Closing Bell - Closing Bell: Overtime: Bill Ackman From Delivering Alpha; Blackstone’s Global Co-Head of Real Estate On Major Themes 9/28/23

Episode Date: September 28, 2023

Bill Ackman talks his major investment themes and strategies, sitting down with our Scott Wapner from Delivering Alpha. Plus, Morgan talks with Kathleen McCarthy, Blackstone’s Global Co-Head of Real Estate. Major averages closed higher but still on pace for a negative month. Cantor Fitzgerald’s Eric Johnston and JPMorgan’s David Kelly break down the market action. The Dow’s worst stock so far this year, Nike, reports earnings. EToro US CEO Lule Demmissie on how retail is positioned right now.

We got your scorecard on Wall Street. Lots of green. Winners stay late. Welcome to Closing Bell Open Time. I'm John Fort with Morgan Brennan and we are following two breaking news events this hour. Nike is getting ready to report earnings results in just a few moments. It's a key read on a consumer and one of the worst performing Dow stocks this year. We will bring you all the numbers and analyst reactions. And also this hour, Bill Ackman on the record. Scott Wapner will interview the hedge fund titan at CNBC's Delivering Alpha conference.

We're going to bring you that interview right here as it happens on Overtime. And now let's begin with the market as we enter the home stretch of the third quarter. Stocks gaining back some ground today, still sharply negative for the month, though, as we await tomorrow's PCE inflation data. Joining us now are Eric Johnston from Kenner Fitzgerald

and David Kelly from J.P. Morgan Asset Management. Guys, good afternoon. David, let's talk about what happened in the market today. We strung together a couple of days for the S&P that aren't down. One more trading day before Q4. The 10-year settled down a little. What does it mean? Well, I think we've had a very rough few weeks here. And I think particularly with rates rising, I think that's been scaring investors. So maybe the market was oversold here but i think there are still some issues going forward i'm not particularly worried about pce tomorrow i think

that people can figure out what the personal consumption debate is going to do once they've got the cpi numbers the pc deflator never really surprises that much these days but but in general though there are a lot of pressures in the us economy we don't know at this stage whether the government's going to shut down this weekend. We know the resumption of student loan payments is going to hurt consumers. We're looking at the highest 30-year fixed rate mortgage rates since the year 2000, slowing down the housing market and making it more difficult for consumers. So we can see a slowdown coming.

There are a lot of signs that the economy is going to grow more slowly. And the real question is, you know, can interest rates begin to come down to reflect that or are we going to have more of a hard landing because interest rates were just too high in the selling economy? OK, I hear that. But at the same time, Eric, Q4 is generally historically good for stocks. It was a textbook bad September, you know, the last two weeks especially you've been bearish equities all year that's largely been wrong why are you going to be right about q4 yeah i would just say first that the equity returns over the last year and two years while

they've been bearish have been quite negative especially when you compare them to the five percent uh cash yield that's out there, which we've been recommending. But right now, if you look at the fourth quarter seasonals, you're absolutely right that they look very good. So the last 28 times that we've been up more than 10% heading into October, 23 of the 28 times the market has done well. But we think that the fundamentals and the economic challenges right now are all coming to a head as we speak and is going to likely overwhelm that fourth quarter seasonality. Though I will tell you we're very respectful of it because, yes, stocks have done very well in

the fourth quarters. But if you look at the economic headwinds that are coming together as we speak, you've had oil that's moved up 30 percent in three months, the 10-year yield up 85 basis points in just two months, the dollar's rallying. And this is all happening as excess savings is declining, the student loan moratorium is ending. And so you have this situation where, and there's also a big delayed impact for rate hikes, which is not just theory, but it's actually happening in practice. And it's all happening late cycle, and it's happening with an equity risk premium that's just 50 basis points. You are still not getting paid to own equities, just like you weren't a year ago, and just like you weren't two years ago. It still is not a good risk reward. Okay. Well, Eric, I do want to play

a soundbite from Rick Reeder from BlackRock. He's at Delivering Alpha. He had this to say just a short while ago. Take a listen. The technicals and equities are pretty amazing relative to the bond market. So listen, I think the equity market can hold in okay. And I think next year you could still get an 8% to 10% return in equities. Really? Even the fact that you've got...

Even with higher real rates. I think so but by the way when you strip out the seven stocks i know you talk about it all the time the multiples on equities people talk about where equity risk payment you know you're 16 multiple when you take seven stocks out the earnings yield while it's uh you know relative to tens it's not that attractive relative to history it's actually not bad for most of the equity markets so i think equities will do their job like they did this year. Probably not.

But I think they'll be OK. So, Eric, I just want to get your response to that. I mean, are you broad based bearish on equities overall or are there actually opportunities here? So I think there are opportunities on the long side within our bearish view. I think health care and energy are two sectors that we think actually look very good. One of the benefits from healthcare is that unlike other defensive sectors, dividend yield is not an important part of the trade like utilities or REITs, etc. And so with higher yields, that's not a negative for them. And you get some secular growth. Then, of course, energy, very good balance sheets. But the only thing I would say about the premise of

that seven stocks are trading at one say about the premise of that seven stocks are trading at one multiple and the rest of the stocks are trading at a different multiple is that ultimately the PE is at a 20-year high with ex-COVID with rates at a 20-year high. And one of the things is that money has come out of the other 493 stocks and got in to the other seven. So you can't really strip out the 493 and without look at the seven, you really have to look at them all together. And all together, the market is very rich. And so I still think a best case scenario is that we're going to be chugging along at returns that are less than cash. And I think in a best case scenario. Yeah. David, I want to pick up on

