Closing Bell - Closing Bell Overtime: Could Blackrock’s Bitcoin ETF Be Bad For Crypto? Plus The Unintended Consequences of the FTC’s War On Big Tech 6/22/23

Episode Date: June 22, 2023

The S&P 500 and Nasdaq snap three-day losing streaks. BD8 Capital’s Barbara Doran and Citi’s Scott Chronert break down the market action, plus a discussion on why the regional bank ETF KRE is falling again. Is Blackrock’s bitcoin ETF a wolf in the henhouse? Morgan Creek’s Mark Yusko discusses if it is good or bad for the cryptocurrency. Betterment CEO Sarah Levy on where retail is positioned. Nuveen’s Carly Tripp on under-the-radar opportunities in the real estate sector. Plus, Cleo Capital’s Sarah Kunst on how the FTC’s big tech battle impacts small tech firms. 

Yeah, the S&P and NASDAQ snapping a three-day losing streak, and the Dow about as close to flat as you get. That's the scorecard on Wall Street, but winners stay late. Welcome to Closing Down Overtime. I am John Fort with Morgan Brennan. And coming up, we will discuss Bitcoin's big rally this year and how BlackRock's bid for a Bitcoin ETF could impact cryptocurrencies with Morgan Creek Capital CEO Mark Yusko. And home building remains red hot despite the rise in interest rates. Nuveen Real Estate's global CIO tells us where she sees the biggest opportunities in that sector. And now let's get straight to the market action. Joining us is BD8 Capital founder Barbara Duran and City U.S. equity strategist Scott Krohnert.

Guys, welcome. Scott, we've got just over a week left in this month, really, I guess in the first half of the year, and you've got a 4,000 target for the S&P for end of year, which would be down about 9%. What are the adjustments that investors should be thinking about making here? Do you rebalance and shift gains to fixed income or international or smaller caps? Do you raise cash or do you just sit on your hands? Well, it's a good question, John. So our normalized earnings yield analysis tells us that bonds actually look more attractive than stocks at this point. But I think that's been the case for some time now. In terms of the equity outlook, I mean, this is pretty straightforward. You've had this massive move in this narrow leadership, the NASDAQ names, let's call it. And, you know, our view is that you don't have that

kind of move without some form of pullback on the premise that the higher you move these stocks, the greater the implicit expectations you build in. And it begins to feed on itself. Now, we got Russell Recon tomorrow into the quarter coming up, as you mentioned. We think the stage is set for a pullback. But, you know, what we would suggest as being holders, we're more excited about putting new money to work on the cyclical side of the market. Barbara, how big of a pullback will it take to get you back into things? Yeah, it's a good question because I agree with Scott. After such a massive move, NASDAQ up almost 30 percent year to date, S&P 14 percent, it is normal to have

a pullback. But I thought that a few weeks ago and we haven't seen it. This market wants to go higher. You've got retail investors trying to come in, institutional are underinvested. So I think the pull, any pullback we have will not be deep. And I think it'll be shallow and it'll be short. So that is, you know, it's a tough question. It's like, you know, the famous Supreme Court justice who said, hey, I'll know it when I see it when referring to the test for pornography. You know, you will see how the rest of the market is acting, but I don't think it will be deep. I think there's too much. I think the market is already discounting one to two more hikes, meaning the Fed is nearly done hiking. And I think that's

what we're seeing in the market. And so I think and I don't I don't agree with Scott, however, on the cyclicals, because cyclicals typically do well if you're going to see the economy growing. And I see the economy while still being positive growth, slowing a bit. And I think that's going to be true through the rest of the year. So in light of that, Barbara, name some names for me, especially when we have had, we'll call it not surprising, but more hawkish talk from Powell, Fed Chair Powell, over the last couple of days. We saw some surprise moves from other central banks just in the past 24 hours, and we've seen yields on Treasuries moving higher. So what do you like right now? And is there a point at which

interest rates moving back towards highs could change that? Yeah, I think that if as the year goes on, if the Fed decides, if we see inflation actually start to go back up, which would be very surprising, then I think all bets are off. The Fed could go higher. But I think my expectation and I think consensus is that we will continue to see inflation creep down. But the core PCE stuck a little bit here. And that's why the Fed, I think, will keep rates higher. So I think, you know, for now, I'm sitting on my hands. I'm buying selectively like names like Starbucks, which really got heard after they reported earnings, fantastic earnings, 11 percent, same store sales, et cetera, et cetera. But their

