Closing Bell - Closing Bell: Overtime: FBI Director On How Generative AI Is Changing The Playing Field, Coursera CEO On AI Class For CEOs 01/09/24

Episode Date: January 9, 2024

The SEC’s X page was compromised, according to the agency, leading to an erroneous tweet saying Bitcoin ETFs had been approved. First, though, the markets: stocks mostly lower in trading Tuesday. Vital Knowledge’s Adam Crisafulli breaks down where he sees the market headed. Plus, Mercer US CIO Olaolu Aganga on her take on what sectors are set for a 2024 run higher. Coursera CEO Jeff Maggioncalda on his company’s new offering aimed at teaching CEOs on the best way to incorporate AI and Jack in the Box CEO Darin Harris on its spending plans. Geoffroy van Raemdonck, Neiman Marcus CEO, talks the high-end consumer. Plus, Morgan sits down with FBI Director Christopher Wray and NSA Director Gen. Paul Nakasone on the cyber threat from China and how generative AI is changing the playing field.

Looking a little bit like a mixed picture here today as the Nasdaq ekes out the slightest gain, but the Dow and the S&P end the day lower after the rally we saw yesterday. That is the scorecard on Wall Street. The action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan, back with John Fort. Good to have you back. And it was another tough day on Wall Street as stocks struggle for direction. The 10-year Treasury yield above 4%. Coming up, Mercer's chief U.S. chief investment officer is going to weigh in on how to put money to work in this environment and the sectors she thinks look attractive. Plus, a pair of big interviews on the health

of the consumer. The CEOs of Jack in the Box and Neiman Marcus on whether they are seeing any warning signs of slowing spending. Now let's get more on this volatile day on Wall Street. Mike Santoli joins us from the New York Stock Exchange. Mike, so far this year, utilities, comm service, especially health care, have actually been in the green sector wise. But it's hard to read exactly what investors think is happening. Yeah, John, there's been some reach for some of the neglected stocks of 2023, but in general, it has been a lot of sort of offsetting action. Just because we happen to come into the year

on this incredible hot streak, nine straight up days, up 17% in the S&P in a straight line, there has been this prolonged hangover, I would argue, from the start of the year. And today, too, you had a flat NASDAQ, S&P minimal declines, but you had twice as many stocks down than up. The Russell 2000 was down 1%. The Equal Weight S&P gave up basically more than half of yesterday's gain. So that's not to say it was a bloodbath. It just tells you that the market is still trying to retrench just a

little bit from being stretched as we wait the inflation numbers and the start of earnings season. Small caps, I realize, still higher on the week two days into this new trading week. But we have seen, after we saw such a voracious rally for the Russell 2000 in recent weeks, that really is taking a pause in a much bigger way. How much to make of this small cap comeback? Wishful thinking. Is it wishful thinking?

I mean, I think there's some basis for it, Morgan, not just a matter of hoping and wishing that it comes true that you have some small cap outperformance. You have had just the pronounced underperformance from so long. Mean reversion should get them a little bit of catch up action. Valuation looks like they are advantaged. And obviously, any time we think that the Fed might be cutting or that financial conditions are going to loosen, they should be beneficiaries. But the reason they are backsliding a little more than the broad market is they are beta. They are the more faster-moving,

aggressive, more volatile parts of the market. And I think there's a little less conviction there. One of the reasons for the dominance of the mega cap growth stocks is the predictability of earnings, the fact that our economy seems to be geared toward winner take most industries. So it's not just about fashion and preference for larger companies. They actually do have perhaps more repeatable profitability. And of course, we saw that play out in terms of trading activity today. Mike Santoli, stay close. We'll see you again in just a few moments. Let's continue with a market conversation with the Vital Knowledge founder, Adam Crisafulli, though. Adam, it's great to have you back on. OK, we can talk about CHOP and consolidation

and digestion of the fourth quarter rally that we did see in equities. But is the trajectory more naturally higher from here? Maybe not in the near term, but over the medium term? Yeah, I think it is. I think that you have, you know, the big powerful forces from Q4, a lot of them are still in place. So you have resilient earnings. Now, I think there's an important distinction, which I'll touch on in a moment, between revenue and earnings. So resilient earnings, you have disinflation.

