Closing Bell - Closing Bell Overtime: Carvana CEO On Amazon Encroaching On His Territory; KKR’s Paula Campbell Roberts On Enhancing The 60/40 Portfolio 11/16/23

Episode Date: November 16, 2023

Amazon announced it will begin selling cars on its site, sending Carvana down 8% at one point; CEO Ernie Garcia joins to discuss why he says increasing online sales helps everybody. Stocks mostly held steady, but remain higher on the week. Vital Knowledge’s Adam Crisafulli and UBS Senior US Equity Strategist Nadia Lovell break down the market action. Earnings from Ross Stores, Applied Materials and Gap. Plus, our Deidre Bosa on why Alibaba shares tumbled today. BMO analyst Simeon Siegel on Gap’s numbers. KKR Chief Investment Strategist for Global Wealth, Paula Campbell Roberts, on how she is enhancing the traditional 60/40 portfolio for her clients. 

Well, you got your scorecard on Wall Street, but winners stay late. Welcome to Overtime. I'm John Fort, back with Morgan Brennan. Welcome back. Retail in sharp focus today as Walmart pulls back on earnings and Macy's gets a major boost. And we'll get more reads on the consumer this hour when Gap and Ross stores report results. We will bring you those numbers as soon as they cross. Plus, Carvana shares sinking about 5%, but off the midday lows on news that Amazon's getting into the auto sales business, starting with Hyundai.

We're going to talk to Carvana's CEO exclusively about that news and how it shakes up his business, if at all. Let's begin, though, with the market in a more muted session today, but still pacing for big gains on the week. Energy by far the worst performing sector on the session as oil prices slide. Joining us now is Vital Knowledge founder Adam Christofouli and UBS Wealth Management Senior U.S. Equity Strategist Nadia Lovell. Nadia, welcome. First of all, at UBS, you guys seem to have a somewhat sunny perspective on where the economy is headed from here. You think yields are coming down, particularly on the 10-year, and the S&P can go higher? Yes, I wouldn't characterize it as a sunny outlook. I would characterize it as a balanced outlook. We do expect the economy to slow,

but we don't expect a recession. And so that should help bond yields to come down as well. And the fact is, we think that the Fed is done. We are also looking for a recovery in corporate earnings. We saw that starting to happen with the third quarter reporting season. We think that continues into 2024. We're looking for about 9% EPS growth for next year. And that should help to support the market to continue to move higher from here. And then with bond yields coming down and the Fed ending its hiking cycle and probably pivoting to cut sometime by the time we get to the middle of it next year, that should help

alleviate some pressures off of equity markets valuation. And so we think that this market can go higher towards forty seven hundred for next year. OK, I don't want to miscategorize, but that sounds pretty sunny to me. I mean, if if inflation actually comes down, yields go higher, stocks are better. Adam, what do you see as the key for the rest of this couple week period heading into holiday sales? What's influencing where the market's heading? So I think in the very near term, this is a seasonally bullish time of the year. You are getting a ton of evidence, both macro and micro, suggesting that yields should be lower. You're seeing growth cool. You're seeing inflation cool. You're seeing companies express caution on the outlook. It seems just within the last month or

month and a half, there's been kind of a notable change to the downside as far as just economic momentum. That's something Walmart talked about. Other companies have echoed that as well. So you're definitely seeing, again, a lot of evidence supportive of lower yields. Stocks are going to welcome the drop in rates. But again, I think there's going to have to be a reckoning at some point with the implications of poor growth for earnings. And you're kind of seeing that play out a little bit today, this tug of war whereby rates are moving lower. That's helpful to certain parts of the market. But then the growth implications are offsetting that to an extent. So in the very near term, you have some tailwinds technically and seasonally. But I do

think that's the market you're going to see divergence where yield will continue going lower. But stocks are not going to are not going to rally commensurate, at least, you know, at least as they go through this process of kind of adjusting to the lower growth outlook. OK, Nadia, we had Cleveland Fed President Loretta Mester on our air earlier today. I want to play what she had to say. Take a listen. My feeling is that it's really not about cutting rates. Right. It's really now about how long do we stay in a restrictive stance? right, and perhaps have to go higher given what happens in the economy. So that's where my thought process is. So this is interesting to me because, as you just mentioned, Nadia, you think the Fed has done raising rates.

There's a big difference between raising rates, especially as inflation continues to come down, assuming that continues to be the case, and beginning to cut rates. Big debate for 2024. Where do you fall in terms of the cut piece of this puzzle? And what does it mean for what stocks do next year? Yeah, you know, we're not as aggressive in terms of where the market is pricing and the market has quickly pulled forward the rate cuts for next year. We think that the pivot towards cut in March seems rate cuts for next year. We think that the pivot towards cut in March seems a little bit premature to us. But that said, we think that the Fed is going to be patient on both sides of the equation and still wants to see some loosening in the labor market and also some loosening in terms of wage growth. And you're probably not

going to get that until early next year. And so we think that the first cut is likely to come in the middle of the year to the back half of the year. And we're looking for two to three cuts for next year. Okay. Ross Storrs' earnings are out. Courtney Reagan has the numbers. Courtney. Hi there, Morgan. Yes, so it does look like a beat here for Ross Storrs.