guidance, forward guidance was not what people expected. But I think they're being very conservative. If you look at China, 6,000 stores there. They could be more than more stores there by 25 in the U.S. And the Chinese consumer is recovering in this aspect. So I think that's a very good story, has not done much in earnings. And you look at something like Expedia, which has had great growth in the online travel segment, not as quality a name as Booking Holdings, which has

about twice the growth rate, but the stock is at only 11 PE. So I think there's upside there. So it's looking for names like that, very idiosyncratic picks. Yeah. Scott, a lot of focus right now on the 2.10 spread and the yield curve inversion, also the three months to 10 year. And the fact that inversion continues. You had leading indicators, which we're going to get to in a little bit more detail in just a moment here with Mike Santoli. But but if we were to actually see a recession here, when we talk about the possibility of a pull pullback, I mean, I guess just walk me through valuations for this market and how painful that could be. But also on the flip side, if we don't see a recession, whether valuations here actually

would make sense, it would change your mind. So, Morgan, it's a good question. So beginning of this year, we were arguing the S&P could handle 18, 19 times our earnings estimate, which was 213 at the time. And we got a lot of pushback that that was too aggressive for a outlook that included a recession scenario. And now we're above that. We're 20, 21, almost 21 times on the S&P. And so now we're being asked the question, well, gee, how far much further can you push your valuations higher? What I would say is our view has been pretty steadfast on this. We think that this earnings resilience theme is going to be part of the landscape, even if we have a mild recession.

The framework here is if you look at the S&P 500, we characterize about 30 percent of it as, quote, cyclical. So the point here is that the S&P exposure to recession is not as great as is often perceived. OK, now, in the meantime, recession timing continues to get pushed back, kick the can, if you will. And so what we're arguing is that from a valuation perspective, normalized valuations on the industrials and related actually look pretty attractive to us. We're willing to be a little bit early on this in the event that we do get an ongoing push out in terms of recession timing. And we want to be in the game if and when you do get to a point where we're talking more aggressively about a Fed pivot.

All right. Good discussion to kick off the hour here. I love when you get some differing viewpoints on the market, especially given the fact that we're at such a key moment here for the market. Barbara Duran and Scott Kroener, thank you both. Thank you. Let's bring in Senior Markets Commentator Mike Santoli at the New York Stock Exchange. Kind of just teased it, Mike, but what are you looking at? Yeah, Morgan, absolutely we'll get to the LEI later, but I did want to take a look at where yields are sitting,

in particular the one-year Treasury bill. And, you know, we had global central banks hiking more than anticipated overnight. You had Powell out there again talking about the potential for two more hikes and trying to downplay the idea of a cut. Well, the one year yield is essentially getting you there where five point three. This essentially says in a year's time, the Fed funds rate is likely to be in the zone where it is right now, maybe a bit higher. And we're pretty much at the highs for this cycle on this measure. So, so far, the stock market containing that, but it does create perhaps a little more competition for bank deposits. And there's a little sloppiness in the way that the

bank stocks have traded. Take a look at the spread between JP Morgan shares and the broad S&P 500 banks ETF. You see that departure here starting late last year, but really accelerating with the SVB collapse. This is not that encouraging. You know, we've kind of curled down, still up off the lows, still have a chance to be chopping around making a base. But that premium, that safety premium in JP Morgan has again gone toward the extremes of early part of this year. So we're clenching up a little bit. Maybe it could just be about regulation, the fact that profitability is going to be challenged. The regional bank stocks are already probably pretty cheap. But I did want to highlight how some of this is creeping back into the market, even as the overall indexes hold near their highs. Yeah, Mike, let's spend some

more time on exactly that. The regional banks getting hit hard again today. That was a hot topic at today's Senate Banking Committee hearing. Fed Chair Jay Powell was asked whether he was concerned about uncertainty in the real estate market leading to more bank failures. It's really which banks have concentrations, high concentrations of real estate. And that is not seen in the large banks. It's seen in some of the smaller banks. So we've identified those banks and there's a supervisory toolkit where we work with banks to try to help them resolve those issues by, you know, by raising capital or, you know, dealing with what's happening. And meanwhile, Starwood Capital Group chairman and CEO Barry Sternlicht said he's much more worried about the regional banks than Powell might be. Things are not fine in the regional banks.