And then on back of the disinflation, you have this big pivot in monetary policy. After two years of aggressive tightening, you're now going to have the start of monetary easing. On the earnings front, so that's kind of what we're going up on to in the near term as we get into the Q4 reporting period. You are going to see some revenue pressure because of disinflation, because of cooler growth. Companies are able to pull various different operating levers, including cutting costs, to help preserve earnings. But there are going to be some revenue hiccups. So we saw this late last year with Nike, with FedEx,

as companies go through this new phase in the economy where price pressures are picking up and growth is slowing. But I do think that earnings will stay resilient. So I think that you're going to see the S&P above 5,000 by the spring. But like I said, there might be some hiccup as we get into this earnings season coming up with revenue. The pivot piece of this, I mean, UBS coming out this week saying the pivot's fully priced. The market is now left vulnerable. Do you see it the same way in terms of that part of the equation and the role that the bond market is playing in terms of giving its cues to the equity market?

I think a big part of it's price, but there's still more to go. You know, like I said, I think we've had two years of aggressive monetary tightening. In that time, the S&P hasn't moved at all on an absolute basis and it's down meaningfully on a real basis. So as that turns and it's turning globally everywhere except for really Japan, you're going to see central banks ease policy. And I think that's going to be a powerful tailwind. And it's not just on the funds rate. It's also going to be on quantitative tightening. And that's really been entering the monetary conversation in just the last 72 hours, call it, where you had an important comment over the weekend from Fed official Logan

talking about how quantitative tightening, we're nearing the point where it could be slowed. The Fed's going to start to provide a lot more granular guidance on how that will unfold over the course of the year. And that's another important piece to the monetary easing story. Adam, walk through this one with me, if you will, having to do really with bonds. It seems like it's more likely than before the Fed's not going to raise rates meaningfully. And we're probably unlikely to revisit October's highs for the 10-year yield. So in that case, what should investors do with bonds? Pick your duration.

And then, yeah, I guess what does that mean for the stock market eventually? But fixed income, I don't think we spend enough time on that. I think that bond yields have further downside to go. And really, it's just going to be a function of the economy. I think you're going to have cooling growth coupled with ongoing disinflation, and that will help to fuel a lot of what you saw in Q4. So rallying bonds and then a rally in equities. We're getting the CPI on Thursday. We're in this interesting period where headline CPI is going to reaccelerate a little bit. You saw that in

Europe last week in December. And it's expected for the headline CPI on Thursday. But core disinflation is continuing. And this reacceleration in the headline is probably just going to be a temporary blip. And as we look out over the coming months and quarters, you're going to see that number continue to drift lower, too. And that should place downside pressure on yields. The quantitative tightening also is going to be another tailwind for equities, for bonds, which would help push yields lower. On the fiscal front, fiscal issuance is going to stay very heavy. And that's going to be an offset. So you had a decent auction today. We get a 10-year auction tomorrow and a 30-year auction on Thursday.

And you're seeing in Washington, there's really not any action being taken to meaningfully curb the deficit. So the issuance is going to stay very heavy, but you are going to see an offset on as far as the Fed's balance sheet is concerned. OK. Other items for us to watch then as potential catalysts for stocks. Adam Crisofulli, thanks for joining us. With the Dow finishing the day down 158 points, the S&P fractionally lower, 47.56 is a level there. Let's get back to Mike Santoli for his first dashboard. Mike.

