Closing Bell - Closing Bell: Overtime: Blackstone Head of Private Equity On Top Places To Deploy Capital; Commerce Secretary On Chips & China 12/4/23

Episode Date: December 4, 2023

Major averages ended lower today, but well off the lows. Wilmington Trust’s Meghan Shue and Bespoke’s Paul Hickey break down the market action. Morgan sits down with Commerce Secretary Gina Raimondo, Boeing Defense CEO Ted Colbert and Air Force Secretary Frank Kendall at the Reagan National Defense Forum. Blackstone’s private equity group has $40B in dry powder it can deploy; group head Joe Baratta on the top opportunities his team sees and why public markets are more interesting than private right now. Jefferies analyst Sheila Kahyaoglu on industry implications for Alaska Air’s purchase of Hawaiian Airlines. Plus, Roche buys its way into the obesity drug craze. 

Major indices closing in the red, but also at some of the best levels of the day. That's the scorecard, but winners stay late. Welcome to Closing Bell Overtime. I'm John Ford, back with Morgan Brennan. It is good to be back with you. Well, coming up this hour, Commerce Secretary Gina Raimondo joins to break down why she sees the threat from China as, quote, large and growing, and how CHIPS restrictions play into America's national security plans, and some of her most detailed comments yet.

Plus, Blackstone's head of private equity on why deal-making is starting to pick up and where he sees the most compelling targets for takeovers right now. Let's get straight to the market action, though, as stocks do fall following five positive weeks in a row for the major averages, tech and communications services seeing the sharpest pullback today. Similar dynamic to what we saw on Friday, mega caps like Alphabet, Meta and Netflix leading the declines. Let's bring in CBC's senior markets commentator Mike Santoli at the New York Stock Exchange. I should note, Mike, that we have continued to see this rotation because equal weighted S&P held up better. And then the transports and the Russell 2000 both finished the day higher today.

Absolutely. So we're rotating rather than retreating. And all of the divergences that people got really caught up in for months have really started to be rectified, I would say. You mentioned the banks. KBE, the bank ETF, making about a nine-month high right here. Russell 2000 up off the mat. You wouldn't say it's necessarily racing ahead. But it's a benign way for the market to deal with being a little bit overbought. You went up 12% in the S&P 500 in four or five weeks, 4,100 to 4,600. We went that exact same path from May to July over twice as long. So it's been a pretty vertical run. And this is a decent way of saying we're getting more relaxed about the macro backdrop. The yield pressure is off, and the market's broadening out, at least for now, as we have some of those seasonal tailwinds really poised to pick up again in a week or two.

All right, Mike, we'll see you again in just a little bit. For now, let's bring in our market panel, Megan Hsu of Wilmington Trust, Paul Hickey of Bespoke Investment Group. Paul, we seem to be bumping our heads on 4600 here on the S&P 500. You think that's close to a ceiling for the near term and tech and communication services seem to have the hardest time today? Yeah. So, I mean, those are some of the groups that have run up in this rally, John. And so I think it's perfectly normal to see. I mean, this is only one day so far, a little bit of a digestion period. December historically is a strong month, but all of the gains in December have historically come in the back half of the

month. So some sideways trading in the first few days of the month wouldn't be a surprise. And surprisingly enough, this year has followed the pattern of the market this year has followed the historical patterns so closely. It's amazing when you look at it. There was only a brief period where things got a little bit out of whack in October during when the war broke out in the Middle East. But other than that, it's been following that track, which would suggest, you know, maybe, you know, a little bit more upside ahead. The S&P on a total return basis is only 1% from an all-time high right now. Yeah, and Megan, we last had you on, I think, on Halloween, and it was a scarier time in the market.

You were right about everything but being underweight equities because the S&P is up about 9% since then. What's your read on the market here and what's happened in the last month plus? Yeah, well, we were and we have been underweight equities overall, but we've actually been holding a full allocation to U.S. large cap, which has been the part of the market where you want to be for sure. Our underweights have actually been in international developed equities and U.S. small cap. Parts of the market that have certainly done very well in November, despite probably some continued headwinds in Europe, as well as maybe a more

muted growth outlook in small cap. I think you're going to get some of that catch-up trade, especially because of very stretched valuations in the favorable direction for U.S. small cap. But I would say to get much more enthusiastic than a neutral weight to small cap would take economic conditions that we just don't see panning out in 2024. We have a pretty muted growth outlook, about one to one and a half percent GDP growth. So soft landing is part of our base case. But for small cap to work, I think you need lower rates and more aggressive growth than that. I'm going to stay with the small caps here, Paul, for a minute, because you did see selling in bonds. You did see yields move higher. The dollar strengthened today.