He can say it all he wants. But the government is basically giving you an implied guarantee on deposits. So there's been no run on the rest of the banks. The banks are not in good shape, the regional banks. They all have commercial real estate loans. We can mark the securities to market. Yeah, the KRE is certainly not in good shape today. I don't know if we can pull that up at all, but it was down more than 3 percent. Maybe that's not so out of line with what Powell was saying. Mike, what do you think? No, not terribly out of line. I do think maybe we

characterize the concerns as more kind of this ongoing chronic drag on profitability and on the balance sheets of the banks, as opposed to some big sudden recognition that there's been a hole blown in the books, as happened at SVB, because really the market value of longer term bonds has not changed very much in the last few months. That was the thing that really did get recognized all of a sudden when it came to SVB. The regional banks ETF as a as in total is trading below stated book value. So it's not as if the market expects great things from it. It's much more about just really the the wear and tear of asset values coming down and having to mark loans down. So I see it less as a possibility of being some kind

of big liquidation panic and much more about like what are the business models here and just how much pain is left to be taken over time as as commercial real estate kind of exposure works its way through the banks. Plus, they do still continue to talk about tighter reins on regulation and not letting them do as much in the future. Yeah, I mean, Powell talked about it today, too. Capital increases an upcoming proposal for larger banks. And just talking about this tradeoff between making banks safer and the cost of credit. I mean, how important, though, to the broader rally? And, you know, we saw the major averages finish flat or higher today and break some of the selling that we saw to start the week. But just looking at

the strong gains for the month, how critical are the bank stocks and financials overall to the sustainability of this rally from here? To me, it's always been that they can't be going down in a hurry and have the rest of the market shake it off. They don't have to lead. They don't have to recapture a huge percentage of the value lost over the course of the market shake it off. They don't have to lead. They don't have to recapture a huge percentage of the value lost over the course of the last few months, really, for the rest of the market to be OK. The financial stress indicators are what's really going to matter for the broader market. What's happening with credit spreads? What's happening to some degree with bank availability and deposit flow? So far, that's calmed down. At this point, you know, money market

yields haven't really changed that much. So that competition is not great for banks, but it's still not getting worse at a rapid rate. So at this point, you wouldn't want to see the regional banks take out their price lows of earlier this year. But we're a little ways from there. Got it. All right. Mike Santoli, a.k.a. the maestro. Thanks. We'll see you later this hour. Bitcoin rallying 80 percent so far this year. But our next guest will discuss whether BlackRock's bid for a Bitcoin ETF could spoil the party for investors. Morgan Creek Capital CEO Mark Yusko joins us when Overtime returns. Welcome back to Overtime. Bitcoin has seen a massive rally this year, up 82 percent so far. It's up 14 percent just this week and hovering back above 30K.

BlackRock's application for a Bitcoin ETF has added fuel to the rally, but is the largest asset manager in the world a, quote, wolf in the henhouse? Joining us now is Mark Yusko from Morgan Creek Capital. Mark, it's great to have you on. And I'm going to start right there when you have BlackRock entering the fray. And also, by the way, Citadel and Schwab and Fidelity backing EDX Markets, the crypto exchange that also launched this week. What does it signal? Look, I think it's great that the traditional financial services firms are coming around to the technological innovation that's been going on for the last, really, 14 years since the birth of Bitcoin, but really the last five way into the space. But I actually think it's a validation of, one, the technology and, two, validation of business models saying that, look, this is here to stay. So this is good news and this rally has legs. Is that what you're saying?

Well, I think the rally is just beginning. You know, we just entered what's called the seasonal period of crypto summer. There's this four-year cycle around something called the halving, which is where the block rewards for the Bitcoin blockchain change every four years. That causes a period of accumulation going into that. That event will occur next April. That's called crypto summer. Then we usually get a speculative blow off after the halving event and then an overreaction on the downside called crypto winter. So, you know, last week, June 15th was kind of the bridge into the 10 months coming into the halving. It just happened to coincide with BlackRock announcing their ETF. And we're up, I think, 14, 15 percent since that

announcement. But I think the rally is just beginning over the next year. I'm just not convinced that this matters in a boldface way. I mean, it seems to me that crypto and Web3 kind of lost the narrative. This was supposed to be the future of finance and the future of, you know, technology. A lot of people, the future of commerce, a lot of people were saying, now that narrative has moved to AI and crypto is sort of more in the metaverse bin. Why is that wrong?