Yeah, Morgan, trying to situate this current rally in a longer-term frame, about 15 years' worth, actually, to show that we're now basically in the middle of this trend path that we've been in since right after the global financial crisis. So the vast majority of the time over this period you spent in this channel, and you see the massive downside overshoot in early 2009 at the end of the great financial crisis. This also, of course, was the COVID crash. And then interestingly, also in 2021, you kind of overshot to the upside, got way ahead of ourselves, a lot of that unwound into the downturn in 2022. And then we bottomed last October just about on

the lower end of it. So there's no magic to this. It's just effectively a way of saying that nothing particularly unusual has gone on in terms of the endpoint where we've gotten to here. We're also perhaps not super stressed if we were to rush all the way to the top of this lane right here at something in the 5200 area, which is not crazy. It's, you know, less than a 10 percent move from here. Now, take a look at one reason why there's an argument that we have some cushioning in the system against either higher rates or an economic slowdown greater than we're expecting. This from Bank of America is the percentage of corporate interest cost as a percentage of profits. So you

see it's basically historic lows. This goes all the way back to World War II. Now, this is net interest, so it basically means interest costs, less interest on the cash that companies have. So that's one of the big reasons. Some huge companies with not much debt but a lot of cash. But it still suggests that we shouldn't necessarily expect a huge wave of defaults and stress in the system, even if a lot of those loans do have to reset at higher

rates in the next year or two. It's really fantastic context. And I don't think we're talking about that element here enough. But it also raises the question, is this the counterside of this? Is the argument that some of that debt is now going to reset? And yes, we're not at the peak rates that we were at maybe in the second half of last year, but we're still at these elevated rates. And that's part of the argument for why all the Fed's tightening hasn't fully been realized within the economy. Definitely. We absolutely are going to have that work its way through the system because we did have a lot of refinancing on the corporate level, with rates near zero in 2020, 2021.

So that stuff's going to roll off. It's going to reset higher. But again, it just suggests that it's manageable in aggregate, even if they're obviously going to be some companies, you know, left without a chair when the music stops. All right. Mike Santoli, see you again in just a bit. For now, up next, Mercer's U.S. Chief Investment Officer tells us which sectors present the biggest opportunities right now. And shares of Jack in the Box under pressure after announcing it will spend more money this year on re-franchising. The fast food chain's CEO joins us to discuss that, as well as the outlook for food prices and so much more. That's coming up on Overtime. Stay with us. Welcome back to Overtime. Bumpy day on Wall Street today. The Nasdaq closing just barely in the green. Here to share what we can expect from the market and the broader economy in 2024 is Olalu Oganga, Mercer's U.S. Chief Investment Officer.

Olalu, great to have you back. Thank you for having me. So we're looking at this year and you're allocating away from U.S. equities. You prefer emerging markets, Japan and global REITs. Why? Correct. Now, I mean, clearly U.S. equities had an amazing 2023 was up probably what, 26 percent. That was fantastic. I don't know if anyone started off 23 thinking that was going to be the case. I think we're all calling for some version of recession, frankly. But if you look at 2024, given where valuation's now today, is it going to continue? I think we're frankly looking at some of the unloved areas. So REITs down 20 percent from the peak of 2021. We think that's overdone. So REITs as a sector, why is it sold off so much?

Because there are fears of exposures to office and the office sector and then where they're getting their financing from. But if you were to look at the composition of REITs, there actually isn't that much exposure to office. So single digits, maybe 8 percent if you go across a number of different indices. And where do they get the financing from? The bond markets. So we think the sell-off is overdone. We've leaned into some of those unloved areas. Emerging markets happens to be one of them, ties into our outlook. So growth, for example, in the U.S. has done really well.

Areas like China have struggled a bit. But if you were to take a step back now and see where the value is, China and a number of those emerging market areas are presenting deep value. So this brings me back to something I was raising earlier, which is this area of known knowns. It seems more likely now that the Fed's not going to raise any time soon, that we're not going to be back at, you know, 5 percent on the 10-year yield. So does that factor into how you feel about REITs and how should investors think about, if we can agree mostly on that, that that's high likelihood, what they should find more attractive. Absolutely.