And yet the Russell 2000 finished the day up nine tenths of one percent here. And it's been outperforming the larger averages in recent weeks. Does it continue? Yeah, Morgan, I think so. So what you look back at is in early November, what we saw is we saw the Russell 2000 end a streak of 34 straight days of trading at oversold levels. That was the longest streak in about 20 years. And what does it take to get 34 straight days of oversold levels? That's indiscriminate selling. People just selling because they don't want to be part of that sector anymore. And that's also the way

bottoms get made in various asset classes. So going forward, when you look at those other periods, when you've seen that much oversold readings in a row in the Russell 2000, it was higher every time a year later. And there were 12 prior occurrences, or 10 times it happened. Eight out of 10 times it outperformed the S&P 500 over the following year. When you look at small caps relative to large caps on a valuation basis, they've never been this cheap relative to large caps. And you'd compare the NASDAQ to the Russell 2000, the ratio in those two index prices, it's only been higher than current levels, 60 trading days throughout the index's history. So I think, I don't know exactly if this is the time, but if you look back a couple of years from now,

I think you're going to see small caps have outperformed large caps by a pretty sizable margin. We've got three and a half weeks, we'll call it, left of 2023. So Megan, looking to next year, how do investors position themselves, especially when the market's continuing to grapple with some big macro topics that were the themes this year and look like they're going to carry over into next year as well? Yeah, well, Morgan, I think we're holding still a little bit of excess cash. So we're looking for the market to come off a little bit and maybe for volatility to pick up to think about deploying that. We still hold an overweight to fixed income, expecting interest rates to fall as we move toward continued disinflation and a more muted growth outlook. And then within factors and sectors, I would say you want to be thinking about almost a

barbell type of approach. So retaining that exposure to mega cap tech and those structural growth stories, because I think the investment is still very early innings, but also starting to look at some of those more beaten up parts of the market, maybe small cap, maybe banks and some of the more cyclical parts of value. So maybe small cap, maybe banks and some of the more cyclical parts of value. So we're keeping that exposure pretty balanced and also just continuing to focus on quality. Rates are not going down to where they were in the post-global financial crisis era. They're going to remain elevated. You're going to have some stress in the system in order to get the

five rate cuts that the market's pricing right now. So I think that focus on quality is going to be very important. All right. Megan, Paul, thanks to you both. Right now, GitLab stocks spiking after hours more than 15 percent. Steve Kovac, are the numbers that good? Yeah, they are. And it's a surprise profit here, John, that looks like setting the shares really high. So let's go over what we got here. EPS was nine cents on an adjusted basis, but the street was looking for a loss of one cent. So a really healthy beat there. And then revenue also a beat at 150 million. Street was looking for 141 and a half million dollars there. And guidance also strong, also predicting an adjusted profit in Q4. So really strong guidance here looking at eight to nine cents EPS for Q4. Street was looking for a loss again of

one cent. So that's why you're seeing shares up 70 percent here. And then revenue guidance, 157 to 158 million. Street was looking for 150.2 million shares now up better than 16 percent, John. OK. Steve Kovac, thank you. Thank you. Gold and Bitcoin both in the spotlight after major moves of higher major moves higher of late. Mike Santoli is back with a closer look at those two assets. Mike. Yeah, Morgan, getting plenty of attention, especially gold. Recently noticing a lot of the technical analysts really warming to the chart. Now, here's where it looks over the last five years.

You know, we had this spike up above 2000 right in the panic as COVID set in and the economy was going to be shut down, all the rest of it. And then we went kind of sideways and did not much of anything. You call this a base if we go higher from here. But, you know, we've had the massive inflation most in 30 or 40 years. Still not really that much of a response from gold. But we did have a budding breakout right here. I would point out it shot above 2,100 an ounce overnight

and then has reversed lower to close a few percent. So typically that's sometimes a little bit something to be aware of, that it could mark a short-term reversal, but clearly feeding off weaker dollar. The idea that rates might go down and then whatever other instability stories that remain out in the world. Now, Bitcoin arguably operating in a similar fashion. In fact, one of the main ways that Bitcoin and other crypto seems to still kind of have a reason to be in a portfolio is like gold always did. It's the what if outside of the financial system type asset.