something you said before, and that is if we see slowing economic growth, you would expect yields, particularly on long-dated treasuries, to start to come off in response as a safe haven play. And yet there's another dynamic that is going on in the treasury market right now, and that's the fact that we're spending a lot of money, so a lot of issuance, a lot of supply coming online, just as the Fed, other central banks and foreign buyers, the demand side is coming off. So is this a situation where what's happened in the past could happen again or no? Well, I think we'll still get lower rates when the economy begins to falter here because I think inflation is coming down. I think you're right in the real rates in

the decade ahead are going to be higher than they were in the last decade. And that's because, you know, we're going to run a deficit next year of about $2 trillion next fiscal year. And you add on to that $720 billion of reduction in the Fed's holdings treasuries, that is a massive amount of supply. To ask global capital markets to supply another 2.7 trillion dollars to the u.s treasury that is a huge ask i think that does mean that real rates will be somewhat higher but even with that you start a four and a half percent yield on our 4.6 percent yield in a 10-year treasury that's a very good yield if you if you were returning to a two percent inflation environment so i think there's still money to be made in fixed income i would

still be you know long duration somewhat long duration expecting this crack to happen sooner or later here um and i think there are opportunities in equity markets this is not a time to run for cover here and i also by the way i wouldn't hang on in cash i know it's attractive here but you really the problem is that if the stock market does uh falter here the bond market's going to rally your cash is just going to sit. It's not going to act as an insurance policy the way long-duration fixed income will. So I think you need to be diversified. You need to be in long-term assets, but you need to look very carefully at the price of what you're buying and be realistic about where this economy really is. Okay. Gentlemen, thanks for kicking off the hour with us, David Kelly and Eric Johnston with the S&P finishing just a fraction of a point below 4,300.

Well, with 10% of S&P 500 stocks hitting 52-week lows yesterday, is the stock market getting washed out? Let's ask Senior Markets Commentator Mike Santoli, who joins us now from Delivering Alpha. Mike. Yeah, Morgan, showing some signs of at least moving in that direction. Actually, if you look at that trend of new 52-week lows in the S&P 500, it's about the highest it's been since, I guess, the springtime or maybe last October. But you see this on sell-offs. It's a little bit higher than it was during the SVB sell-off in the spring. Now, last year, you can see massive spikes.

We're close to 40% of all stocks in that very persistent downtrend off of a very high peak. We're registering new 52 week lows. So now it seems as if there's a little damage to be done at the lower end of the market. That's, you know, progress. If you still believe it's an uptrend, if it's still a bull market, these are the things you look for to suggest that things are getting a little bit extreme to the downside, even though there's never any trigger point that says now it's time to do some buying. I would also point out sentiment is also migrating from relatively high levels of bullishness and optimism in the summer, let's say mid to late July. And it's now moderated a fair bit. That weekly AAI retail investor survey now does have more bears than bulls over

the next six months. That's something that does tend to happen when the market pulls backward, down 7, 8 percent on the S&P. Though here again, people were on net more bearish back in March when we did have the regional banking crisis. So everything is sort of relative, but things are moving in the direction kind of the seasonal weakness is essentially performing the role that it's meant to do in a sense. Yeah, that's exactly where I was going to go with you, Mike, because it isn't just this reading, right? You got the fear and greed index hits the extreme fear level for the first time since mid-March, to your point, as well this week. How much of this is the seasonal playbook? It all meshes together. I think that essentially

the tendency of the market to be weak during this period, even though people know and typically we do have some relief in the fourth quarter, in the moment and because of the pileup of real issues that are right in front of us all. And I'll continue to say just a very haphazard and eye-catching action in the bond market with 16-year high yield succession in a succession of days. I think that puts people off balance. And I've been asking the question if, you know, do people have to give up on the idea that we're entitled to a seasonal comeback in the fourth quarter in order for them to capitulate in September and then get a fourth.

I mean, that's always the pretzel logic that you kind of have to follow around in these times. Yeah, it's hard to fake somebody out who's expecting it, I guess. And, Mike, we're still bumping around in that range that you've been talking about, above 4,200, just about at 4,300 on the S&P now. So if we're looking at Q4, are there moments comparably when we're going to look and say, okay, this is shaping up the way it typically does historically, whether we're looking at October or November? Are there moments when that rally is going to be proven out or not?

Things really start to turn in terms of seasonal tailwinds around mid-October. And I think that the key would also be, you know, if we do get some relief from the bond market, if yields start to moderate a little bit and we still have some oversold conditions in the stock market, does the equity market respond in the way that you would expect when all those things have come together? Because when the expected thing happens, you don't always get a lot of new information. When an unexpected thing happens, you have to ask, you know, is there something that we didn't notice before going on here? So I would say, you know, you give the market a little bit of leash by mid-October.