So this would be, what, the third at the end of the year, third consecutive meeting that the Fed left rates untouched. Now, if you were to look at market pricing, maybe there was some aggressive pricing that we're starting to see rate cuts as early as March. Frankly, yes, we agree with rate cuts, but we think it's probably more call it middle of the year that you could see some of that. Now, with the rate cuts that we're expecting in the U.S., lower inflation, of course, we think that the equity markets could remain, for the most part, in line. There's a lot that's moved with regards to AI technology. We saw that continue to ramp up in 23. There could be some element of 24. So the beaten down value sectors, I know we just talked about REITs, but I'll just reiterate that as some of the areas. You have to go beneath the surface, frankly, to start looking at valuation there. REITs is one of them. And then

within fixed income, we have high yields. So the global high yield area looks attractive. High yields at like 8 percent for the most part. But we think there's some, frankly, relative value plays that exist. As a long term asset owners, we focus on asset allocation and allocating to funds. But we do migrate the portfolios tactically speaking. Last time you were on with us, you talked about shifting some exposure from public equities to private markets. Is that a playbook that still works in 2024? Yes, very much so. These are, as you mentioned, long-term plays. We are looking at forward calendars today. There are many, many funds that are coming to markets across. We talked about infrastructure, I believe, real estate,

some of the value ad plays. You're seeing distressed opportunities and valuations even in private markets. And with investors such as ourselves that have long-term holding periods, very, very much a focus. And private credit as well. And we're having this conversation. It sounds like you're in the soft landing camp.

Is that right to assume? And heaven forbid it's not a soft landing. Heaven forbid this is the year we get a recession. How does all of this investment thesis play out? So that is not our base case with regards to having a recession. Twenty-three, that was the call. And we saw how the markets played out. There have been gradual rate hikes.

And then obviously the last ending of the year, it was a series of pauses. But as we're looking at 24, as we look at risks, we have 60 countries that are having elections this year. So there's a lot of, you know, we're already in a heightened geopolitical environment. But there's a lot that's riding on 24 as a big year where policymakers need to be really careful. What are you doing with crypto? Oh, my goodness. Institutional investors and crypto is probably night and day.

It doesn't necessarily fall in with the segments that we are looking at. But crypto is one that right now is on a tier, but it's unfortunately had a rough few years up until now. But it's one that's love, not love, but in institutional portfolios, it's not common holding. I didn't think so, but we're about to talk about it. So I figured I'd take the temperature. Yeah, we're anticipating some sort of news, potentially some sort of approvals around Bitcoin spot ETFs, which could change the calculus in terms of this conversation from an institutional standpoint to John's point. I want to go back to something you just said, and that is the fact that half the world's population is going to undergo

democratic elections this year. This is historic. It's huge. Obviously, the U.S. is part of that population as well. Is any of this priced into the market? At what point would this matter to investors? Yeah, so we've done studies around that, as you can imagine. We've done a lot of deep research. We've looked at previous election cycles and how markets have performed, even in U.S. when we've had more polarizing times, and arguably maybe we're still in that. Lots of uncertainty, lots of volatility going into that. But what we've seen is it's dissipated very, very quickly and not had longer-term material impacts, both in the U.S. and globally. But to your point, this is historic that this many countries, it's half the world population are

going into either federal or local regional elections. Alalu Agonga. Alalu, great to have you back. Thank you. Online learning platform Coursera just launching a new course, helping CEOs to navigate generative AI, including the risks and rewards to shareholders. The company's CEO, that's Coursera's CEO, joins us next. And check out shares of Match Group, one of the top performers in the S&P 500 today, following a report that activist investor Elliott Management is taking a roughly $1 billion stake in the online dating company. Those shares finished up 3%. Stay with us. Breaking news on Bitcoin ETFs, and Kate Rooney has the details for us.

Kate, we've been waiting. We have been waiting. The moment is here. The SEC has officially approved those Bitcoin ETFs. We don't have word on exactly which companies, if this is all of them, but according to the SEC, Securities and Exchange Commission, Twitter account, they have a statement out. They say today the SEC grants approval for Bitcoin ETFs for listing on all registered national securities exchanges.

