inflation took off. So they couldn't do it. So they figured, you know, it's going to stay low. And instead, inflation took off. So they called it transitory. Then it became persistent. And now I think they're responding to their mistake by making another mistake, which is raising interest rates too rapidly here. They keep saying that they're at the low end of restrictive when they talk about the federal funds rate. But they're not taking into consideration the fact that their balance sheet is coming down. They know what they're doing it. And yet that has a very tight impact on the economy, another restriction. And then the dollar has been extraordinarily strong because the Fed has been much more hawkish than

other central banks. And that's creating just havoc in the foreign exchange markets. I mean, they're in a box, though. They yes, they started late. Most people would agree with that. They would probably admit it. And maybe they even have. But they're in a box because they have no choice. Right. You got inflation at a 40. Inflation is a 40 year high. I hear you on the lag, but don't they need to do what they need to do? Yeah, look, you're making a good point here. And I think they were actually on the right track before Powell turned much more hawkish at the Jackson Hole meeting and then just exacerbated that by turning even more hawkish at the most recent press conference that he had in late September. I think the idea of raising rates and then pausing was a good idea. And I think that if that's pausing in September,

they should have signaled that they're going to pause in November. Instead, they look like they're on course to do at least 50 and probably 75 basis points. And I think that's getting to be too much. The housing market's getting absolutely crushed too much. Look, the housing markets get absolutely crushed. I mean, mortgage rates have gone from 3% to 7%. I think you're going to see home prices falling pretty rapidly. I think that'll have an impact on rents. Let's see what tomorrow's consumption deflator looks like. We know that rent has a smaller weight in the consumption deflator than it does in the CPI. We know that energy prices have come down. There's some indications that food prices are coming down. I think inflation is coming down.

And I think they've just been I think because they were so wrong about inflation, they're going the other way and being too restrictive. I think inflation is coming down. So are you are you reassessing your outlook as a result of what you think is is going to be a mistake? Well, I think for them, for the stock market, it clearly has been a tough year so far. And all of that is mostly attributable to the Fed. I know one of your guests just said that. So what about the Ukraine situation? Obviously, that's also been unsettling and that's contributed to the global inflation, which we've seen have some impact over here. But I think it's going to continue to be a tough market here until the Fed finally tells us that they're happy with the direction of inflation.

For them to say that they're going to keep raising interest rates until they're absolutely sure that inflation is coming down, that creates a lot of uncertainty about just exactly what does that mean? How do they play that out? But I do think we're creating some tremendous opportunities here. I guess I'm an optimist at heart. And when I see corrections in bear markets, I see opportunities rather than reasons to panic. And I think there's plenty of opportunities here. We'll leave it there. Ed, thank you. That's Ed Yardeni of Yardeni Research, of course. Up next, much more on that huge Apple call today. The stock slapped with a rare downgrade. Shares now down 9% just this week. We're breaking it all down straight ahead. In today's Halftime Overtime, a rare downgrade for Apple. Bank of America cutting that stock to neutral, lowering the price target to $160.

Comes after shares have fallen more than 10% over the last month. The Lone hightower, Stephanie Link, is back with us. You don't see it very often. They are worried about a weakening consumer. For a stock, Steph, that I just said a few moments ago was at $164 not that long ago. And here we find ourselves going way in the opposite direction. Yeah. And the problem is, Scott, it's only down 20 percent when the peer group like the FAANGs are down 30 to 60 percent. Right. So there is a possibility to see a catch up trade, especially considering it's not cheap at 24 times forward estimates.

And as the Bank of America analyst mentioned, numbers are at risk. Services is slowing. We already knew apps were slowing and licensing is slowing. That's 60% of services. And we also know that the consumer certainly is at risk. They're not immune to the macro by any means. And so now you have services revenue coming down, products revenue is also likely to come down. And also, by the way, they've benefited in a huge way from stay-at-home and the whole iPad thing. So that those numbers start to normalize as well. So, you know, currency is a headwind.

I mean, across the board. So it's held up remarkably well. I think it's vulnerable to the downside. You know, I've been underweight. Apple, I run three portfolios and two actually don't even have Apple in them. And a very small one in the in the third portfolio that I run. What gets you interested, though? What's the price that you stand up and take notice like you're doing today with Alphabet? Right. You said that earlier. You're taking a look.