If, in fact, earnings are coming through reasonably well, we'll see how the market responds to all that. Okay. We'll all be watching. Mike, thank you. Vail Resorts earnings are out. Seema Modi has the numbers. Hi, Seema. Morgan, Vail Resorts reporting a wider than expected loss for the fourth quarter, $3.35. Revenue came in lighter than what Wall Street had anticipated at $270 million. The estimate was for $2.83. The company says lower demand for destination mountain travel, primarily driven by a broader shift in summer travel behavior. The company also citing weather disruptions as for why these numbers came in below than expected. Of course, this is a company that

does appeal to a loyal, high-income American customer with its luxury ski resorts. So the company's outlook for the ski season, which begins unofficially in December, will be key when the conference call starts. Stock is down by around 1 percent, although it has underperformed the S&P so far this year. Guys, back to you. Seema, I'm just curious, how is this going to set us up for, if it does at all, carnival earnings tomorrow? And we've seen the cruise lines rallying ahead of those results, and it all sort of speaks to experiences and the services side of the economy where consumers have been spending so much money. That's a great point. Carnival, of course, appeals to a slightly different customer base that tends to be value-oriented, a bit more cost-conscious.

But I think these comments from Vail Resorts on a shift in travel behavior in the summer season, which I think really is just referencing more Americans going to Europe over the summer, how that plays into Carnival's results tomorrow. Of course, they are the largest cruise operator with a strong presence in the U.S., but of course have been growing their European and Asian sailings as well. All right. Seema, we know you'll be watching those tomorrow, too. Thanks for joining us. Seema Modi. Pershing Square founder Bill Ackman is about to take the stage at the Delivering Alpha conference for an interview with Scott Wapner. We're going to take you there when it begins.

Speaking of long-dated fixed income. Indeed. And we are still awaiting earnings from Dow component Nike with the consumer and China in sharp focus for investors. We've got an expert panel ready to break down those results. Overtime's back in two. Nike earnings are out. The stock is running and jumping all over the place. Courtney Reagan has the numbers.

Court? Thank you, Johnny. Let's get you what we know so far. Earnings per share of 94 cents. That is well above the street's expectation at 75 cents. On revenues of $12.94 billion, about in line, maybe a little light with what the street was expecting. Nike direct revenues up 6%. Revenues of $12.94 billion about in line, maybe a little light with what the street was expecting. Nike direct revenues up 6%. Nike digital direct revenues up 2%.

Wholesale about flat. North America sales down about 2%. We're going to dive into the rest of this report and be right back with you. Thank you. Mike Santoli, we just got headline numbers there. Nike stock bumping around quite a bit. Anything in particular you're looking for from here or might have seen already? Honestly, the stock reaction mostly because I've been observing the way that the street has been sort of giving up

its long-held kind of benefit of the doubt toward Nike. You've seen some downgrades. You've seen people sort of not be that enthusiastic about their ability to sort of write things in terms of the wholesale channel and North American sales. So I do think that a little bit of a reflex pop makes sense. The stock is down to levels it was at about four years ago, four plus years ago. So, you know, we'll see if good enough is good enough for the stock on those numbers. Yeah, I'm still going through the results here, Mike, but it looks like gross margin actually decreased 10 basis points to 44.2%, which got my attention, especially when you think about Lululemon not that long ago,

direct competitor that actually saw the tailwind of lower freight costs. So definitely something that we watch with all the retailers in general. But between that and the fact that it looks like there's some softness here in North America, which has been the more resilient market, two things for investors to chew. No, for sure. I mean, the line for years had been that Nike can hang on to pricing. People want the premium, new shoes and things like that. So, you know, we'll see if that's been tested here. But again, you know, when it can rally on a subpar

or suboptimal quarter, if that's what this was, you know, we'll see if that tells us something about the field position for the stock. And of course, you know, this is one where the call is particularly important, I think, in terms of their color and expectations for the next few months. You think the dollar comes into play in particular here and the impact on this sort of global company, especially heading into Q4, where things like apparel and footwear would expect to have a big quarter? It's going to make its way into the numbers. I think when a company like Nike, it is mostly the translation effect. In other words, it's just about overseas earnings getting converted back into dollars,

as opposed to their products becoming so much less competitive overseas with a strong dollar. But we'll see if they think that we're here to stay when it comes to this big rally that we have had in the dollar. It is worth noting we've been above this level in terms of the dollar within the last couple of years. So it's not as if it's kind of fresh ground that the currency has made its way to. Okay. Hang with us, Mike. We're going to go back to Courtney, who has more detail and more color from this earnings report. Court. Yes, we had been curious about what was going to happen with gross margin. We had seen some pressure there last quarter,

but this one actually, while gross margin fell about 10 basis points to 42.2 percent, it was above estimates. So that is good. And then we look at the geographic breakdown. I did mention that North America, of course, the biggest region, those sales down 2 percent. China, though, very, very important. It had a choppy recovery. China sales for Nike up 5%. Europe, a bright spot. Those sales up 8% in that region. And then China, Asia Pacific, rather, and Latin America together combined, those were also up 2%. So no guidance here yet in this report. We're hoping to get more on the call. But for now, you know, largely in line in some cases, but I think that earnings per share

much stronger than expected. And China also not so bad with a growth of five percent after we've seen a choppy recovery. Back over to you. OK, Courtney, did you happen to remember why the expectation was for the gross margins to be down more than they were? So previously, Nike had talked about sort of some promotional pressures, right? So having to discount in some cases in order to sell some of the product. They also were still seeing some pressures from some freight expenses. But we heard from a lot of other retailers and anyone else that sort of ships things that that sort of evened out. I think what's also interesting is obviously Nike is a global seller of goods and the dollar

does play a significant role in their quarter. However, we sort of had a tale of two quarters within one with the direction of the dollar weak in the beginning and then stronger in the end. And so that sort of evened itself out in these results here as well. Interesting. Helps put the upcoming call into context. Court, thanks. Do you want to mention Bill Ackman about to take the stage at Delivering Alpha with CNBC's Scott Wapner. We're going to bring you that. Sorry. That is beginning right now. Let's go to the stage at Delivering Alpha with Bill Ackman and Scott Wapner. OK. I do want to start, though, with news. But I think it's news.