Remember, this is an off-price competitor to TJX. So earnings coming in at $1.33. The street was looking for $1.22. Revenues also beating expectations at $4.92 billion. The street was looking for $4.285. They are looking for fourth quarter earnings in a range of $1.56 to $1.62. And the street is looking for $1.62. So a bit light there. Also reaffirming the sales guidance. The CEO is basically talking about all of the different macroeconomic pressures in the release that the consumer is facing and says that's why they believe it's prudent to be a little conservative here in their guidance for the fourth quarter. Comparable sales did come in stronger than expected, up 5%.

Those were expected to increase by about 3%. So another strong performer from the off price sector with raw stores, just like TJX. Shares are higher by about four percent. Back over to you, John and Morgan. All right, Court, thank you. And then on the other end, at least in the initial reaction, Applied Materials lower initially. Bertha Coombs has the numbers on those earnings. Bertha? You know, withstanding the fact that they have beaten here on the top and bottom line, but it could be that expectations were pretty high as far as earnings adjusted. Earnings of $2.12 a share versus an expectation for $2 adjusted. It also saw revenues of $6.72 billion. That's above the $6.52 billion expectation.

As for its guidance for fiscal first quarter, $1.72 to $2.08 per share at the midpoint, that would be about $1.90. The consensus estimate is $1.84. As for revenue guidance, they're guiding to $6.47 billion compared to a $6.37 billion estimate on the street. Also, their gross margins slightly edged out what the street was looking for, coming in at 47.3 billion, sorry, 47.3 percent on that. But this stock has been up about 59 percent coming into this print. In fact, today it hit a new 52-week high. The big focus on the call is going to be this sustainability of the stockpiling and demand in China and also whether we've seen a bottom for wafer fab equipment or WFEs. Back over to you.

Okay. Bertha Coombs, thank you. Shares are down 6.5% right now. Adam, I want to get your thoughts on both of these names. I mean, with Applied Materials, it seems like maybe there's some profit-taking based on the results that Bertha just gave us. But if I look at Ross Store specifically and what we got from some of the other retails that reported this morning, even if earnings are looking good, some cautious commentary about the consumer, who we know has been belt-tightening, but it seems would be notching the next hole into that belt a little

bit more, even as we come into the holiday season here. No, definitely 100 percent. I think, you know, the retail season across the board so far has been a story of revenue challenges as consumers cut back for a variety of reasons. But companies are performing very well operationally, cutting costs, managing inventory, reducing markdowns, and that's driving some of the upside. Ross Stores and TJX are somewhat unique in that they really play to the current environment with their off-price model. So they're benefiting on attracting consumers, seeking out bargains, but they're also getting a lot of valuable inventory in this market.

There has been so much surplus inventory that's to the advantage of Ross and TJX. So they're kind of benefiting in both ways. But expectations for those two stocks are high. I didn't see someone like Macy's where the bar is very low or Target where the bar is very low and they're just performing very well operationally. And then for AMAT, you know, the bar was high. The numbers on the surface are pretty strong. The guidance looks good. Now, I think there are some questions about how much stockpiling has been occurring, especially in China, as companies kind of rushed to purchase equipment ahead of potential U.S. restrictions. So that might be a risk going forward as you kind of hold some demand ahead from from 2024. I'm interested to hear what they say on the call. And then in memory, you've seen memory prices rebound a lot. In large

market-cost companies, the producers have been aggressively curtailing CapEx expansion and production capacity, which obviously is detrimental to the equipment companies. OK. Adam Crisafulli and Nadia Lavelle, thanks for kicking off the hour with us with a mixed picture for stocks here today, the S&P finishing at 45.08, but the Dow finishing slightly lower. Let's turn now to China. The meeting between Presidents Biden and Xi may have boosted hopes of easing tensions between Washington and Beijing, but the impact of existing trade restrictions is being felt sharply by one company today. Deirdre Bosa has a look at why Alibaba shares have been tanking. Hi, Dee. That's right. That company would be Alibaba shares have been tanking. Heidi. That's right.

That company would be Alibaba. And it often trades as a proxy for China-U.S. relations. And in this case, it's a pretty stark reminder that there are still issues that are going to be playing out at the economic and technology level. Now, down some 9% today on the session after nixing its plans to spin off its cloud unit. And it blamed the U.S. chip export restrictions for this, saying that it created uncertainties for the prospects of the unit. Now, it is a long time since Alibaba traded on fundamentals. As I said, it's really seen as a proxy for U.S.-China relations and also a punching bag for the Communist Party's crackdown on tech. Its peak market cap was over $800 billion. It now trades at about $200 billion market cap.