Here you see a log scale. So what this means is every percentage move shows up as an equal distance. And this, you know, it looks like a pretty good uptrend right there as a percentage move. Now, it still would take another 50 percent from here, which it's done in the last, let's say, nine months to get to the former high. So still working from an underwater basis. But clearly this market got cleared out a little bit. Maybe some of the speculative fervor that's making its way into some riskier parts of the stock market also reflected here. Finally, just kind of for fun, I like how it's matched up with NVIDIA just about over the last five years. Now, massive variation around that. But it's really hard to find an equity of any size that has tracked anything like the percentage gain over five years.

I also would argue they feed off of the same kind of the world is changing and digitizing, and we need these sort of systems and platforms that are outside the norm to get there. Whether, in fact, they both kind of play out at this pace, we'll have to see, Morgan. I'm very impressed that you did find an equity that matches that, although I probably argue you might find another one in MicroStrategy or some of these other Bitcoin-related equities that are out there trading, too. I do want to go back to the role that geopolitics is playing in both of these moves, because we know that gold tends to be a safe

haven in times of geopolitical tensions, also when the dollar weakens and the Fed gets to the end of a tightening cycle. But the thing about it is that wars tend to be inherently, by their very nature, inflationary. And there is that argument out there, because at the same time you saw gold start to move, which was right around the invasion of Israel, you did see Bitcoin decouple from stocks more broadly and start moving more closely with gold. Is it coincidental and simply just tied to the ETF or is there a geopolitical element to it as well? I don't know that it's purely coincidental. What I do know is that almost every rationale for what gold ought to do and what it should respond to has not always conformed over time. Like I mentioned, you know, the inflationary spike did not really accrue that well to the price of gold in nominal

terms over that period of time. But I do think when you do have geopolitical turmoil in an area where there is a lot of investment or wealth or capital, people want to move it out of harm's way. And these are ways to do that. It's it's kind of portable wealth and safe havens in that respect. I'm not sure that I would make the next leap to say somehow that it's speaking to an inflationary future in the immediate term. Maybe it's easier money is coming. Maybe it's real rates are going to go down from here. And that makes it easier to hold these non-cash flow yielding assets. There's a lot of different cross currents to swim through here.

Mike Santoli, appreciate it. See you later in the show. After the break, Blackstone's global head of private equity, who oversees a nearly $140 billion in assets, on why the past few weeks have been some of the busiest in years for his firm and what he expects on the deal front in 2024. Overtime is back in two. Welcome back to Overtime. A couple of big deals announced today. Alaska Air buying Hawaiian Airlines and drug maker Roche acquiring obesity drug developer Carmut for nearly $3 billion. Merger Monday, we'll call it. Meanwhile, Blackstone's private equity group has also been active in recent weeks with four deals announced, including last week's $2.3 billion take private of digital pet marketplace Rover Group. Joining us now is Blackstone Global Head of Private Equity, Joe Barada.

Joe, it's great to have you on the show. Welcome. Hi, Morgan. Thanks for having me. Nice to be here. You have been busy. It's four deals in the past three or four weeks, roughly $20 billion in total enterprise value. Can we say that dealmaking is picking up now? Well, I think, you know, we definitely went through this period of transition from one state of affairs in the market, global cost of capital rising significantly. And that causes a pause as buyers and sellers readjust. Three of those four deals that we announced we've been working on for

over a year. So it's taken a while to get these done. So I think it is a sign that activity is returning to the market. But I think it'll be slower than it was certainly than in 21. Why do you think it'll be slower in 21? And I ask that knowing you just sort of touched on it, but knowing we've had a number of bankers and a number of private equity firm managers on the show in recent months who have said just the spread between bid and ask has been too wide and that that needed to correct itself. So assuming that that is what's happening now, why does it stay slower than we've seen in the past? Well, I think there are two segments really of the private equity market. There's things

that transact in the public markets, and then there are private equity firms selling things within the industry to each other. And I think that will be slower because a lot of deals were done in the 2019 to 21 period. Private equity firms don't have to sell. They can wait. And there hasn't been a lot of value creation yet in that vintage 2019 to 21. There'll be some deals done, but I think that part of the market, which was comprising roughly half the private equity deal volume, will continue to be slower. John, I'm curious about the dynamic between what you're willing to pay, what investors are

willing to pay in the private markets, and what companies will sell for. And using Rover as an example, a $2.3 billion deal, it hasn't traded at $11 a share around this level for two years. So could you really not have gotten it for $11 a share when it was trading closer to $4? Or maybe are private investors trying to pay less and, as the market picks up, being willing to pay more as well? Well, I mean, public companies trade every day on the screen and there's an established price and private equity, you know, take privates happen at premiums to wherever that price was. So, you know, that's why it's interesting for firms like ours to look in the public markets because they're quoted on the screen every day.