A reported secret meeting that you had recently, you and a bunch of other people with Zelensky of Ukraine. Within the last few weeks, it was said to have happened. What happened in that room? So I don't know that it was so secret, but basically I think Zelensky wanted to meet people from the business community. And there were about 10 of us there. It was organized by J.P. Morgan. And this is a pretty important person, I think, when we look back in time in our history. He's played a very important role in the last couple of

years, and it was an opportunity to meet him firsthand. And I think his goal here, I think, was to meet people who could be potential investors in the country, people who could bring business to the country. And I think is What he really had to say was don't wait till after the war You know you can really help us by bringing business to our country now also looking for people to help rebuild after the war Yeah, I think look I'm very bullish on Ukraine post-war right?

I think most Americans wouldn't be able to identify Ukraine on the map circa two years ago and today I think people know how many people live there. They know a lot about the population. I think they feel a moral obligation to help. And I think there'll be a very powerful big business case for the rebuilding of the country. Are you going to commit personally that you'll give money towards the rebuild, either through you personally or the foundation? So I've invested about $24 million in Ukraine philanthropically during the war.

You already have. Already have. Some of that was a philanthropic investment in a company called Zipline, which is a really interesting startup. It's well beyond a startup. They apparently raised 400 million at a 4 billion dollar valuation recently. But our philanthropic support was to get them to launch in Ukraine. And basically, it's a drone company that ships medical supplies,

principally in Africa, but places where there isn't good road infrastructure and you need to get blood from one hospital to another, medical supplies or things like that. And they launched in, they're in the process of launching in Ukraine because, of course, the infrastructure of the country is not in a great place. And, you know, they have lots of need for blood in the right places, unfortunately. And that was just the start, it sounds, to more investment from you? It wasn't really, it was not an investment.

I was looking for an economic return. It was an investment to, I think, it was not in their business plan to launch in Ukraine. And so I actually got a call from Mike Moritz of Sequoia saying, look, we're actually looking for philanthropic support to bring Zipline to Ukraine. And I think they are, and actually I had the opportunity to meet the head of logistics for the war at this meeting with Zelensky, and I connected him with the CEO of Zipline because, you know, even in a place like Ukraine, there's a bureaucracy that you need to get through in order to, if you think about launching drones around Ukraine right now, you have to have a lot of confidence that those drones are good drones as opposed to bad

ones. It was a good segue to get to the markets because just within the last week, Jamie Dimon said that geopolitics remain the market's biggest risk. Do you agree? I think geopolitics, I don't know. Maybe in the very short term, that's true. But I think, yeah, it's sort of the unknown. It's the ultimate sort of black swan type risk, right? What do you worry about? You worry about nuclear war.

You worry about, you know, an obligation to defend Taiwan. You worry about, you know, war between the U.S. And we've gone from a period of, you know, a couple decades of, you know, put aside terrorism, which you can't really put aside, but we really haven't had war between major powers, you know, two countries in Europe in, you know, 80 years. And so this is not a bright time in our history. But we had a period of time where I think Berlin Wall came down and we thought about peace. So it's a different environment to be investing in for a number of reasons, which we'll get to. How would you describe what your positioning is today? So similar to what it's been historically is we own actually really eight amazing companies.

I'm sure you know most of them. We have a tiny little investment in Fannie Mae and Freddie Mac, which I think together represent a little, maybe a little over 1% of the portfolio. But the rest of the portfolio, those are really options on a ultimate kind of government taking them out of conservatorship. The balance of the portfolio, great businesses we think do well in really any economic, political, or macro environment. And then we opportunistically hedge risks. And the two risks we've been concerned about really over the last year, it's a year and a half, energy prices and kind of the longer part of the curve, the treasury curve becoming rates moving up. Betting on the long end of the curve, rates continuing to go up.

You nailed that, and you've been making that. Well, nailed it would be, we put this on like 18 months ago. We haven't made, you know, we actually made almost $3 billion on two-year rates. We've made a relatively modest profit here. So if we nailed it, we would have made more. But are you still? I sort of was quiet about it for a while and then sort of made my point a couple months ago and rates have moved a lot since. Is it still on that bet? It is. And how long will it be? Well, until we're right or wrong. I mean,

you're, are you, are you still figuring that rates at the long end, the 30 year, for example, or however on the long end are still going to go higher? Yes. I look, I think there's even in the relative short term, there are a number of reasons why rates can move a lot. Among them, right, we have a government shutdown. We're going into what looks like a highly probable government shutdown. We're going to have a data shutdown, right? All these little government agencies that put out data

that the Federal Reserve relies on to decide whether to adjust interest rates, they're going to lose access to that data. So we're going to have this sort of like kind of dark period. We have probably the worst technical environment in our lifetimes for supply of bonds versus buyer bonds, right? We have China selling. We have Russia, to the extent they own U.S. securities, and more selling.