And does this move and others like it that we're talking about today, does that move crypto and Bitcoin specifically any closer to being in charge of the narrative again? Well, I think I think the narrative's actually completely wrong. The idea that the digital assets are in the waste bin seems kind of silly to me. We're talking about a $1.2 trillion asset from zero 14 years ago, half a trillion in Bitcoin alone. Well, but we're not talking about, we're not talking about NFTs or virtual real estate in the same way anymore. People aren't trying to get by the virtual place next to Snoop

Dogg's house. Like people are concerned about actual commercial real estate right now. Well, no, that's been the whole point all along, right? Blockchain technology is one of the four pillars of the digital age, the ABCDs, as we call them. That's AI, blockchain technology, computer chips, and data. Those four things are transforming the way we store and exchange value. The same way that media was completely disrupted by the internet and the value of the biggest media assets went to new assets, the same thing's happening in financial services. It's a long process. It doesn't happen overnight. It happens over decades. But every stock, every bond, every currency, every commodity, every piece of art, every private business, every piece of real estate will eventually be a token on a blockchain, an entry on a ledger, permanent and immutable. We will have truth instead of trust.

And we will save over $7 trillion a year. 6% to 8% of global GDP is wasted by the friction of the trust industry that's necessary when you have dual entry accounting with triple entry accounting, which is what a blockchain is. We get rid of all of that friction. It's a beautiful future. So so I wonder, then, if it's Bitcoin and everything else when as an investor such as yourself in this space and when you are talking about things like blockchain and you are talking about the ledger and you are talking also about how the asset class overall is regulated when the SEC is cracking down on so many of these tokens. But Bitcoin, at least for now, very explicitly is regulated as a commodity. Right. Well, look, Bitcoin is

is digital gold. It is taking the place of what gold did for 5,000 years, right? There's only one money in the world. That's gold. Money is an asset that exists in the absence of a liability. Gold has played that role. It sits at the base layer of currency. Currency, backed by debt created by governments to facilitate commerce, sits on top of money, gold. And for 5,000 years, gold's done a good job.

But gold isn't portable and it's not divisible. Bitcoin, a permanent immutable ledger, does play that role as a base layer of new money going forward we'll build the future of finance on top of that. The other things beyond that, like Ethereum or some of the other applications of blockchain technology, may have a role. I think of Ethereum more as a fiat currency replacement per chance, or like CBDCs. So very different roles.

We will see how it unfolds. Mark, thank you. No, thanks for having me, guys. And up next, the CEO of RoboAdvisor Betterment on the trends she's seeing among retail investors and whether her firm is still seeing big inflows. And as we head to break, take a look at some notable names hitting 52-week highs, Palo Alto Networks, XPO Logistics, Dell, and Eli Lilly. Stay with us. Welcome back to Overtime. Some fresh data on retail investors. Despite the markets that started the year, they are increasingly optimistic over the state of their personal financial outlook for 2023. That's according to a new survey from Betterment, an online robo-investment platform. Joining us

now is Sarah Levy, the CEO of Betterment. Sarah, great to have you back on the show. Break down the results of this survey for me, because we have seen a fast and furious shift in sentiment in this market right now, and I really want to know how retail investors are participating in that. Great. So thanks again for having me. So we surveyed 1,200 investors who had both 401ks and some other investing across generations, which I think was pretty interesting to sort of tease out the difference. And overwhelmingly, I think we were really excited, number one, to see incredible optimism with more than 60% of respondents saying they're optimistic about the financial future into 23. But we also learned that there are some differences by generation that we think are

pretty interesting with everybody focused on the long term, which I think is also exciting for us as we think about retirement and long-term savings as really the goals that we put forward to our customers. Yeah, one of the things you've come on the show and talked a little bit about is your cash product and how successful it's been. And as we have focused week after week on bank deposit data and this deposit flight to higher yielding products, How is that performing? So cash is a huge story, I think, both in the survey and in terms of flows, right? In the survey, what we heard is eight out of 10 customers, including more so even with millennials, are saying they're increasing their cash balances and seeing that as really the anchor of an

investing strategy. And we're absolutely seeing that. So we had record high inflows in first quarter. And in second quarter, we're on pace to match those record high inflows with May as possibly our best new customer number yet as it relates to folks adopting our product. Sarah, is this technology, and I don't just mean Betterment, I mean things like mobile that make it easier to move cash into the market, is it helping retail investors beat our bad habits?