And, you know, if we're willing to pay a premium, deals can get can get done. Which raises the question, where do you see opportunities now looking at 2024? Are there certain industries or sectors that are particularly attractive, public market or private market, based on the value corrections we have seen? Yeah, I think there's kind of two ways we think about deals. There's opportunistic, so where the deal comes from. We've been very active in looking at the public markets because that's where a lack of liquidity has been and where a value correction has happened. And so we'll continue to look at public markets, corporate carve-outs. Their other interesting segment is in family-owned businesses. There are a lot of companies started in the 70s and 80s by founders who are now in their

late 60s, 70s, even 80s, who, for estate planning and other reasons, are looking to sell their companies. We bought, for example, in the summer of 21 Medline, which is a very large family-owned business. And we're looking at some others now. So that'll be one area. And then there are thematic sector themes that we're pursuing. Things around the energy transition, the whole ecosystem of utility services and utilities investing in their transmission and distribution grids, that's been a major theme. In addition to the life sciences ecosystem, a lot of new drug

development happening. We're not developing the drugs ourselves in our private equity business, but we are investing in the whole ecosystem around it. So those are a couple of themes. I'm glad you brought that up because the other piece of this equation, of course, is exits and what you would be potentially looking to exit. There's a report by Reuters just today that you're reportedly exploring potential sale of Anthos Therapeutics. Well, Anthos is a product company that we have in our life sciences business where we actually did, in partnership with a strategic, develop a drug which has had good data. And that may be something we look to bring in a partner or sell. Yes. Joe Baratta, it's great to have you on the show. Thanks for sharing your insights with us.

Great. Thanks for having me. Up next, Commerce Secretary Gina Raimondo on the growing threat from China and how chip restrictions aim to curb that country's AI ambitions. And as we head to break, check out shares of Spotify moving higher today as the company says it's going to cut 17 percent of its workforce. That's roughly 1,500 jobs. We'll be right back. Welcome back. This weekend, I sat down exclusively with U.S. Commerce Secretary Gina Raimondo at the Reagan National Defense Forum in California. It was the first time a commerce head has attended the annual conference and speaks to how increasingly interconnected industrial policy and technological innovation are with national

security. I asked her about recently expanded export controls, why it was believed necessary, and what went into how those were crafted. The threat from China is large and growing. China wants access to our most sophisticated semiconductors and we cannot afford to give them that access. So we did something unprecedented. We said that we're not just going to deny a single company in China access to our semiconductor technology. We're going to deny the whole country access to our cutting edge semiconductors.

It was a bold move, but we thought it was necessary because these semiconductors are unbelievably powerful and we can't let them get into the wrong hands. How can you counter China, though? And I ask that because Chinese shipmakers have also been stockpiling all of the equipment in preparation for this. Look no further than Huawei's new smartphone to know that they're spending aggressively to roll out these new technological capabilities domestically. How quickly or I guess how much can new export controls slow that process down or even stop it? Yeah, I don't think we can stop it. It's not realistic to think we can stop it. It's exactly what you said, slowing them down. You know, we still sell billions of dollars

a year of semiconductors to China. We just cannot let them access the most sophisticated, cutting-edge artificial intelligence chips. But the real answer is we have to run faster. You know, I'm now in charge of investing tens of billions of dollars to strengthen the U.S. semiconductor industry in the United States. Ultimately, we just have to run faster, do more, run faster, so we can always be ahead. Do those export controls remain open to changes or further expansions? And I ask that poster child of AA, NVIDIA, not to call them out specifically, but they've been in the news. New export compliant chip for China, H20. It's expected to roll out early next year. When you see a dynamic like that taking place in the marketplace, does it concern

you? Not necessarily. You know, NVIDIA, we're in touch with NVIDIA. They are crystal clear. They don't want to violate our export controls. And, you know, we want them to sell chips to China. That's fine. They have to follow the rule and the spirit of the law. And as long as they or any company does that, it's fine. But to answer your question, yes, we have to change constantly. You know, and I know that's hard for industry. They want a clear, you know, line in the sand. The truth of it is, though, technology changes, China changes, and we have to keep up with it. Commerce is spearheading the rollout of the president's

recent AI executive order and the balance between not stifling U.S. innovation while setting guardrails on the tech and ensuring adversaries don't get a hold of the newest capabilities. But I also asked the secretary about the CHIPS Act and whether Commerce still plans to begin awarding funding before the year is out. She said that's the goal. But that second quarter of next year is when there will be, quote, a steady drumbeat of announcements. In terms of how quickly you can stand that up, we're at a defense conference. Taiwan is certainly in focus, as it is every year. When we talk about Taiwan, just from an economic standpoint

even, if China were to make some sort of move, be it by force or be it by blockade, what that would mean to the world semiconductor supply chain and to so many key critical American companies, how quickly can you stand up the capacity to counter that growing risk? Yeah, the reality is it takes time. It takes a couple of years to build one of these facilities, which is why we need to get going right now. You have said, I've heard you say, that that kind of a disruption to our supply chains would make COVID look like a walk in the park. It's true. And that's why we're running as fast as we can to make our supply chain more resilient and, you know, make in America the leading edge chips that we need for American national security.