We have Saudi Arabia selling. And, you know, we have an economy that is still strong and inflation, you know, 3.5%, 4% and persistent. But, you know, our view is basically you're not being paid enough to enter into a 30-year contract with the U.S. government at a fixed price. You know, 4.7 or wherever it is now doesn't make sense in a world where we think structural inflation is north of 3% for the very long term. We went through this very unusual period with extremely low interest rates, you know, where everything just got cheaper. And, you know, since the financial crisis, the effort of the Federal Reserve was to make sure we didn't have deflation. You know, the aspirational goal is to get to 2% inflation. And then the pandemic and, you know, trillions of fiscal stimulus, you know, the psychological stimulus of being free to roam after being locked up.

You know, all of these factors coming at once kind of lit inflation. And we still have this massive deficit spending. We still have infrastructure spending. And the government's selling literally hundreds of billions of dollars of securities, bills. And at some point, they're going to have to sell more and more of the longer instruments. And if you look at the balance sheet of the Federal Reserve, it's an imprudent balance sheet. If you think about the United States, if this were like a business, you wouldn't have so much short-term. You wouldn't have a third or more of your debt repricing within the next year.

So it's not been managed. I think actually Steve Mnuchin did a good job as Treasury Secretary. The one thing he missed is he should have issued a lot of 30-year, 50-year, 100-year paper at crazy low interest rates, and that's going to be a burden. Hearing a lot from investors these days, Ken Griffin was on our network within the last week or so. I just had a conversation with Rick Reeder of BlackRock. Those who are talking about the possibility of much higher real rates for much longer than people think, for the very

reasons that you're talking about, the issuance is so massive. And where are the buyers going to come from? And the result of that is going to be higher yeah really i don't know much higher real rates uh i think we're i think you know again my view is inflation or kind of the house view is inflation is going to be persistently higher oh you are the house but i guess i control the door on the way in and out i guess but um you know our view is really that uh we're in a different world. And, you know, the world sort of changes gradually. And you have a generation of people who are used to rates, you know, four sounding like a high interest rate. And it's, you know, on a historical basis, it's an extremely low rate of interest.

So I would not be shocked to see, you know, 30-year rates well into the, you know, through the five barrier. And you could see the 10-year approach approach five. And that could happen in the very short term. Like literally weeks. We've seen a huge move in the last number of weeks. And I think a lot of that is investors kind of rethinking.

What's interesting about the 30-year treasury is people reflexively buy it whenever they, you know, because they've made money doing it in advance of a recession. But it's really not an instrument you should use to speculate on the short-term economy. It's a fixed price contract with the U.S. government for 30 years and reflects really structural forces. And I think the structural forces have changed. You must be negative to the equity market. How could you have a positive view of stocks if you think that that's the outcome for bonds and yields? Because if you own high quality, the key is owning businesses

that have pricing power. Businesses that can do well in a world of, and by the way, many businesses can do well in a world of 3% inflation. The key is it's hard to manage a business in a world where inflation is volatile or inflation is 8% or the kind of crazy numbers. But many, many businesses can do very well in a world of 3% inflation. And the kind of companies we own, they're very much like royalties. So we own Universal Music, which is a royalty on listening to music. If there's music playing out there, Universal is getting a fraction of a penny for every song that's being streamed. Google.

Google is a royalty, if you will, on people advertising on the web or on YouTube. Restaurant brands is a royalty on people eating at Burger King or any of their various concepts. Hilton is a royalty on people staying in hotels and eating and drinking and going to events. The beauty of these kinds of businesses is, you know, actually inflation is ultimately their friend, right? As long as they can keep their costs, as long as their costs don't inflate as quickly as their revenues. And I think the nature of those, so I feel comfortable owning those kinds of businesses, even if inflation remains high. And also, again, historically, if you think about if you think about what is the value of a business? It's the present value of the cash you can take out of it over its life, discounted back

an appropriate interest rate. We were not discounting businesses back using 2% as an appropriate rate of interest. So we've historically, our discount rate we've used just just rough measure, is more like 10%, 9%, numbers which discount the uncertainty inherent of investing in equities. Alphabet is one of your more recent investments, is that correct? Yeah, we bought it late last year, early this year. How much did that have to do with AI? It had a lot to do with AI because AI was the reason why the stock was cheap, right? ChatGPT was launched, incredible game-changing kind of product, and Google really fumbled

their offering. And so people said, oh my God, Google's way behind on AI, and the stock sold off to 15 times earnings for one of the greatest businesses in the world. And we did a fair bit of work, but Google's been almost you know almost a decade they bought deep mind you know huge spending billions and billions of dollars on AI it's a company known for hiring you know great engineers and we could certainly presume they were at a pretty good place on AI but you know they're again very different from startup they took a much more cautious launch approach and I think and then kind of fumbled an early

demonstration made people think they were behind in Microsoft and ChatGPT would sort of, if you will, OpenAI would eat their lunch, and it led to a very mispriced stock. And then we actually, we've bought more in the 120s. It's our second largest investment. Alphabet. Yeah. Some would suggest that, and it was said on this stage earlier today by somebody who sold Alphabet when the chat GPT and open AI thing came out. We bought from them, so we should thank them. Yes. That the ball was fumbled and recovered by the other team who ran for touchdown and then piled on with other touchdowns. And now Alphabet may not be able to recover the leadership role that it had. And DeepMind is a perfect example of Alphabet having this in-house and still fumbling the ball.