And some of the fundamental cracks are showing through. The spinoff strategy was supposed to gain more autonomy for the individual businesses, rejuvenate them, and unlock value. It was a really dramatic move, the most dramatic that Alibaba had ever made. Now it has to walk that back, and it throws doubt on some of the other spinoffs. And it's interesting when you look at why it did this in cloud specifically. Other players, cloud players in China, like Tencent, they're facing these uncertainties as well, which they've talked about, but perhaps seem more prepared. Tencent, for example, said that it had stockpiled chips and was looking to use them more efficiently and also look to more domestic production. Alibaba seems a little more caught flat-footed on this move. So as you can see, shares finished down 9%, a big move for the company.

Yeah, Dee, I wonder if you have any thoughts, what you're hearing. There's a difference between how these different Chinese companies that are listed in the U.S. are performing. Pinduoduo, for example, has been faring better. Maybe there's a difference based on how consumer-exposed the company is versus B2B and whether that's perceived as being more or less exposed to the government crackdown? Yeah, it's a very good point.

So the reason Alibaba was going to split up into all these six different units in the first place is because they were so big. They were the dominant player. So when the Communist Party wanted to crack down and show that it was going after the biggest players, that was Alibaba. And that has been to a company like Pinduoduo's benefit. It also has Timu, which operates here in the United States and is having a huge amount of success. So Alibaba's crackdown, value destruction has really created an opening for some of the other players like Pinduoduo. But even in China, PDD is its symbol, is seen as really an up and

comer, a big player to watch in e-commerce. Okay. Deirdre Bosa, thanks for joining us. When we come back, we're going to break down GAP's earnings and the big swings this week from the likes of Walmart, Target and Macy's with BMO senior analyst Simeon Siegel. Plus, remember when hundred dollar crude was the talk of Wall Street just a couple of months ago? Well, prices are now down near 70 bucks a barrel after a big pullback today. We're going to tell you what's weighing on oil when overtime comes right back. Welcome back to overtime. Energy sector pulled back hard today as oil prices went way down with WTI now nearing 70 bucks a barrel. That's a far cry from the hundred dollar market was approaching in late September. Pippa Stevens is with us. Pippa,

what's all the pressure about? Global economy? Yeah, that's right, John. And WTI dropping to a four-month low in a trade that's unwound really fast, with oil now down about 20 bucks since the end of September, getting hammered on fundamentals as well as technicals. So starting on the fundamental side, the signs of deteriorating demand is what's weighing. The latest inventory reports show the build in U.S. stockpiles with production remaining at record levels. And China is still a really big wild card here with weak property data out today and a drop in refinery run rates thanks to weakening margins also sparking demand fears. Now, on the technical front, WTI briefly bounced above its 200-day moving average earlier this week, but it was unable to hold that level and so is now seeing lower highs, which is accelerating selling. And looking forward, Miller-Taybox Matt Maley said $70

is an incredibly important support level since it's the 200-week moving average, which WTI bounced off of seven times over the spring and summer. Now, with the recent move lower, WTI has now flipped from backwardation to contango, meaning traders believe the market is oversupplied, at least for the time being. But certainly some welcome news for consumers. Back to you. Yeah, and maybe for the strategic petroleum reserve, too, if they want to start replenishing that in a more meaningful way. Pippa Stevens, thank you. Gap earnings are out. Courtney Reagan has the numbers. Hi, Court. Hi there, Morgan. Yeah, so for the quarter, Gap is beating expectations here with 59 cents adjusted. The street was looking for 19 cents.

Revenues also beating 3.77 billion compared to 3.6 billion. Gross margin improved to 41.3 percent. That's up year over year and above the street account estimate. That's the third quarter in a row of margin expansion. Same store sales for for the total company did fall 2%, but the street had expected that number to fall 8.7%, so much better than expected there. Some improvement at Old Navy. Those comps actually positive by 1%. Gap down, but just 1%. Banana Republic comps down 8%, and Athleta down 19%. So that one really rough, but also the smallest by revenue of those brands. Gap is only reaffirming its full year revenues, though, after the beat. And I spoke to new CEO Richard Dixon, and he said, quote, month to date, we've seen modest improvement over our third

quarter performance, and that's embedded in the forecast. CFO Katrina O'Connell added that the retailer is, quote, taking a prudent approach to competing during the holiday season with great value. And Dixon said the margin expansion that was driven by lower promos and leaner inventories. The team controlled expenses extraordinarily well with cash double the amount at this time last year. It's all part of a focus on, quote, operational and financial rigor, he says, enabling us to focus on reinvigorating our brands. How will Gap reinvigorate sales? That's the big question. And Dixon said, well, Navy and Gap are making progress as these numbers show, but it's going to take longer at Banana Republican Athleta. Overall, he said the

retailer needs to express storytelling through merchandising that excites our customers, have a more engaging omni-channel experience, compelling pricing strategy, and make its brands more powerful in the cultural conversation. So they've made some headway on some of those financial fundamentals, but got to really work on the brands and reinvigorating those sales, as he says. Morgan, back over to you. Okay. Courtney Reagan, some good color there to go along with the numbers as shares spike 9%. For more on Gap and the retail picture, let's bring in BMO Capital's Simeon Siegel. Simeon, it's great to have you on.