The approved Bitcoin ETFs will be subject to ongoing surveillance and compliance measures to ensure continued investor protection. Statement here from chair of the SEC, Gary Gensler. He says today's approval enhances market transparency and provides investors with efficient access to digital asset investments within a regulated framework. There are 13 applications out there. Again, it appears as though multiple ETFs have been approved. We'll get you word on the final count. But it appears here, based on that statement, that all systems go for those Bitcoin ETFs listing on U.S. exchanges. But this has been a long-awaited moment for Bitcoin investors, for that market that's seen as really this milestone and legitimizing moment for this volatile asset class. But big moment here, Morgan, back over to you.

All right, Kate Rooney, thank you. Let's bring in Bob Pisani, who's also been covering this. Bob, we saw such a run-up in the price of Bitcoin in the last couple of months ahead of this, and it looks like it's under a little bit of pressure despite the headlines now. Yeah, we have been debating for weeks about whether this is a pull forward event. So two key events moved Bitcoin forward in the last couple of years, both of them around ETFs. In October of 2021, they launched the first Bitcoin futures ETFs. BITO was the very first one.

Bitcoin jumped dramatically in the couple months following that. Then in October of last year, BlackRock announced that they were getting in. They were filed an application for a Bitcoin ETF. And immediately the price went from roughly $30,000 to over $40,000 in a matter of several weeks. So there are two events that pulled forward demand clearly recently from the Black Rock. And the debate has been whether or not this is a sell on the news event. I don't know, but I think it's significant. And while we don't have who's been approved here, the key line here is SEC grants approval for Bitcoin listings on all registered national securities exchanges.

That's the key word, because there are three exchanges involved here. The first is the New York Stock Exchange, the NASDAQ and the CBOE. There are different. There's about a dozen of these products. They're all listed on one of these three exchanges. The fact that they said we've approved in all exchanges, this implies they basically approved all the ones that are in front of them. So I think it's fair to say that most, if not all of them, have been approved. So I think that the big issue say that most, if not all of them, have been approved. So I think that the big issue now are the fees. There's a lot of different ETFs that are going to be out there. There's different fee structures.

I think investors are going to be watching very carefully to see what the fees are and then what the spreads are. How does it trade? Does it trade at some kind of premium to Bitcoin or not? Some people think it will. Some people think it won't. And then after that, you know, what happens from here? What goes next?

How much money is going to be attracted by any of these? John? What's the last time that the market got a new category represented in an ETF? And what's the legacy of that? The last time we got a new category really was the Bitcoin futures ETF. And what's the legacy of that? The last time we got a new category really was the Bitcoin futures ETF. And that was in October of 2021. Here's the real debate right now, John. Is this a real asset class or isn't it? An asset class is stocks, bonds, cash, commodities, real estate. Those are traditional asset classes. Is the existence of a widely respected mechanism,

ETF structure, now give Bitcoin some kind of respectability as a separate asset class? This is very hotly debated. There are people who say absolutely not. It doesn't satisfy a significant use case. It's not money. There are all sorts of debates. And there are others who say, well, yes, and we now have a safer vehicle in which to trade it. I think that's going to be the debate going forward. What you want to look for now is whether institutional players, do the JP Morgans, do the UBSs start saying, OK, we have a little more cover now. We can start offering this or a group of them simply stay away. Do the old term, the old school wire houses stay away from this? And I think you're going to see a split. I think some people are some old school

wire houses are going to stay away from it and others may jump in. It's going to be a very interesting few months, John. Always a split when it comes to Bitcoin and to crypto. Bob and our Kate Rooney, thank you. I would just note we are seemingly seeing a sell the news event for Bitcoin itself, but also some of the so-called Bitcoin equities, the publicly traded proxy stocks, if you will, like Coinbase and MicroStrategy are under pressure right now as well in reaction to this news. Yeah, we'll have to look at what they do tomorrow as well. Well, now the AI stock boost was plain to see last year. NVIDIA up nearly 250 percent in the past year. UBS just called it the tech theme of the decade. But what about the