So whether it's export controls, whether it is standing up supply chains domestically or some of the other moves you can make, policy moves you could make in commerce, are there other types of U.S. products or technologies that are on the table that you're considering similar actions around? You know, I think all things AI, the serious, most sophisticated AI and all the products that flow from that, we have to take a hard look at. Sophisticated biotechnology, certainly we have to look at. Quantum computing, you know, all of this new technology. We have to be vigilant. I think if there's one headline takeaway, it's denying China the most sophisticated U.S.

technology is more important than ever. That's according to Secretary Raimondo. And really, John, everything's on the table to do it. I'd note the full discussion is on CNBC.com. She was also in the room for Presidents Biden and Xi and their meeting at APEC. And it speaks to the timing of everything and this ability to balance that competition and ensuring China doesn't get what it needs technologically with being able to keep the lines of communication open in the meantime. Well, kudos to you for all the conversations out of Reagan National Defense Forum. I'm particularly interested in this NVIDIA angle. She didn't really seem upset at them. I thought you would be. But chips are funny, right? So you make a bunch of chips, and some of them aren't good enough for you to sell on the rack at full price.

And a lot of companies can't do much with those. But there's almost maybe this Nordstrom rack or outlet mall option now, maybe for some of these chips that NVIDIA's got, where, yeah, maybe all the cores didn't work as well as they should, but maybe that's a good thing because they can take those, cripple them with software a little bit, and send them to China. And I think all of that is sort of up for discussion and up for debate. Christina Parts Nevelis in the three o'clock hour, you know, touched on this

conversation that I had with the Commerce Secretary because we had it a 30 minute fireside chat where we went into even further detail on all of this on stage at the conference. And NVIDIA had responded to Christina basically by saying, of course, they're working closely with the government on all of this. But I think the takeaway from commerce is that this is a very fluid situation. They're very aware when an NVIDIA says, OK, we're going to work with you. We're going to work within export control guidelines. We're going to go, if this is the line in the sand, we're going to go just below the line. So this is very much evolving.

Of course you would. Of course you would. Of course you would. Then at the same time, I wonder, at a certain point, maybe it even helps NVIDIA's margins because they can use these chips that they otherwise would have been able to. Anyway, great stuff. Time now for a CNBC News update with Pippa Stevens. Pippa. Hey, John. Gaza appears to be experiencing a fresh Internet blackout as Israel expands its military operation.

The Palestinian Red Crescent posted on X that it lost contact with its teams working in Gaza. And internet outage tracker NetBlocks also reports that a near total internet outage is underway. Treasury Secretary Janet Yellen is heading to Mexico this week. The secretary is looking to boost cooperation in combating illicit finance and fentanyl trafficking. She will also discuss strengthening the U.S.-Mexico supply chain. Yellen is expected to meet with top Mexican officials, including the president and the country's central bank governor. And a Japanese university revealed that wasabi might be the newest brain food. Researchers conducted a study on 72 healthy

subjects and found that after three months, the treated group saw a significant boost in both short and long-term memory. The results were based on assessments for language skills, concentration, and ability to carry out simple tasks. Well, Morgan, I know what I'm having for dinner tonight. We'll see if it helps. You can't have too much of it, though, so I just wonder how impactful it could be. It didn't help Mater in cars, too, for those who remember that pistachio ice cream. Pippa, thanks. After the break, just how much dry powder is sitting on the sidelines to fuel a year-end rally?

Mike Santoli is going to come back and look at the cash still waiting in the wings next. And take a look at shares of Virgin Galactic falling hard today after Sir Richard Branson signaled in an interview that he wouldn't be investing further in the space tourism company, telling the FT that Galactic should have, quote, sufficient funds to do its job on its own. Shares finished the day down 17.5%. We'll be right back. Welcome back. Alaska Airlines agreeing to buy Hawaiian in a deal valued at $1.9 billion. Alaska ending the day down more than 14%, while Hawaiian shares surged on the news up nearly 200%.