I want to start right there. When I see that Old Navy had 1% positive same-store sales, it signals to me the same thing that Ross Stores and TJX signal to me, and that is that consumers are focused on value right now, and they're finding it maybe in some of these off-price retailers or some of these brands that typically tend to be more affordable.

Hey, good to see you. So I think that's perfectly put. I mean, we watched TJX's performance yesterday, traffic-driven comps. We just saw Ross just now, and now you have that old Navy comment. I do think we should reflect on the fact that we're getting, you and I are getting very excited about a one. So I think there's a lot having to do with expectations and bars. And Courtney said it perfectly. To me, the more interesting I'm listening to her is this notion of promotions

being down, looking at that gross margins. I think that there is a health conversation that we want to see. So we want the revenues to grow, but we want them to grow healthily. That's, I think, the one-two punch. Okay. And we are seeing that. We're seeing that really across the board, this focus on cost controls, lower freight costs, lower inventories, less promos. Is this the new normal as we have now come out of the pandemic? We've come out of all that pull forward that we saw in demand for retail and then that shift from goods to services. Or is this really a sign, a more meaningful sign that as disinflation takes

root and sales that have been pressured, that the consumer is slowing and slowing in a more meaningful way? I think it's today's normal. I think we learned during the pandemic calling something a new normal is a dangerous precedence because it changes every minute. But I think we are seeing, listen, there's no question that when you and I talk about Old Navy, Ross, TJ working, there's no question that sounds like a trade down impact. On the other hand, you can see a lot of big box companies. You can see a lot of other businesses that theoretically are catering to a similar customer that aren't calling out similar trends. And on the third hand, if we can have three, I'm sure Lulu will tell us that business is growing as

well. So I think that there is no question we're seeing this aspect and we should continue to watch it. But on the other hand, I think that there is nuance. I think the broad brushstroke is a little bit dangerous. And I think we'll see plenty of businesses that are catering to more aspirational customer still seeing nice growth. And so I think it goes more to this aspect of, is the company actually doing the job? Is the company forecasting their business appropriately? And I think that's something you and I haven't been able to say in a long time because supply chain threw a wrench in that. When you don't know what product you're going to get overseas, it doesn't help if you're a good planner. Your new normal now is that we're back to being able to plan your business. Those

that plan it well and know their customer well, I think will be rewarded with results. All right. So I mean, strong other hand energy on a Thursday. I'm with it. So Gap, Abercrombie or American Eagle? Because Gap has its own sort of turnaround issues. American Eagle's getting ready to report. And Abercrombie, I'm old enough to remember in the 90s when Gap was cool. It's like Abercrombie has taken a lot of that away. Well, you know that problem in your head when you hear it and like you're saying, did I just say other hand again? So I'm with you. Thanks for calling me out on it. Oh, I know. Listen, I think that it is fascinating that when you look at a company like Bath and Body Works that just reported today and is getting knocked for being a mall-based retailer, and then you think about the fact that we're looking at Gap, Abercrombie & Eagle,

as you just called out, which are mall-based retailers selling apparel, two teams, which generally has been viewed as the most toxic group, and yet they can work. I think it goes back to this notion of you have to look at the company. You have to go back to that nuance. And so Gap just showed us that at least for right now, they can continue that momentum. We'll get that. We'll see from the other two next week. There's no reason to think they're going to stop right now. But I think at some point, we're going to look back and we're going to say, OK, as we think about what these businesses are worth, going back to Morgan's first point, we can't always just rely on the consensus on the sentiment. At some point,

they actually are worth something from an intrinsic value. And that's when I think we're going to have to start deciding, did some of these stocks get away from us? In October, there was nothing but despair. The first two weeks of November, my group is up double digits. So I think there's an element there where we want to actually, OK, let's get the catalyst. And then two weeks later, let's see where do you want to what's the multiple you want to pay for them. OK, Simeon Siegel, thanks for joining us. Good to see you guys. Shares of both Ross Stores and Gap up big right now. And we have an update on applied materials as well. Just before the company reporting an earnings and revenue beat at the top of the hour, Reuters reported

that the company is under a U.S. criminal investigation over evading export restrictions to China's SMIC. Reuters citing three people familiar with the matter, saying one of the sources cited hundreds of millions of dollars sold without export licenses. And this could very well be, John, why we're seeing shares down 6 percent right now. Right. And there's not a finding there one way or the other. They're investigating whether AMAT might have potentially evaded those by shipping through South Korea. So we'll see. We just want to make that clear. This is not an official comment that the government is making here, but Reuters reporting that this is going on. Yeah, it's going to make this conference call, I think, that much more

important to see what they disclose, if they disclose any context around this as well. Yeah. Well, up next, investment giant KKR says that with bonds and stocks moving in tandem, there needs to be a rethink of the traditional 60-40 portfolio. We're going to talk to the firm's chief investment strategist for Global Wealth about why she's advising clients to shake up their holdings and the areas they should be looking into. Stay with us. Welcome back to Overtime. Is it time to rethink the classic 60-40 equity bond portfolio?