CEOs who are steering companies looking to expand their AI presence or keep from getting steamrolled by it? EdTech firm Coursera has a new offering to fill that gap. CEO Jeff Magian called us saying in a blog post today he's now offering a class called Navigating Generative AI, a CEO playbook. And he joins us now. Jeff, welcome. So what does this course do? Are you screening to make sure that you see CEO name badges to take it or can anybody sign up? Anybody can sign up, John. I mean, it's great to be here, first of all,

and I'm excited to be launching this course today. You know, it's my first course. I've been a tech CEO for 25 years, and I've never seen something like generative AI. Now, it's not perfect, and it's going to have different impacts in different places, but almost every job role in almost every company is going to be transformed by this. And CEOs, they've got to figure out, like you said, how do

I take advantage of this to create value for my customers and innovate experiences maybe to boost productivity and improve my margins? At the same time there's a lot of uncertainty, there's a lot of risks, there's regulatory issues, there's ethical considerations. And so it's a complex environment to navigate. And so this course just attempts to help them do that. And I brought a lot of experts into the course to help teach it as well. Yeah, from Salesforce, from government, from elsewhere. But your top Gen AI courses right now on Coursera have to do with engineering, how to build it, and just general knowledge. What is it?

This seems more strategic. What are the kinds of issues that CEOs need to understand? Because I understand you're focusing in on how to assess competitive threats and opportunities, how to communicate using Gen AI. Yeah, you know, it is a great point that you're making. Historically, and I think CEOs need to know this, historically we focused a lot on how it works, how AI works. And there's a small team that have been the builders of AI,

and frankly we have 800 courses that have to do with AI, but they've really been mostly for the builders. With Gen AI it's a little bit different. It's not so much how it works, it's more how it's used. So the course talks a little bit about how it works, but it really focuses more on how it's used to unlock value, but also, like you said, adapt your business model and anticipate the changes in all the key elements of your business model so that you can take advantage of the opportunities and mitigate the threats.

One of the things I'm most excited about is we're actually using generative AI in the course as a playground where every business leader, it doesn't have to be just CEOs, basically anybody who sets strategy and is responsible for organizational change and has to navigate an organization can use a hands-on lab, it's a private secure environment, to actually use generative AI to set your generative AI strategy that's tailored to your business. Finally, tell me, what are you seeing in demand for ed tech, for what Coursera actually makes? Because when the labor market is strong, and it's still relatively strong,

people tend to want to go to school less. And when the labor market is weakening, or at least there's a little bit more slack in it than there was before, I wonder if companies are as eager to offer perks like training. Yeah, what you typically see to your point is when the labor market is really strong with traditional residential college, there's an opportunity cost to getting is when the labor market is really strong with traditional residential college, there's an opportunity cost to getting out of the labor market to get your college degree. What we see, though, is when the labor market is strong and there's increasing demand for certain technical skills, if people can learn those technical skills online and not incur the cost of being out of the

market to get those skills, like by doing it online, we've seen tremendous demand. In 2023, we saw someone taking an AI course every minute of 2023. And so I think that's one of the big promises of online education is you can skill up and move your career forward without having to leave the labor market. All right.

Well, thanks for bringing us up to speed. Jeff Madgen called the CEO of Corsair. Thanks, Jim. That's a crazy stat, by the way, every minute. All right, upgen called the CEO of Corsair. Thanks, Jim. That's a crazy stat, by the way, every minute. All right. Up next, the CEO of Jack in the Box on how food and wage inflation as well as supply chain issues are impacting the fast food industry. Welcome back to Overtime. We have more breaking news on the Bitcoin ETF stuff. Kate Rooney has those details. Kate. Morgan, a bit of a twist here. The ETF decision, the SEC now saying that its Twitter and X account

has been compromised. It has not made a decision yet on that Bitcoin ETF. We have a statement here from an SEC spokesperson saying that the SEC Gov Twitter slash X account has been compromised. The unauthorized tweet regarding Bitcoin ETFs was not made by the SEC or its staff. Gary Gensler putting out a similar statement, the chair of the SEC there. But again, it does appear the SEC's account has been compromised and has not yet made a decision on a Bitcoin ETF. It has affected prices here, Morgan, as you guys were talking about. And Bitcoin, at least for now, is still moving to the downside on that, what was potential news, but a compromised account there. And it appears the SEC's Twitter account has been hacked. That news, again, moving prices here. But back over to you guys.