Yeah. Well, I would like to see something like 15 to 16 times forward estimates for sure. We've got to get through this iPhone cycle, iPhone 14 cycle, which I don't believe is anything special, quite honest with you. So I want to get through that. I want numbers to come down, but I want the valuation to come down, at least with Alphabet. It's trading at 16 and a half times. I don't remember the last time Alphabet was trading at 16 and a half times. And I think their estimates, while vulnerable, certainly not to the extent of something like Apple, which is much more consumer facing. But you're implying a decline of a much more significant magnitude for a stock like Apple, which is much more consumer facing. But you're implying a decline

of a much more significant magnitude for a stock like Apple. I mean, look, I've talked to people who yesterday were telling me stock needs to go down to its 200 day moving average, which is just north of 100 bucks. Wow, I mean, I don't know if it gets there, but if it got there, I certainly would would take a look, a very, very serious look. Remember, Warren Buffett is his biggest position, number one. I bet he's out there buying a ton. He's got $100 billion to spend if he wants to. But I do think, though, that we've got to get the numbers to get reset for Apple, and that's going to be an overhang. As I mentioned, it's much more consumer-facing, Scott, as you know. I mean, at least with Alphabet, they've got cloud, right? They've got enterprise, right they've they've got this whole new YouTube

shorts going on that's seeing a huge amount of momentum and so I just think there are other places right now that are looking a little more attractive rather than the one that's held up the best I misspoke I meant the 200 week not the 200 day just to make sure that that we're all 100 percent clear on that 200 week, not 200 day. Steph, thank you. All right. Thanks, Scott. All right. That's Stephanie Link Hightower. Sticking with tech. Don't forget to weigh in on today's Twitter question. We're asking what the best big cap tech stock to own right now is. Apple, Microsoft, Amazon or Google had to add CNBC over time.

Place your vote. We'll share the results in just a little bit before we get out of here. Still ahead, though, we are keeping a close eye on shares of Micron and Nike in the OT, but those aren't the only names moving right now. Seema Modi tells us which other ones are. Seema. Hey, Scott, sticking with tech, a new sell site analyst predicting the sell off in one big tech stock may be overdone. We will get you the name and the trade after this very short break. All right, we're back in overtime. I want to show you shares of the big earnings releasers here today. There's Nike and Micron. Micron is just a fractional loser. The outlook was a bit light. They had already, you know, previously warned about a month ago. So maybe

not a big shock in terms of what they delivered today. Nike, interesting story, though. Stocks down about 5.5% in overtime. Inventories are an issue there. We'll keep our eyes on both of those. Seema Modi keeping her eyes on the other big overtime movers. Seema, what do you see? Hey, Scott. KLA, the latest semiconductor company to announce plans to build a new research and development center, price tag of $100 million in the UK with a 200,000 square foot facility being planned. The stock is down about 1.5% in the OT. Switching to FTC suing pesticide giants Syngenta and Corteva

for allegedly using an illegal scheme to inflate prices for farmers. We reached out to both companies for comment. Corteva is trading down more than 1% here in after hours. Switching to tech, analysts at Raymond James resuming their outperform rating on Microsoft with a $300 price target, which would suggest 26% upside in the stock based on where it is trading right now. Keep in mind, Microsoft, along with other big tech giants, have been caught up in the recent sell-off. It's down about 30% so far this year. And draw your attention to shares of Amelix Pharmaceuticals. It is popping around 6% on FDA drug being approved by the FDA.

The drug offers a new option for slowing the disease's progress. You'll see the stock up by 7% here in the OT. Back to you, Scott. All right, good stuff, Seema. Thank you, Seema Modi. Up next, our two-minute drill. One money manager finding cash in trash, naming the name they're betting on

for some serious upside next. We've got a can't-miss interview on deck. Morgan Stanley, CEO, James Gorman, sitting down exclusively with Kramer. That is tonight on Mad Money, 6 o'clock Eastern time. Perfect time to get his thoughts. That's for sure. Let's get the results of our Twitter question.

We asked, what is the best looking big cap tech stock right now? Alphabet was the big winner, followed by Apple. There's Alphabet, 36%. Steph Link said she's taking a look at its stock at a 52-week low. Back after this. Had a big sell-off on Wall Street today, the S&P 500 dropping more than 2%. Our next guest, though, still finding some opportunity, at least trying to, in the pullback. Joining us now, Nicole Webb, Wealth Enhancement Group Senior Vice President.

Welcome. It's nice to see you today. Let's talk about these stocks you like. We teased the one as waste management why do you like it here i really actually like that joke about turning cash into trash so waste management isn't necessarily cheap it's trading around 160 a share but it is a dividend aristocrat and we see it as a strong player regardless of where this market goes. So through various outcomes, the industry is so attractive as an oligopoly and waste management is the absolute ruler of the roost with government regulations, barriers to entry, restrictions on new facilities. And then also at

the helm of the ship, new CEO, Jim Fish, he's highly focused on return on invested capital. And we like where he's headed with kind of the commercialization of recyclables. So just a few few reasons why we like waste management. Tell me about another one. Simply Good Foods. SMPL is the ticker. Yeah, absolutely. So Simply Good Foods actually had a pretty traumatic summer trading at a 20 percent discount after reporting earnings at the end of June. One of the things we look for in uncertain times, like right now, especially as we see CEO sentiment continuing to decline, is a really strong leadership team. And I would say that Simply Good has perhaps one of the best resume lineups in the consumer staples industry. This stock actually on a five-year moving average traded at a 44

premium to the sector and is now trading at about a 10 discount gotta leave it there i appreciate your time very much nicole thank you i'll see everybody back tomorrow on the desk look forward to that fast money begins right now