Well, 2022 was the worst year in decades for that allocation. It was down some 17%. This year, a traditional 60-40 portfolio would be up just over 11% through mid-November compared to 17% in the S&P 500. So joining us here on set now is KKR's Paula Campbell-Roberts. She is the chief investment strategist for Global Wealth and a managing director on the Global Macro Balance Sheet and Risk Team at KKR. It's great to have you here. You did just put out this report. Why is the 60-40 portfolio not working as well as it once was? And how does it speak to, as you put it in this report, this new macroeconomic regime? Thank you for having me, Morgan. You're exactly right. In this new macroeconomic regime. Thank you for having me, Morgan. You're exactly right. In this new macroeconomic regime,

the 60-40 portfolio is inherently challenged. Essentially, the portfolio that you might have created five or 10 years ago just won't work today. You saw the underperformance last year, but even going forward, what we're noticing is the elevated correlation between stocks and bonds, which means that bonds are not doing their job in the portfolio.

So investors need to seek diversification, better income, better yield elsewhere. So that's the crux of the argument. Is it fundamentally broken? I mean, is this a new dynamic or new relationship between stocks and bonds that hasn't existed before for key secular reasons, or is it just speaks to the cycle we're in right now? I think this is structural. And so we talk about tectonic shifts that have permanently altered the investing landscape. So from the energy transition, from geopolitical shifts, demographics and the like, that is driving us into a higher inflation structure. And so that higher inflation bias,

which is matched with the Fed and other central banks raising interest rates on the back of that, has really put pressure on large cap equities, for example, where higher input costs and borrowing costs are going to challenge returns going forward. So in public equity markets, for example, you can't expect the maybe 9% return that you're used to. We expect more 6% or 5% going forward. And then on top of that, if you think about bonds as a component of that portfolio, if you're not going to get that volatility dampening or that shock absorption function, then really you need, as I said, to find that diversification, that higher income, that higher return. You have to find that elsewhere. Okay. And what you argue is that diversification is going to be found in the private markets and in alternative investments.

So what does that breakdown look like? And I ask that, just as importantly, yes, there are pros to this, but it's still relatively new for individual and retail investors to be able to have access to this. What are the risks associated as well? It's a great question. And that's really why we wrote the paper, because many individual investors are new to these asset classes. So understanding, for example, how to manage liquidity, how to compare private equity versus infrastructure versus real estate or private credit, that's really essential for individual investors to understand. So the upside is that you get better returns, for example, from the illiquidity premium. So the benefit of actually owning an asset and being able to improve

either the alignment of employees and management, for example, or make changes structurally in the company, that allows you to generate a better excess return over public equities. So that's a key part of it. The challenge, of course, is understanding the liquidity, right? Because you're going to have to feel comfortable locking up your cash, for example, for two, three, or four or five years, depending on the asset class. So that's really the trade-off, but there's a huge benefit to doing so. Here's the part that has me a bit confused, Paula. So if you're your typical retail investor, maybe you've got six figures or a little less overall to invest. How does this apply?

Because so many retail investors these days are underexposed to fixed income. They're nowhere near 60-40. They might be more like 80-20. And the yield that you can get on fixed income in a CD or in a bond fund is much higher than it was a year ago. So it seems like some people ought to be moving more toward fixed income, if not 40 percent, at least maybe 20-25. Thank you for the question. We certainly agree that fixed income looks more attractive maybe next year and the year after. But my concern with fixed income long term is we still expect inflation volatility. And as rates then settle and start to potentially rise later on,

you're going to be challenged again from a fixed income perspective. So by the way, what I'm saying is that a balanced portfolio still includes public equities and fixed income. We're just saying that purely investing in public markets and stocks and bonds is insufficient What I'm really advocating for is giving yourself more ways to win right if bonds underperform last year and underperform this year

Yes, they might perform better next year But why do you why do you want to be subject only to that volatility? Leaning into private credit gives you some of the same benefits that you just talked about which is higher yield given where treasuries are But then on the back of that, especially if you're in, let's say, asset-based finance, you're getting a bit more of that inflation hedge. So as opposed to being locked into just a single or two asset classes, really look outside of that opportunity set for more ways to win. So if you're not really high net worth, what's the first lowest risk, if not low risk, but lowest risk step into that space?