But Gary Gensler's Twitter account, I suppose, has not been hacked so far as we know. The part to me that's weirdest about this, A, we're in a time when we expected the news to come through this account, but then we're hearing about the hack through the same platform where they apparently were hacked. Is there any kind of a press conference or statement outside of X that we can expect to hear? Yes. So I should clarify, John, the statement that we got from the SEC was from an emailed SEC spokesperson here. So we have an emailed statement from the SEC clarifying what's going on on Twitter and X. Although, again, Gary Gensler's account retweeting that and saying, putting

out a similar statement that, yes, that account has been hacked. But taking things away from X and Twitter for a second, we do have an official statement from a verified SEC spokesperson here over email that says we have not made a decision yet. OK. And so I'm just going to reiterate it one more time. It would appear that X has been hacked, that the U.S. government, the SEC, has not been hacked, which in of itself would have been quite interesting since the SEC is also regulating all of these cybersecurity issues and hacks for publics or private sector as well right now. But bottom line, this is not true.

We don't have this. Focus on the SEC website perhaps rather than some of the social media platforms. Exactly. No word yet. And right. It has been compromised. But again, as John mentioned, this was an afternoon in which we expected to potentially get some news around this, if not tomorrow. So it does come on a day when markets were very much pricing this in and expecting this news. So, yeah, absolutely. The timing here is suspicious, but we'll wait for the official SEC email at least. And we're making some calls on this, but we'll keep you posted. All right. Kate Rooney, thank you. Thanks.

We're going to shift gears here. Jack in the Box shares down 5% in today's session. The company, which operates franchises Jack in the Box or brands, I should say, Jack in the Box and Del Taco, plans to spend more this year as it moves to become a more heavily franchised asset like company. Joining us now in an exclusive interview, Jack in the Box CEO Darren Harris. Darren, it's so great to have you on. There's so much to get to. I am going to start with this refranchising push that has been afoot and that you've been employing pretty aggressively and it looks like it continues. What is the financial, I guess, argument for why it's so needed and so compelling for the company now? I think it's all about growth. So for us, it's about becoming an asset light model where we

we sell locations to franchisees who have a desire to build and invest capital for future growth. So for us, it's a it's a model that we think over the next three years we can get to a very 90% or plus franchise model and enables us to continue with our growth strategy. So in terms of, and of course you're joining us from ICR down in Orlando, you updated investors today as well. What are you seeing in terms of consumer appetite, pardon the pun, at Jack in the Box and Del Taco? And how does it speak to how you would assess the health of the consumer right now? Yeah, I think overall what

we're seeing is a consumer who, if they find the right offer at the right time, are willing to come to our restaurants. And we're in a very competitive marketplace in QSR. And so, you know, for us recently, we're excited about a recent rollout of our Smash Jack. We call it the best burger in QSR, and we've got a claim to that. And we're seeing consumers being willing to pay for a really premium product and, you know, something that's differentiated in the market. So I think it's all about a very resilient consumer who is looking for the right offer at the right time. And we've been trying to focus on jack in the box meeting their needs. What about your costs and wages, especially in California with the minimum wage going up? How is that affecting your business?