I would say they fumbled the PR around the ball. But I think they've subsequently demonstrated publicly that they are integrating AI in all their various products. Obviously, the most obvious example is Search. And they are, I think, their bard is, you know, sort of certainly neck and neck with ChatGPT. And we think they're, you know, if you think about the enormous amounts of access to data that they have by virtue of the various, you know, everything from search to the various products they offer to their customers, email and otherwise, data and the ability to legally extract and train on data is a really important competitive advantage.

They also have designed their own chips. Access to the cloud, access to the processing power is critical. So they've got many, many competitive advantages. And I think it's, in some ways, in an integrated fashion, that gives them an enormous advantage. They will be a dominant player in AI for the very, very long term, we would expect. I joked at the outset that we haven't sat together in a while, and we certainly haven't done it here. And one of the last times we did was, you know, Carl comes out, you guys give each other a hug, and it was this

big moment. And it's hard to believe for me, and I wonder for you, that it's been 10 years since the Herbalife battle with Carl. Yeah. Do you believe it's been 10 years? Yes. By the way, had we held our short, we'd be up like 70%. So I'm still psychologically short on that position where we've got a nice profit. Are you still seeing ghosts at night? By the way, being psychologically short is a much lower risk way. Yeah. Yeah. Are you a changed investor from then? Are you different as an investor than you were 10 years

ago? And if so, how? Of course, I'm a continuous learning machine and all mistakes are opportunities for learning. And so hopefully, you know, I sort of decided at 50, I was like, okay, I'm not going to make any more mistakes. And I made one. But no, look, we've been very fortunate. We've had the best five years in the history of the firm. And we're fortunate in the way that we're structured. You know, I've been a kind of Warren Buffett devotee,

unofficial, he's been my unofficial mentor for many years. And if you look at his trajectory, he started out as a, what today you would call an activist hedge fund manager running a series of private partnerships. Over time, he took control of what he called a crappy textile company, or probably what was best described as a crappy textile company but the access to the permanency of that capital gave them the ability to take kind of the very long-term view in a world where people in the investment management business generally have have to make short-term decisions because their capital you know it can't can leave we really five years ago got to that place in terms of the structure of our organization and allows us to take the kind of very long-term view and, you know, we can buy Google at $94 a share when people

are scared about, you know, and we can own it. And that I think is a nice, a very fortunate competitive advantage we have. Are you a better risk manager today than you were before? I certainly believe so. Well, I mean, look, short selling was never something we actually liked, like shorting stocks because the asymmetry is in reverse. You know, we're big believers in understanding asymmetry both in life and in investing is critically important.

And short selling is on the inverse side of it. So, you know, we did that a couple of times. The first time very profitably shorting bond insurers and company, you know, Fannie Freddie going into the financial crisis and then the famous Herbalife. But since then, all we do is we own really, really great businesses. And if you want to be a successful investor over time and you find a handful of great businesses doing nothing but owning them is an amazing strategy and it's it's it's under appreciated if you will as a successful way to make money the moment from you that I said to myself this looks to me like a different Ackman was or Netflix

okay was Netflix okay you're a huge believer in Netflix. And I remember the day where that earnings report came out and that stock dropped like a bomb. It dropped a lot. In a meaningful way. It dropped a lot. For sure. Yes. Enough that we spoke because I went on CNBC and reported our conversation and said, that's enough. I was wrong about this. And I said, the old Bill Ackman might have said, no, this is just a moment in time. Management team's great. Company's great. I'm staying with it.

The new Bill Ackman was like, no, I'm done. That's it. I'm moving on. Because the, so I still think the management team is great. And I've gotten to know Reed Hastings even more since that time. I think he's a first class person. And obviously Ted and the rest of Hastings even more since that time. I think he's a first-class person and obviously Ted and the rest of the team, Spencer, etc. I think it's an amazing company.

I think what we misunderstood or misappreciated was, you know, once they announced basically a different strategy, it became a much more disparate outcome. We still thought they would be successful. I wrote a little letter to our investors. We said, look, we think Netflix is going to be a great investment over time. But in terms of do we want it to be one of eight things we own or one of ten things we own, no, because it's kind of the range of outcomes as a result of the sort of change in strategy going to an advertising model, et cetera, and predicting the probability

of the success of that was a different kind of hurdle for us to climb. So it's sort of the facts changed in a meaningful way. It became a different kind of investment. I would have been happy to have that as a, you know, maybe even a 2.5% position, 3% position in the portfolio, but that's

not what we do. We don't collect 30 things, we put 3% of our capital. We own, you know, we have 22%, 25% of our capital in Universal Music. We have, whatever, 16%, 17% of our capital in Google. You know, these are businesses we feel very comfortable. We can sleep at night and have a very high confidence level of what they look like over a long period of time. If a business doesn't meet those threshold characteristics

or something about the business changes where we, you know, misunderstood the predictability of the business, we're happy to sell and find something else to do. And basically we took the Netflix losses, but the capital, if you will, and we invested in Google and it was a good decision. We were able to make a bigger investment in a company we had more confidence in. I think part of my point would be just because you like the management team and you think it's a great company doesn't mean it's a good stock and you recognized that at a moment where maybe in the past you wouldn't have because

you would have believed in it so much that you wouldn't have sold it when you did I thought it was at a moment I did okay I'll take that I thought it was a I thought it was risk management like maybe people hadn't seen from you in the past okay you don't accept that I don't think so I think it's something we would have done in the past I think the big difference is look we're very happy to buy more of something not everything we buy goes straight up right in fact our favorite outcome is we you know I've been best outcome is we could get our entire position purchased and then it goes straight up. That rarely happens. What normally happens