We have a range of portfolios that we've devised for individual investors, especially those who are newer to private market investing. I'd say the generate income portfolio is great for those who are newer to investing. So that's where you'd allocate into private credit, for example, infrastructure and private real estate. You get the benefit of boosting your yield, but also accounting and hedging against inflation. That's probably the best first step. All right. Paula Campbell Roberts, it's great to have you here on set. Thanks for joining us. Thanks for having me. Take care. All right. SharePoint just out with earnings warnings. Pippa Stevens has the story. Pippa?

That's right, John. This stock down more than 18% here in extended trading after ChargePoint issued preliminary third quarter financial results and they are slashing their Q3 revenue and profit forecast. They now see Q3 revenue between 108 million and 113 million, well short of the 157 million that Wall Street analysts were looking for. The company also warned that its Q3 gross margin will be lower than prior guidance. The company also named a new CEO and appointed an interim CFO. ChargePoint said it was thanks to overall macroeconomic conditions, along with fleet and commercial vehicle delivery delays that impacted their results. They are set to report their Q3 results on December 3rd. Once again, that stock down 21 percent. John, back to you.

Thanks, Pippa, for that update on ChargePoint. Time now for a CNBC News update with Bertha Coombs. Bertha? Hey, John. A federal jury this afternoon convicted the man who attacked Paul Pelosi last year. The former House Speaker Nancy Pelosi's husband was assaulted with a hammer last October during a break-in at the couple's San Francisco home. The man faces up to life in prison. An appellate judge temporarily lifted Donald Trump's gag order in his civil fraud trial over concerns that it violated the former president's right to free speech. The judge issued a stay, which pauses the gag order while the appeals process plays out.

It was imposed after Trump's social media posts about the trial judge's court clerk. Michigan football coach Jim Harbaugh will accept a three-game suspension from the Big Ten, and the conference will end its investigation into the sign-stealing scandal at the school. The agreement also resolves a lawsuit brought by the school against the conference. Parba, who sat out last week, will serve the rest of his suspension in the remaining regular season games against Maryland and Ohio State. Or I should say the Ohio State. That's what Courtney would tell me.

Yeah, you didn't want a call from Courtney Reagan, I was about to say. Bertha, thank you. Online auto retailers taking a hit midday after Amazon said it's getting into the car sales game. And up next, the CEO of Carvana joins us exclusively to discuss that news. And if he sees Amazon as a real threat to his business. We'll be right back. Welcome back. Shares of Carvana and some other online car sellers ending the day in the red after Amazon announced it's going to allow auto dealers to sell cars on its site, starting with Hyundai.

Joining us now is Carvana CEO Ernie Garcia. Ernie, is this a threat to Carvana or do you see it differently? Hey, well, first of all, thanks for having us. Really appreciate it. I think we started selling cars online in 2013, and I think at the time people thought that it was a little bit of a crazy notion, but we believed it was something consumers wanted. And I think that today, Amazon jumping into the fray here, I think that that's great news.

I think it validates this is something consumers want, and we think it's something that'll probably accelerate consumer adoption of automotive e-commerce. And that's something that we welcome. Strategically, what's your parry here? There have been some times when Amazon has gotten into a space and it has crushed the smaller players. And there have been other times, you think about Etsy and some other companies, where Amazon has done something with small craft makers, and it hasn't really had as big a negative impact

as investors feared. What do you think is going to make the difference for Carvana on whether you actually improve, get better in your financial results because of this? Is it pricing? Is it service? Yeah, you know, I would reframe it a little bit. What I would say is, you know, we're the largest seller of cars online today. We sell about 300,000 cars a year, roughly, if you look at last quarter and annualize it. And there's about 40 million used cars sold per year in some total in the U.S. There's about 15 million new cars sold per year in the U.S. So I think the way bigger trend here is consumers moving online to buy cars. And we think that the more that grows, the better it is for all of us, frankly. And so I think that that's great. You know, we would like to think that we've built an incredible customer offering over the

last 10 years. We've been focused on nothing but giving customers great experiences when they buy cars online. And we're pretty proud of that. There's, you know, millions of customers that have gone through Carvana that I think are pretty happy with what they've seen. And so we'll just keep doing our thing and delivering great customer experiences. Yeah, Ernie, it's good to see you again. Amazon is focused on new cars, and they said that Hyundai is the first, quote-unquote first, that they're partnering with here. What does that mean in terms of the inventory picture at all, if anything, and what your mix is going to look like or competition for the mix of what you sell on Carvana? Sure. I think, you know, first order, I wouldn't expect there to be a ton of changes. And again, I would just say that because the market is so large. I think it's easy to lose sight of just

how large this market is because there's, you know, only a few automotive retailers that are public. And so I think a lot of times people miss kind of the scale of the market. But, you know, between new and used, there's 55 million cars sold per year, you know, and we're the second largest used car seller in the country. And we've been run rating about 300,000. So I think relative to the scale of this market, the most important thing is just more customers moving online. Yeah, we've seen the price of used vehicles come down as well. I just think about the Mannheim Index that was recently released. Does that trend continue here? It got my attention because, and we saw it in the CPI data this week, too.