That's tripling. While the deal still needs regulatory approval, what does it mean for the industry? Joining us now, Jeffries analyst Sheila Kyle glue. Sheila, industry wise, do you think this deal easily goes through because it's so small and these aren't the biggest players or is it going to get scrutiny? I'm no expert, but I would think, you know, given what we're seeing with JetBlue and Spirit, we're going to probably see some scrutiny. The discussion yesterday that Alaska and Hawaiian hosted didn't really focus on fares, which has been one of the DOJ's primary complaints in the other big merger in this space. So I think that's yet to be seen if this passes a regulatory hurdle. But from a destination perspective, the overlap is not as significant. Clearly, this seems like more of a complementary West Coast transcontinental airline in the making rather than something else. And in a post-COVID environment where

Maui has had the tragedy and the struggles that it has, does all of that factor in? How has that affected the industry, even the likes of Southwest, which I think also has some Hawaii business? Back to our Southwest sell rating, underperform rating here. One of the things Southwest is facing, and it's not only to Southwest, is price fair declines. It's seeing double-digit fair declines in Q3 and into Q4. We're seeing that across the low-cost carriers. One of the things Southwest is doing prior to the pandemic, just a few months before, it opened up its Hawaii routes. And Southwest tries to become profitable in a region over three years.

They expect it to take two additional years because of the pandemic. But what they've done is come in and flooded the Hawaii market with lower fares to excite customers and get them on board, which has obviously created some price compression in that Hawaii market. So, given Alaska coming in with Hawaii, this is Hawaii's clear strategy. And I think it's overall a strategy. As United CEO Scott Kirby pointed out at the beginning of the year, it now seems very ominous that he did this, but he said the industry structure is changing and basically you need to get bigger in order to offset, you know, cost increases as well as price pressures, which I don't think anybody anticipated in the beginning of the year. So that's why we're seeing the consolidation in the lower tier airlines. Yeah, Sheila, it's great to see you. I mean,

what's interesting to me, Alaska Air fell 14 percent on this deal. Investors clearly didn't like didn't like it or didn't like the price point that they're willing to pay. And then to your point, Southwest actually finished the day up two percent. Is there actually more consolidation to be had? Are there companies that are still out there that could be takeover targets or we could actually see some sort of deal, even if it's not a merger, some sort of key strategic partnership or the like? I'm not sure there's a buyer out there for Southwest as we think about their network. But, you know, I think the deal in terms of what drove Alaska's share price is they're acquiring it for 19 times 2024 EBITDA. That's almost a commercial aftermarket multiple, not an airline multiple, which tends to be sub five times EBITDA. So I think just the multiple and where Hawaiian started the year

in terms of the share price, the share price performance has had earnings revisions have been massively downward. And that's why the share price reactions is as we've seen it today. Sheila, great to have you on. Thanks for joining us. Thank you. Up next, Mike Santoli looks at whether hedge funds can help keep the recent market rally rolling. Stay with us. Welcome back. Today's little dip aside, stocks have had a furious run over the past few weeks. So is there enough dry powder on the sidelines to charge even higher? Mike Santoli's back with

a look at the buying power of professional investors. Mike. Yeah, John. Now they've raised their equity exposures, both mutual funds and hedge funds and other professionals out there. They've chased the rally to some degree. But according to Goldman Sachs data on hedge funds in particular, there probably still is room to actually increase exposures more. So the blue line here is hedge fund net leverage. It basically means long positions minus short positions. It hasn't moved that much. This is of November 30th, so a few days ago. The action we're seeing right now, by the way, is the hedge fund favorites, which are concentrated in the big growth stocks, they're losing. Some of the heavily

shorted stuff like small caps and banks are gaining. That shows you a bit of an unwind of the consensus hedge fund positions. But then you see mutual funds cash levels as this line goes up, cash levels are going down. So they're getting more fully invested. You see, they're not too too far off of pretty maxed out levels of exposure. So altogether, I would say there is room for people to become more fully invested and add some more risk here. But we've come a decent distance if you look at some of the trading metrics. Some of the faster moving sentiment signals that I look at suggest that maybe we're ready for a bit of a pause in the market, if not more of a pullback. But I wouldn't say it's anything that really is a danger sign. Mike, how do you measure the