Are we seeing in a way that perhaps we didn't before when the market's down like it was at the end of last year, people actually putting money in as opposed to pulling money out? And are people maybe less chasing rallies than they were before or no? Well, I think you've got a cash story and you've got an investing story. So I would say sort of yes all around. The cash story, I think mobile and digital definitely is accelerating people's interest in, you know, putting cash away and saving. But I think that that is really about rate, right? And that question, there's safety, which they're looking for, and they're looking for rate, which is the big banks are frequently, you know, giving pretty low rates. We're offering

four and a half percent as an example. There are a lot of other digital competitors offering kind of similar high rates. And so people are putting money there. If you think about investing and if you're sort of making a comparison to like the days of the meme stocks, John, I think your assertion is exactly right, which is people are staying the course. And we're seeing in particular with long term investing. So in particular with retirement, people are staying. Why are they staying the course? Are you able to see from the mechanics, from the software, what it is that's helping people to make smarter decisions? Is it believed in set a plan, stay the course. And that's, you know, from the beginning, what we've preached, one of the great things about this survey that we just fielded is that what we heard back from, and these weren't just our customers, these were retail investors generally, is that they're coming around to this idea that

the long-term is important, saving is important, saving for retirement specifically is important. And all of these themes, including diversification, are really the themes we've always preached. So I think from where we sit, we think our customers are just staying the course because they always had. I think the other thing that's happened to customers who perhaps weren't our customers is they got burned because it's not as easy when markets are volatile to beat the market. And so you've got to be a professional. And I think the average investor is learning how hard that can be. You know, you come on, you know, we talked about investing trends and the retail investor. We don't always talk about what's going on at Betterment

itself specifically. And just given the fact that you are this tech first platform that's enabling investing, I wonder what that means in terms of employee benefits and also in terms of the advisory business, two areas that I know you're going after aggressively and maybe could enable more opportunity in parts of the market where the bigger players aren't necessarily focused? Yeah, so I love that question. When you think about both the advisor market and the workplace solutions market, I think enterprises are incredibly well served by big benefits providers and big custodians, but there's this sort of middle market player that is left behind. And this is where technology can be incredibly impactful. So we think about the Schwab TD merger on the advisor side as one

opportunity where technology can really enable a midsize RIA, a smaller RIA trying to scale their business. And now is really an interesting time to think about what could a custodian plus offer them that is sort of digital first and really built from the ground up versus working backwards from an older technology. So that's the opportunity on the advisor side. I think there's a similar and analogous opportunity that we see and that we've been really successful at kind of cracking the code on, which is how do you help employers help their employees beyond just a 401k? It starts with a 401k and retirement is important, but you have lots of employees and a diverse workforce at different places on their journey. Think about student loans, right? Just as an

example, right now, you've had a moratorium. That moratorium will go away. How can we as a technology provider help employers to enable their employees to just make overall better financial decisions for their long-term health? And that, to me, is a really powerful and exciting opportunity for us. All right. Look forward to discussing it more in the future. Then Sarah Levy, CEO of Betterment, thanks for being with us. You're having me. Time for a CNBC News Update with Pippa Stevens. Hi, Pippa.

Hey, Morgan. Well, the frantic search for the missing Titanic Taurus sub is over. U.S. Coast Guard officials say debris from the sub was discovered today about 1,600 feet from the bow of the sunken Titanic and that it's consistent with a catastrophic implosion of the vessel. Officials say they hope the discovery will bring solace to the families of the five people who perished on board. It is a difficult day for all of us, and it's especially difficult for the families, and our thoughts are with the families. TikTok is shaking up its leadership team in the U.S. Chief Operating Officer Vanessa Pappas, who goes by V, is stepping down from the role. Meanwhile, longtime Disney spokesperson Xenia Muka joins the company as Chief Brand and Communications Officer.

The U.S. government will require heavy trucks and buses to adopt new emergency braking equipment within the next five years. It's part of an effort to reduce severe rear-end crashes and other accidents where the driver loses control. U.S. safety officials estimate the change will prevent nearly 20,000 crashes and save at least 155 lives each year. John, back to you. Thank you. Now, the home construction ETF hitting the highest level since January of 2022 yesterday. But our next guest thinks it's not too late to get in on housing. She's going to reveal her top picks as well as some under the radar opportunities in real estate straight ahead. Welcome back to Overtime. The home construction ETF ITB