is you buy something, you make it a meaningful position, and then something happens that causes the market to either not like the stock or the market itself goes down and you can buy a lot more of something you know well at an even more attractive price. And we've done that all the time in our history. Chipotle being a perfect example. I mean, Chipotle, we bought initially at $400 a share and then they had a couple more food safety problems and the stock was 250 right which is about the move almost exactly the move that Netflix made and then we hired Brian nickel to be CEO and we bought more and you know one of the best investments we've made you don't do many

interviews you sure tweet a lot no I know you tweet fair amount you tweeted that so that to keep you compete with you in this format well you give me good material that can bring up right now okay icon has his problems with Hindenburg report comes out you tweet quote there's a karmic quality to it over his storied career icon has made many enemies i don't know if he has any real friends he could use one here you also likened it to the archegos debacle i think we can call it a little schadenfreude no why did you tweet that when i saw it i was like oh my god he's poking the bear no uh look i car Carl was not a friendly counterparty when I dealt with him over the course

of my life. I did make peace with the guy. He's a charming person to hang out with and have dinner with. But I did not like the way he managed a couple of situations I had business-wise. And so, you know, for Carl to be the subject of a short attack, I did think there was a circle of life kind of quality to it. You also tweeted, transparency is be the subject of a short attack, I did think there was a circle of life kind of quality to it. You also tweeted transparency is not the friend of IEP. Yes. Did you ever go short? No.

Never short at IEP? Never, no. Why? We don't short stocks anymore. This might have been a special situation. No, no. You know what? You're right.

I was short. Psychologically short. That one, too. By the way, I think we're going to raise a fund of psychological shorts. Psychological shorts? And you can purchase, everyone, we'll invite everyone to invest with us. How do you know when to cover? How do you know when to cover? When it's asymptotically approaches zero.

You just psych out yourself. Yes. So, I want to talk politics with you too. Okay. Because, speaking of Twitter, you've become quite passionate about that. In February, you said of Vivek Ramaswamy, quote, I'm going to make a bold and early call. He will run for president and win.

You supporting him now? I have supported Vivek. You know, I've known him probably five, six years. Very talented, very capable, very smart, a little too, maybe more than a little too to the right for me. You know, I was hoping he would be, as I described, a kind of more center, center right candidate. And I think he's got a lot of great ideas. But on some positions, Ukraine and some others, I think, you know, I profoundly disagree.

So whereas you said he's young, smart, talented, will attract the center to the right to win, he speaks hard truths which many believe but fear to say, you no longer believe those things? I agree with everything that I've said there, except for he was not going to attract the center right. I think he's, the problem is it's hard to win being to the right of President Trump, right? And I think some of his views are to the right of President Trump. And I think it's a challenge. I do think there is, I think there are many Republican candidates, I think there are many people that have traditionally voted Republican

that would love a centrist, more centered Republican as an alternative, a capable business leader with, I would say, more centrist, more traditional, I would say, Reaganite views. And I don't think that candidate has emerged in a way that has created an opportunity to compete with President Trump. Okay, so it sounds like he's off the check writing list, not getting any more contributions. We'll see where he goes on his various policies. And look, I like a number of the candidates. Chris Christie I've spent some time with recently.

I thought he did a great job in the debate. I think he is much more of a, I would say, more traditional Republican candidate. I think he's done a great job in New Jersey as governor. He's got a lot of political experience. But, you know, is that someone that the American people will support? I don't know. But I do think we would benefit with a broader array of choices on both sides of the aisle here. Listening to, we have been watching, listening to Bill Ackman speaking with CNBC's Scott Wapner from Delivering Alpha,

talking about rates, equity investments, AI, and more. Let's bring back our Mike Santoli for a reaction to Bill Ackman. Mike, he said you're not being paid enough to enter into a long-term contract with the U.S. government and that the 10-year could approach 5% in weeks from now. Thoughts, impact? Yeah. I tell you, 5% from here is less than the, you know, in terms of distance, it's like 40 basis points from here, and we just came up from three and three quarters.

You know, we came up twice that much since late July, so nobody should kind of argue too strongly that we can't get up to and touch 5 percent. I certainly took his case on long term government bonds to, you know, to heart in the sense of if you truly believe that structural inflation is over 3 percent, which is what he said he does believe, then sure, 4.7 or ish percent on a 30-year bond is not necessarily an attractive rate of return, even though there is real return in there. We'll say, though, buying a 30-year treasury is not entering into a 30-year contract with the U.S. government. You can sell at any time. Yeah, I mean, that's a key point. I also thought what he had to say about inflation being higher than the Fed's target for longer was interesting, too, and this idea that there are plenty of companies out there that make good investments in a 3 percent inflation world

and sort of noting this idea of royalties, whether it was Universal Music or Google or restaurant brands or Hilton. I mean, you could argue, Mike, that we've actually seen that even in, you know, the raw, the very high inflation days of last year. As long as companies were able to increase their prices faster than the costs to make and sell their goods, earnings were strong. Well, it is a crucial point, Morgan. In fact, if you go look through history, I've kind of pointed this out. You know, the Fed has a 2 percent target. But in terms of when the stock market is more or less comfortable with the rate of inflation, it is more like 4 percent. So when you've been at 4 percent, especially if you're coming down through 4 percent, stocks have usually been able to manage to do OK. And yes, it is true. Owning an equity,

especially one that's going to have steady demand and pricing power, has always been a way of sidestepping inflation or even benefiting from it. So I do agree with that, although it is interesting to think of Google in that way. And I also thought of this when it came to Brad Gerstner's points about Google. He doesn't believe they're going to be able to charge the same amount on their search results because they have this monopoly position. Now there's more competition. So maybe an AI-empowered search engine is not going to be as profitable. Well, guess what?