likelihood of some of these funds selling out of things that aren't equities in order to double down in equities? It's very difficult to track. So at this point, I would say that's much more a story for the big pension allocators and and balance funds and insurance companies out there. And they seem pretty satisfied because they have to match up with their longer term liabilities to really own fixed income at these levels. So I don't know that we're going to see a big buying wave into equities. I don't also don't think you need it. If you go back into the 2010s, it wasn't like everybody was binging on equities out of pocket. It was just that earnings were going up. There was wasn't a lot of selling. People were allowing the market to raise their equity exposures for them. So I don't necessarily think you need to

track every dollar. But for now, people have tried to to make sure they participate at least in a year end rally. OK, Mike Santoli, thank you. Up next, the CEO of Boeing's defense business on his strategy for turning around the twenty three billion dollar plus unit. Stay with us. Welcome back. Over the weekend at the Reagan National Defense Forum, I sat down with U.S. Air Force Secretary Frank Kendall, who told me he's extremely focused on the 2024 budget as the government operates off a temporary funding stopgap, a continuing resolution, which hinders the military's ability to begin new programs or adopt new technologies. It is utterly devastating. I am actually literally losing sleep

because of my concerns about the 24 budget and the political process for now. It's much harder to see us getting to where we need to be. So I'm hopeful that the Congress will do what it needs to do. I'm disappointed that it's taking them so long to do it. But I think there's fairly significant risk this year that we will end up in a default situation which moves us backwards. It doesn't just hold us in default situation which moves us backwards. It doesn't just

hold us in place, it moves us backwards. And the threats that we have, China in particular, is moving forward as quickly as it can to field the capability to defeat the United States. It is quite clear from the intelligence that they are building a military that is designed to be able to defeat the United States. We cannot stand still, and we certainly can't go backwards. Are we falling behind in certain aspects? We're not moving as fast as we need to be. The budget uncertainty has been in focus all year for investors in the sector as well. It runs the risk of delaying further some of the service's most ambitious plans, including its secretive sixth gen fighter jet, NGAD,

and the accompanying autonomous combat aircraft, what are called loyal wingman competitions. Boeing is one of the contractors believed to be bidding on that Air Force competition. And while Ted Colbert, the CEO of Boeing Defense, Space and Security, wasn't willing to comment on how or even if the aerospace giant is competing on that program specifically, he did discuss how the geopolitical landscape is affecting defense demand. A lot of focus on restocking right now. Are you seeing incoming orders? We're working with the DOD on orders as the demand shows up. Obviously, restocking is important to everyone. And if you look at any part of the munitions portfolio, whether it's

ours or even broader, there's opportunity to do better and to restock. So that is an area of opportunity for us and a focus for us right now. The portfolio has had its fair share of challenges. Yes. You've hosted a number of charges across a number of programs over the last couple of years, have been seeing some realized losses. I just want to run through some of the programs of note, starting with Air Force One, to the extent that you can disclose where you're at in that development and production process. Look, our goal with Air Force One is to deliver two perfect airplanes to the President of the

United States. That is obviously a non-trivial task or set of tasks and a big program. And we're working every day to bring stability to the program, looking forward to building those airplanes, looking out into all the risks that we have in front of us. Among the larger programs investors are watching, Colbert discussing the T-7A trainer. Boeing delivered the first jet for the Air Force to begin training. On the unmanned MQ-25 for the Navy, quote, still a lot of work to do to get the schedule stabilized. And on another aerial refueling tanker, the Air Force's KC-46, quote, confident in that program that it's getting stable. I mean, given the fact that there have been hiccups with KC-46 over the years and some issues,

the next iteration of competition, are you still feeling confident about that? You got to think every hiccup that we've had over the last several years, it comes with a set of lessons learned. And those lessons learned feed into our ability to drive stability and productivity and build on that platform going forward. So that's learning that we should not all waste. We should not, you know, see it in vain and we should take advantage of it as we go forward. And that allows us to move even faster as we go forward. I have to ask you about commercial crew and Starliner.

When are we going to see astronauts onboard Starliner for that first crewed flight? So right now we are in progress getting to end of the first quarter, March-April time frame. NASA partnered with us. They've released the window of opportunity there that we're working towards. Everyone's very confident about the challenges that got us to moving that date out and resolving those challenges. We've been working with the astronauts. They're excited about flying as well. So we're going to get there. And it's going to be an exciting year for commercial crew at Starliner. Just this week, news that the U.S. Air Force had eliminated Boeing from its competition

to develop the successor to the E-4B Night Watch, the doomsday plane, next iteration to survive a nuclear war. Comment? So, look, not a lot of comments, but what I will say is that one of the things that is important to me and to our business right now is to be very disciplined about every next contract we propose and we win and we went into that program with 60 years of experience in delivering commercial derivative aircraft and all of that experience and knowledge went into that proposal so as

I learn more I'll learn more about how we got to where we are but I'm very very confident in the proposal that we set forward to the government. And I realize every competition is individual in its own right, but especially coming off of the aggressive bidding that went into some of the programs we just covered, fixed price contracts. How are you thinking about bidding now? Well, look, we're going to bid based on everything that we've learned over the last many years.