hitting 52-week highs yesterday. Names like Pulte Group and D.R. Horton up double digits this year. Meanwhile, Starwood Capital CEO Barry Sternlich said on Squawk Box this morning, the real estate market in general is healthy, except for the U.S. office market. But our next guest sees the office sector as a bright spot in certain regions. Let's bring in Nuveen Real Estate Global CIO and head of investments, Carly Tripp. Welcome. So I guess the fear is that with rates stuck as high as they are, a lot of office landlords just going to hand over the keys to regional banks because their payments are going to go too high when rates reset. You think that's not going to happen or it's only going to happen in certain regions? I think it will only happen in certain

regions. And thanks for having me today. Happy to be here. So what we're seeing in the U.S. obviously is a lot of distress in office, both in public REITs and on the private side. But that story is layered and it's layered internationally as well. We're seeing very, very strong demand and usage for office in places like Paris Central Business District. We're also seeing in Asia-Pac where culturally it's really, really important to be at your office every day for career progression. Places like Singapore are actually transitioning and repositioning hotels into office. So the complete opposite from what we're seeing in the U.S. Even here in the U.S., the story is layered.

I hate to paint a binary lose or win brush for anything, but looking at a market like New York City, one of the largest office markets in the world, we have 90 million square feet of vacancy. But you peel that onion back and what you'll find is that newer vintage product built 2015 and later is actually only at a vacancy of less than 5%. Miami is another example where we've seen tons of population migration, obviously corporate relocations, as you all know. Miami office rents continue to outpace any historical norms, continue to peak. So there is value in office. You just need to know where to look. So are we going to see a fire sale and an old office then? How should investors think about by market and by age of building, what's going to happen? Well, you know, investors have been waiting around for distress. I know a

lot of large investors, they want to pick their moment. They want to invest in distress. Distress is here in office. What creates a distress market is, of course, something is selling that no one wants, right? And so within office, there will be foreclosures, there will be continued distress. But however, if you look particularly at a public to private arbitrage, some of these coastal gateway office REITs are trading where they were in the early 90s and trading at 80% discounts off of peak. So again, I do not think there's a fire sale, but I do think there's a lot of distress. However, smart investors can take advantage of it. Interesting. We were just showing a graphic up on our air of different

opportunities in real estate, and one of them was self-storage. We don't talk about it very much. This got my attention. Why do you think this is compelling? Self-storage is compelling for a few reasons. Number one, it's not institutionalized quite yet in the US, which means it's been a very fragmented, localized business. There is an aggregation play. It's easier today than it was 10 years ago because of technology. So that is something that large institutional patient investors can take advantage of. You can go in at stronger yields than other real estate. You can aggregate, you can sell portfolios at compressed yields. In addition, it's non-cyclical. It is not tied to GDP. It is not tied to the broader real estate market. What we have seen is self-storage outperform any other

real estate sector 80% of the time over the last 10 years. So definitely not a subsector to ignore. Is it a similar situation where health care is concerned? Absolutely. So health care, a little bit of an easier story to wrap your mind around. We all know the story here. Aging population by 2060, one in four Americans will be over the age of 65. That's compared to one in six Americans today. What that has translated to is an increase in health care spending. The estimate is that health care spending will continue to increase at a pace of 5% per annum

through 2030. What that's resulting in is a lot of demand for medical office. And lastly, I would say the tenancy within medical office is really, really high credit. It's doctors that invest a lot of money into their space. They stay there for a long time, typically their entire career, 20 to 30 years. And that is less costly for a landlord. So very, very sticky revenue stream with downside protection. All right, Carly Tripp, thanks for joining us. Thank you.

Up next, Mike Santoli looks at a new recession warning sign that could mean and what that could mean, I should say, for the market and for your money. Stay with us. Welcome back to Overtime. Leading economic indicators continue to point to a recession ahead, but is GDP weakness already priced in by the markets? Mike Santoli's back with his take. Mike? Yeah, John, two of the biggest questions in the market. I think it was the 14th straight month that the LEI was negative. It actually had already crossed below the threshold, which historically in past cycles

has meant that the economy was perhaps in a recession or soon would be. That's about a negative 0.4 percent. So we're clear of that. What I do want to highlight, though, is the gap between GDP declines in a recession, the magnitude of those declines and where LEI was. If you look here at the early 2000s recession, which is generally viewed as a relatively mild one, it didn't directly hit households as hard, say, as the global financial crisis. You see this big gap right here. We're about at the same level of the leading economic indicators. And you had this relatively muted decline in overall activity. Now, unemployment still went up from like 4 percent to almost 6 percent%. So it's nothing to be dismissed. But I do think whether we're priced for something like a further slowdown