It got my attention because we have had this autoworkers strike, and yet prices definitely seem to be in disinflation mode. Sure. So I think car prices, and I think every bit as importantly car payments, have been very high over the last year and a half. For a similar car, consumers are paying about 50% more than they were pre-pandemic. And so that's obviously inflated a lot more than the rest of the other goods in the economy. We have seen some moderation in car price over the last several months. I think our hope is that will continue. It clearly is better for consumers when there's a healthy production market or production cycle that's driving supply to be more balanced with demand

and prices come down. So that's absolutely what we're rooting for. I think it's hard to predict. There's been a bunch of up and downs over the last couple of years, but our hope and our expectations over time, car prices should drop. Well, but what's the impact that you expect on margins from more people entering and perhaps from Amazon entering this business? They tend to be willing to spend, at least in the past, in different economies to get people lower prices or the appearance thereof. Yeah. So again, and I apologize to keep going back to the same point, but I think this market is so large. And I think maybe another spin on the market is there's literally tens of thousands

of dealers out there. And many car dealers have pretty similar cost structures. You know, you drive up and down dealership row, you see those buildings that are pretty similar to one another. The rent for those spaces is pretty similar. They're generally using similar third-party software products. They're paying people about the same amount. And so there's a lot of ballast in automotive retail because there's so many players spending similar amounts of money. And so I think, you know, absent a player that has absolutely enormous market share, I think it's really hard for any one player to dramatically impact the margins in automotive retail overall. Okay. Ernie Garcia of Carvana, thanks for joining us. Thank you so much. We

appreciate it. Have a good one. You too. Shares did finish the day down 5%. Big news from Amazon's Project Kuiper, sticking with Amazon here. And the countdown to SpaceX's next Starship launch. We have all the details when Overtime returns. And coming up on the last call at 7 p.m. Eastern tonight, Tesla investor Ross Gerber responding to a post from Elon Musk that's been widely criticized

for being anti-Semitic. Gerber saying he has been getting, quote, a flood of messages from clients wanting out of Tesla and that, quote, it takes a lifetime to build a reputation and a day to lose it. He will join Brian Sullivan to discuss. We'll be right back. Amazon confirming 100 percent success rate for its Project Kuiper proto flight mission as its pair of test satellites have been fully successful in operations and testing. Kuiper is Amazon's $10 billion plan to build a mega-satellite constellation for broadband service. Project Kuiper VP of Technology Rajiv Bhadial telling CNBC, quote, 30 days after launch, we're streaming 4K videos, doing calls, video calls, and shopping on Amazon.com.

Now, the first production satellites will begin being built next month, with launches starting in mid-2024. Speaking of launches, SpaceX's Starship is poised to attempt its second flight on Saturday now. After receiving FAA approval this week, the mega rocket system has been developed to carry people and cargo to the moon and Mars. And Rocket Lab is looking to get its launch business back on track, too, with the next flight as soon as November 28th, just two and a half months, give or take, after a complex mission failure involving its Electron rocket. Rocket Lab is targeting 22 launches next year. That's nearly two a month, as it looks to expand margins. And

founder and CEO Peter Beck told me supply is outpacing demand, as Amazon and so many others now look to send more and more payloads to space. It's exactly the same thing, not just for Neutron, but also for Electron. I mean, look at the manifest is absolutely jam-packed for next year. And for Neutron, we see exactly the same thing. I mean, there is going to be a real launch crunch in that sort of 25, 26 time frame where a lot of these large constellations are coming to market and all need launch. That's the reason, quite frankly, we're working so hard to bring Neutron to the market in that right time frame and mature it at that time as well. So Neutron is Rocket Lab's medium lift rocket.

This is more powerful than its current workhorse, Electron. Neutron is still on track to reach the launch pad before the end of 2024. But to listen to the full interview with Peter Beck, check out my podcast, Manifest Space, wherever you get your podcasts. This episode just dropped. So I guess now you could use Kuiper to use Amazon to order a car online and pay Rocket Lab to deliver it. But that'd be really expensive. Up next, ServiceNow CEO Bill McDermott on how the enterprise software company is monetizing AI as it rolls out new capabilities for customers.

And don't forget, you can watch my special extended conversation with Microsoft CEO Satya Nadella, also on AI, Monday, 8 p.m. Eastern, as part of the CNBC Leaders Series. Be right back. With all the excitement around AI, there's a question of how quickly enterprise software companies are going to be able to monetize it. Well, I spoke with ServiceNow's Bill McDermott. He's the CEO over there about the company's announcement today of new AI capabilities in workflows, including in field service management. So think about technicians out on location servicing equipment.