From its day one of its history, its cost per click has gone down. In other words, it's been dealing with a deflationary world. It's just making it up on volume and has all along. Yeah, and there's a lot of volume with new devices and interfaces coming out. Mike, thanks. Active day at Delivering Alpha. Coming up with just one trading day left to go in this volatile third quarter, we'll talk to the U.S. head of online trading platform eToro

about the names that her customers like the most in Q3. We'll be right back. Welcome back to Overtime. Earlier today at Delivering Alpha, I sat down with Blackstone's global co-head of real estate, Kathleen McCarthy. Blackstone is the world's biggest investor in real estate and REIT's second worst performing sector in the S&P so far this year. That angst has carried over to the private market, too. Blackstone's flagship real estate investment trust, B. REIT, has seen a wave of redemption requests since November that Blackstone has exercised its right to block. So I asked McCarthy about that today.

There's been a dramatic decline in repurchase requests. I think last month, the repurchase requests were 45 percent below their peak in January. So we see that coming down very sharply. Well, Blackstone's real estate portfolio is $600 billion, 40% is warehouses. So I also asked her if the pull forward in e-commerce demand during the pandemic has changed the strategy in the space, especially as Blackstone sold a $3 billion warehouse portfolio to Prologis over the summer. They're trying to reach their customer within a couple hours, not a couple of days. And we see that trend globally happening

and e-commerce penetration rates actually continuing to grow. And you're right, there was an acceleration in that growth rate during the pandemic, but the numbers continue to climb higher. And so we continue to see demand for it. Yeah, John, they're invested in quite a number of things, including data centers, some of that focused on AI. The one thing that you're not seeing Blackstone make active investments in right now is office space. It's only 2% of the portfolio. Interesting. Real estate, such an important sector. Up next, eToro's U.S. CEO on how inflation is impacting retail investors and which stocks her clients have been buying and selling during the recent downturn. We'll be right back. One trading day left in the third quarter.

How did retail investors fare in this rough patch? Joining us now is eToro U.S. CEO Lule Demise. Back with us, eToro is an online trading and investment platform. Lule, I'm wondering, first of all, about IPOs. Did you see any trend in retail interest after those initial pops? Well, first of all, good to be with you again. Thanks for having me. And you guys are killing it on the Delivering Alpha conference.

I just saw your interview with Bill Ackman, so congrats. So we do see, you know, after a long desert of, since the bubble of IPO markets really sort of drying up, there's a real hunger for people to participate. So we, for instance, saw in ARM once after this became available in the secondary market, a increase in demand for that particular IPO stock. Not all IPOs are created equal, but there's always sort of like an inclination more to technology as a more appealing sector for them. So retail investors, are they getting involved and they're buying for the long term or are they looking to trade? And I ask that because where the IPO priced versus the initial pop versus where some of these

stocks are trading now, I mean, you can lose quite a bit of money in the meantime. Yeah, it's not that they're not doing a mix of all of them, but they're definitely looking at, especially around the technology sector and AI and any kind of sort of tech play that goes into the market, it is a long-term play. And we saw that in the survey as well. An overwhelming majority of them said this is a long-term play for me. And then, Lule, what happened to crypto? And we saw that in the survey as well. An overwhelming majority of them said this is a long term play for me.

And then, Lule, what happened to crypto? Are people holding it for yield the way they used to in some cases or mostly just young people? Yeah, it's interesting. And when you pan out a little. So, you know, we have millennials or younger as a majority of our best investor base. We're over a global company. So we also see the footprint of consumers across the world. And what you do see is that crypto is still hanging strong, but particularly among the 18 to 34 cohort. So in this latest survey, we had over half of them said they still hold and buy opportunistically around crypto. But they also said they do other things. Again, this is not just a crypto play for

a lot of these investors. So for instance, they looked at the valuation play that was happening in the financial sector, right? Banks were down 22%. So you saw a considerable amount of financial sector buying on our platform and in the survey results. In addition to the tech and AI theme continues. In the tech space, it's like around clean energy, AI, and sort of the big tech names that still keep winning. All right. Lule, thanks for joining us. Lule Demise.

Thanks for having me. Bye-bye. John, on the other hand. Oh, well, hey, let's talk about that now before we go. Cue the QR code. You can sign up at the link, cnbc.com slash OTOH. It was really about the, on the other hand this week, get the newsletter, Amazon FTC. Once again, does the FTC this time have a strong case in its monopoly lawsuit against Amazon is the question.

So sign up, check it out, get the arguments both ways. No argument, though, about the importance of PCE, though David Kelly did say we know what to expect. But inflation still front and center on investors. Yeah. Yeah. And there is an expectation because of higher energy prices that you're going to see a higher PCE number tomorrow. Also, Nike higher right now of four percent on the heels of those earnings. That's going to do it for us here at overtime. Fast money starts now.