or a potential formal recession is worth asking. Some have said the 25% decline in stocks last year essentially discounted it. I look at a basket of, you know, proxies for the economy, such as Capital One, Whirlpool, Best Buy, GM, all those stocks are still 40 or 60 percent down over the past two years. So the market clearly has registered this possibility. Meanwhile, the growth stocks support the indexes. So still got to watch it. It's an unusual cycle. We don't know if it's going to play out as as it always has, Morgan, but we monitor. OK, I got a two part question for you. A, has LEI ever been wrong? And B, even if you were to see something similar to play out to 2000, I mean, the stock market had a really painful couple of years, despite how shallow that recession was. No, it did. Oh, it absolutely did. You're 100 percent right now.

The market arguably was well more overvalued going into that. And really, the excesses in the economy were in overinvestment in the areas that the stock market had valued most highly. So there's no doubt about it that the financial markets don't necessarily shrug off even a mild recession. I don't think the LEI has ever been wrong when it's been on a down streak like this. Maybe the asterisk here is inflation is still running where it's running, right? Four percent. Maybe it's going down to three or lower than that, which means that, you know, nominal GDP growth, because we're talking about real growth here, is still positive. And it still seems like it's parts of the economy that are suffering, not the whole thing at once.

So there is still this escape hatch of there haven't been that many cycles. It might not be statistically significant or it could formally become a recession. Maybe it's already won. Who knows? And we may have been able to more or less metabolize it already through the markets. We don't know. Do we normally have this many recession type indicators conflicting with each other? I wouldn't say so, although I'm not sure how much they're conflicting. I mean, people will tell you that the negative yield curve plus the leading economic indicators, plus, you know, the overall stock market going down more than 25 percent, you know, those things together seem to historically suggest that you're going to have some kind of recession. But I do fall back on the fact that there just haven't been that many cycles. And this has been a really unusual one because the heights

of activity we're falling from, given all the stimulus and the velocity of the comeback from the pandemic crash, maybe makes things a little bit tougher or maybe just longer to play out. Mike, we gave you some nicknames yesterday. I mean, the ball's in your court. I'm trying to settle on one for you, Morgan, I promise. You know, I'm waiting to hear back from Standards and Practices, see what, you know, what makes sense here. Oh, okay. Mike Santoli. Thank you. The maestro. Up next, the man who developed SpaceX's reusable rocket engines. Why space could help solve the growing power needs of artificial intelligence. We're going to break that down after this break. Welcome back. It's Thursday, so cue the QR code.

On the other hand day, you can sign up also by typing in CNBC.com slash OTOH because there's a newsletter. Latest installment is going out in just a little bit. This week's debate, are investors wise to abandon bonds? Because even now, investors are leaning away from bonds towards stocks more than usual. I did the debate live this morning on Squawk, and you can get it in your inbox now. You love this topic, so I'm really excited to dig deeper into your newsletter on it. Thank you. Well, meantime, Elon Musk may get much of the attention, but the story of SpaceX actually hinges on a collection of key figures.

Take Tom Mueller, or employee number one. He ran propulsion at SpaceX, developing the rocket engines that power the Falcon 9 and the Dragon capsule, helping to crack the code on reusability, which SpaceX has pioneered and which has driven launch costs lower. Mueller has since retired from SpaceX to start his own company. I decided where the business is really at is in space. You know, I mean, the whole point of SpaceX

is to move payloads into space. And with Starship coming online, able to take a hundred tons at a time, I realized there's gonna be huge opportunity for moving things around in space. So I started Impulse, which builds a spacecraft, sort of like tugs in space, that can move cargo to different orbits. Impulse Space is moving quickly. Its first spacecraft is set to launch on, what else, a Falcon 9 this fall. But the famed engineer also laid out where he thinks the space economy is headed, and some of it may be driven by the AI boom.

I want to see manufacturing in space, offloading the resource uses on the planet Earth. A good example is compute, especially now with AI coming on strong, crypto. It's predicted that the amount of power just to run compute by about 2045 will be equal to all the power we use right now on the planet. And imagine it's going up exponentially. So at some point, it's going to make more sense to do compute in space to just build giant solar fields in space and use that power and computers basically on on spacecraft in space and and and then beam down the result. Now, to be sure sure that's still a quote weighs out. We're probably talking years, many years. But the whole conversation can be found on this week's episode of Manifest Space, available wherever you get your podcasts.