All of our bids will be based in the realities of our experiences. It'll be based in a set of disciplines that sets us and our customer up for success. And that is the way forward for us. And we're really confident that we've set ourselves up for the right approach to bidding. And frankly, in several cases, our customers learned as well, and the process is adapted to be more agile so that we all don't get ourselves in similar situations going forward. Boeing investors focus most often on the commercial business, which has been coming off of a tough few years. But the defense and space portfolio have had its

own challenges, in part because of that very aggressive bidding for high profile programs over the cost over the last, we'll call it decade or so. The focus for Colbert working towards a strong financial profile with high single digit margins targeting roughly 2026 supply chain, as we've seen and heard from basically everybody across the industry as well, though, John, has been something that Boeing has been navigating, basically said they're seeing improvement really across the board, but that they're not out of the woods yet on that front. Something else for Boeing writ large. This is not going to affect defense as much as it affects commercial. But something else to watch for Boeing next year.

Labor negotiations. That's coming up for the company more broadly in 2024. As we've seen a lot of them in 23 as well. Now, another major... Can I say one more thing? And that is, we have both of those interviews in their entirety on CNBC.com. All right. Look for them. Now, another major pharmaceutical company is hungry for a piece of the booming obesity drug market.

Details on the latest injection of competition in Overtime Returns. Novo Nordisk and Eli Lilly have been cashing in on weight loss drugs like Ozempic and Manjaro. Now, Roche wants in on the action after acquiring obesity drug maker Carmont Therapeutics for nearly $3 billion. Angelica Peebles, again, another day, another obesity drug stock swing. Exactly. It seems like every day there's a new piece of obesity news today. Like you said, Roche is getting it on the action, buying Carmont Therapeutics for about $3 billion. And Carmont has three experimental obesity assets right now, the first of which is an injectable

drug, so once a week injection. And then they also have a pill, a daily pill. And then they have another daily injection. So those are the three big ones. But of course, everyone's fixated on the pill these days. But still, these are pretty early on and it could be years before, if ever, before they actually reach the market. From the investor perspective, I wonder, is this overdone? Because we were talking to Medtronic a few days ago and their CEO was saying people got too worked up about these things. We're actually going to be fine. We saw Pfizer stock down a few days ago because their obesity drug wasn't working out. Are these things going to pan out? What are analysts saying?

Well, this is expected to be the largest pharmaceutical market ever. So about $100 billion by 2030, and that's according to Goldman Sachs. So, of course, everyone wants a piece of this action. And Eli Lilly, a few weeks ago, if you remember, CEO David Rick saying that it would almost be malpractice for any company not to consider getting into this space. So I'm sure we'll see more companies diving in here. But how exactly that shakes out, whether these drugs actually work and how big of a piece of that pie they can get remains to be seen. Does that actually mean that you could see price pressures on the sector as you have more competition coming into place? And I ask and I realize it's a very convoluted way that drugs get priced and what that actually means in terms of, you know, realized profits. But we do know that the price point, the price tag as it currently exists is very, very high.

And there's a real debate about what insurance is willing to pick up and what the cause is to use said drug. Yeah, well, the more competitors we see, presumably the more the price will go down. But that actually could help adoption because right now people just aren't able to get these drugs because, like you said, the price point is so high. So in some ways it could actually help accelerate adoption of the obesity drugs. The more competition, the more supply. Again, they just can't make enough of these drugs, and people just can't afford them right now. Okay. Angelica Peebles, thanks for joining us here on set.

Yeah. We have a lot to watch, even looking to tomorrow. We get Jolt's report, we get ISM services report, and then we're not done with earnings season yet. Now, later in the week, we've got Challenger, Job Cuts, Broadcom, Lululemon report, Dollar General. And it's been interesting, the low end of the consumer market, the dynamic there. TJX companies had strong results again, but there's some real concerns about how much runway the consumer really has for spending with stretch credit. And I think so much of it also depends on the brand and the attractiveness of the brand

as well. Lulu's been basically pretty Teflon in terms of both consumer and investor appetites. We'll see if that continues this week, too. Appetites, piece of the pie. Just all of these things are coming together with the obesity drugs and the retail. All right. Well, that's going to do it for us here at Overtime.