So just think about today's technician and the customer experiences and how you can maximize those experiences while also making sure you're compliant and you're playing by the business rules that have been built into the fabric of a company. But now instead of a clipboard and a pen, a technician on their mobile has all the information that they need in terms of the part that they might need, or in fact, do I fix it or replace it based on the heuristics of what generative AI is feeding back to that technician? This is under ServiceNow's Now Assist brand, just like we were talking to Microsoft yesterday about its co-pilot brand. ServiceNow is also allowing customers to customize their AI chatbots, which OpenAI has talked about in recent days. And again, Microsoft talked about yesterday.

Investors, Morgan, are going to have to watch for whose software tools for customization are more effective and maybe gain them some more market share and developer mind share from here. I realize we're still like in early innings for all of this, but the fact that you do have two companies within 24 hours or whatever it was, maybe it was the same day, rolling out products into the market already. I mean, how far ahead is ServiceNow or Microsoft versus some of the other players out there? I think the product quality, again, is the question because OpenAI also said,

hey, you can roll your own GPTs. Microsoft's saying you can use those GPTs that you rolled in OpenAI in our platform as well. And by the way, you can customize here. And now ServiceNow also saying you can use our platform to well. And by the way, you can customize here and now ServiceNow also saying you can use our platform to customize your chatbots. And then down lower within customer service, there are startups who are building out this capability as well. So there's a whole lot in this protean soup of AI happening. Protean soup, I'll say emerging ecosystem. Okay, that works. Well, Formula One

is much more than one of the fastest growing sports. It's also one of the hottest sponsorships in the entire entertainment industry. A closer look at the big business of Formula One on the other side of this break. Welcome back to Overtime. Las Vegas transforming into a racetrack this weekend for Formula One's Las Vegas Grand Prix. F1 has been surging in popularity, especially in the U.S., and it's also one of the hottest sponsorships in sports. Sarah Eisen is in Sin City with Inside Track on the big returns sponsors are seeing from their Formula One partnerships. Sarah. Hi, Morgan. Yes, this Vegas race with all

the spectacle and glitz and glam has attracted even more new sponsors like American Express. This is one reason we did this deep dive on the business of Formula One. Companies from Amazon, Salesforce, Rolex, Chipotle to CrowdStrike, whose CEO was on our show earlier today, are jumping in. They want to tap into the growth of the sport, which has skyrocketed in viewership and in fans in recent years under owner Liberty Media, which bought F1 six years ago. It's about the exposure for the brands. But what I learned is that it's much more than that for a company like Palantir, for instance. It works with Ferrari to use the big data and generative AI to

make the car drive faster. And these cars are tech machines, and the tech companies test out their technology and innovation on them. Beyond tech companies, you've got Goldman Sachs, Hilton, and so many others involved. They want to give clients and customers those money-can't-buy experiences at races. So partly as a result of all this money flowing into F1, the teams and the league are increasingly more profitable. Valuations for the teams have ballooned from nothing six years ago into billions of dollars today. Tomorrow on Squawk on the Street, we're going to talk to a brand new sponsor, T-Mobile CEO and longtime sponsor of the Mercedes team, Marriott's CEO. And in this documentary, which

airs tonight at 8 p.m. Eastern, we did a deep dive, Morgan and John, into one sponsor deal that is paying dividends. It's MoneyGram and Haas, the Haas team. It's a team that's not in the top five, but the relationship is really interesting because it shows how both are benefiting from this growth spurt of the sport. I love that you brought that up, Sarah, because you were talking about how the teams and leagues are more profitable from these sponsorships. But I was wondering what return on investment for the sponsors themselves look like and how they measure that. It's a really great question. And we asked MoneyGram that question exactly. They say they see it in the brand surveys, for instance. Their brand

just becomes cooler. And because, you know, the teams have been very thoughtful when it comes to what goes into these sponsorships. For MoneyGram, they do a lot of business overseas, even though they're a U.S. company. And a lot of the races in Formula One, there's more than 20 races per season, are overseas. So they're getting that brand exposure exposure they're getting a brand halo effect and they also said they can see it in the direct business after races where they see business tick off i've heard that from a number of sponsors a lot of the b2b sponsors guys they say that you know they bring the clients to the races they wine and dine them they give them the experiences which f1 does really well on hospitality, like hot laps and tractors and

all these Instagram photo experiences. And then they bring in more business. So they are excited about the returns that they're paying, that they're getting. Great stuff, Sarah. Sarah Eisen. And tune into the documentary tonight, 8 p.m. Eastern. In the meantime, we get more consumer readings tomorrow, specifically BJ's when it reports before the bell. Moving into heavy consumer action, whether you're talking about that, the retailers that we just mentioned, American Eagle and whatnot next week. And then, of course, Black Friday is right around the corner. Black Friday is right around the corner. That is going to do it for us here at Overtime.

It's been a mixed session for stocks. We'll see what tomorrow brings. We'll have to see. Fast money begins right now.