John, I thought you would appreciate that part of the discussion, given your deep-seated knowledge of all things tech-related. And space tugs, just kind of a fascinating concept. Isn't that cool? Yeah, looking forward to that. Up next, an early stage investor on how the FTC's fight against mega cap tech companies could end up hurting tech startups the most. We'll come right back. Welcome back. The FTC going after big tech lately, including suing Amazon this week. The Microsoft Activision acquisition trial kicks off today also. But when elephants get sued, will smaller tech companies get trampled?

Joining us now is Sarah Kuntz, managing director of Clio Capital. Sarah, welcome. So, I mean, I can see the possibility here that bigger companies will be able to buy less because of this situation. But aren't we already in an economic situation where startups have to be able to survive on their own? You know, the reality is that it went from living off of VC dollars to not very quickly for these startups. And so, you know, particularly for later stage startups who have really struggled to continue to raise, you know, new rounds of funding as the tiger globals of the world, you know, kind of get out of the venture investing business. They've been having a hard time. And normally when companies have a hard time, they can test the M&A market. But the reality is, even though these big tech companies have tons of dry

powder, they have the cash to buy things, they are understandably nervous because Lena Kahn has a war hammer and she's not afraid to use it. It's just incredibly hard right now to get acquisitions through. We saw that with Figma and Adobe. We're seeing that a little bit with Activision and Microsoft. And so these big tech companies just aren't buying like they normally would at this point in the cycle. But is that so bad? It's Thursday. So I'm taking the other side with special vigor. I mean, one could argue you need a robust regulatory apparatus to keep the market healthy. And if that means some startups that were maybe overextending spending too much right now have to make cuts so they can survive because they can't count on a

bigger company buying them, well, that's OK. You know, I am a big fan of sensible regulation. I think that, you know, you need it. You know, the reality is, though, when you dig into some of these regulatory issues, you know, a huge problem that Microsoft is running into, especially in the UK with their acquisition is the concern that, you know, cloud gaming might not be competitive enough. And that's not even a sector that really exists yet. And so, you know, we're talking about acquisitions that, you know, are, yes, big companies, but spaces where they're not going to then be the incumbent, right? In gaming, that's companies like Sony. You know, are, yes, big companies, but spaces where they're not going to then be the incumbent, right? In gaming, that's companies like Sony. You know, I struggle to sort of understand some

of that underlying logic. And then when it comes to the companies they're buying, particularly the earlier stage startups, you know, if those companies don't get acquired, a lot of them will eventually go out of business. And that means, you know, people are losing jobs and that is not great for the economy. And it's certainly terrible for those individual people. And so, yes, you know, regulation is great. But regulation for regulation's sake, I think, can feel a little bit like overreach. Sarah, I was literally having this conversation with a CEO just earlier today. And I think it's a key perspective that is sometimes missing from these conversations. And I realize every deal is

different, but it tends to be maybe the small or medium-sized business or the startup that loses out because they missed their exit window. So what do you do right now if you are one of these smaller businesses? I mean, does this actually make the IPO market, that pipeline, perhaps more compelling to names that in a different market environment, in a different regulatory environment, would have waited longer? Well, that's the other piece of it, right? Usually when it comes to exits, you're either exiting via an acquisition or you're exiting via an IPO. The IPO market's been very, very quiet because of this higher interest rate environment. People don't have money to splash around on IPOs. We've seen a couple of them. We've seen the CABA IPO recently, but it's been

an incredibly slow IPO market on one hand. And then on the other hand, M&A is much harder because of this regulatory environment. So these companies are sort of caught between this rock and hard place where both of their sort of liquidity windows or options are closed off a little bit right now. And, you know, not really through fault of their own, through sort of two different sets of economic drivers and regulatory drivers. They're just a little bit stuck. And so, you know, if the IPO window starts to open back up, I do think you'll see a lot of companies line up, but they're going to have to be the bigger ones, the stripes in the arms. Yeah. And the Navans, as we've talked about here as well. Sarah Kuntz, thank you.

Kind of goes back to the conversation we've had about private equity and opportunities there for folks that have maybe built up their war chest. Just taking a look at the markets, John, I mean, the Dow finishing down four, almost five points, but the S&P and NASDAQ higher. Flash PMIs, CarMax earnings, that's what's in focus tomorrow. NASDAQ is right back where it was about a week ago. So, you know, things felt like they were moving down, but not so much. And that's going to do it for overtime.

Fast money begins right now.