Yeah, I think overall what we've seen is inflation normalized, you know, and we continue to be within our guide that we've guided the street between 1% to 3% in overall inflation. We are facing AB 1228 in California, where it'll definitely have a wage increase. And we've focused on how do we mitigate costs, but also how do we, you know, take price to make sure that we can manage the business effectively. So that's a labor piece of it. I'm curious about the food inflation piece of it. In a week where we're awaiting the latest CPI report on Thursday, we have started to see food prices or the increases in food prices slow down. Is that what you're seeing within your own cost structure? And how do you expect that trajectory to play out this year? Yeah, as I mentioned, we're meeting

within our guide of one to three percent. And so we have seen some costs come down from related to food inflation. OK, Darren Harris, thank you so much for joining us. The CEO of Jack in the Box. Coming up, we will have much more on the state of the consumer and whether there are any cracks in luxury spending when we are joined by the CEO of Neiman Marcus. Stay with us. Luxury consumer spending fell 15 percent this holiday season. That's according to a new report by Barclays. But up next, the CEO of Neiman Marcus will tell us whether he is seeing shoppers pull back on purchases. Welcome back to Overtime.

Could we see a slowdown in spending among luxury consumers? Well, in a new note from Barclays, gift spending during the holiday season fell below 2022 levels, the biggest slowdown coming from luxury spenders. That slowdown can be seen at luxury retailer Neiman Marcus. The company said early indicators suggest the holiday sales are down low single digits compared to last year. Joining us now is Jeff Roy von Remdunk, the CEO of Neiman Marcus. It's great to have you on. Thanks for being with us. And I do want to start right there. What are you seeing for the holiday season? And if we are talking about sales that are down during the holiday quarter, how does that compare to what we've seen in years prior?

Great to be with you, Morgan, today. When we look at our performance in the holiday, we are in the luxury market. That market is experiencing a slowdown. And it's also a market that is promotional, specifically online. As you mentioned, we experienced low single-digit negatives compared to the prior years, which is still up to compared to 19. When I look at our top customers, our top customers were up, and categories that are more luxury, such as shoes, handbags, and jewelry, were also up compared to last year. So what does that mean in terms of, we just talked about it, the discounting environment in luxury. How much of that is related to inventory mismatches? How much of it is a reflection of higher-end consumers trading down and being

more price conscious than we've seen in the past? I think there's a little bit of the inventory, although in our case, our inventory is pretty much where we would like it to be. And I would think that that might be coming true in the future in the industry. I think where the promotion idea is really happening, it's online and where there's a customer who's been trained over the last year to be more promotional. And I think that's probably going to stay. Now, what we are able to see is that with all the activities we have in stores, the activation we have in stores or stores, stores were relatively flat to the prior year. And that's because we are able to, through our sales associate, do a lot of activations. We had a thousand events. We had 300,000 customers who came to our restaurants and enjoyed the time with

us. And I think those customers are much less price sensitive when they're buying a product, but they're also experiencing an experience. I think you just touched on it a little bit there with that response, but there's been a lot of focus on direct-to-consumer and the growing competition from the brands themselves. How are you navigating that? How are you luring more shoppers, more foot traffic into the actual stores? Well, the brands have seen that the U.S. market is a growing market, and it's been growing. It's relatively more attractive than other markets. So they're investing in this market. They're investing in their own distribution, but they're also investing in selective multi-brand retailers. And for us, we've seen since COVID 800 points of distribution increase with our top luxury brands.

That's 200 points of distribution more last year. We've added 185 new emerging brands. And so the brands are clearly seeing that there are a few retailers who have relationship with their sales through their sales associate with that customer. And they're doubling down with those. We are driving growth for those brands. Our top 20 brands were up 60 percent compared to pre-COVID by the end of July, the end of our fiscal year. And I think that shows that there's different models out there. Some models are winning and the brands are leaning towards those. I mean, our view of driving traffic is very much around leveraging the sales associates.

Our sales associates really know our customers. And last quarter, 23% of our sales were driven by our sales associates selling to customers who were not in the store. So I am going to ask about Saks because there's been a prospective marriage that's been rumored between your company and Saks really for years now. It gained some steam in recent months again with reports of a rejected offer from Saks by you. Are you talking to Sachs? So there's been rumors forever about a potential marriage. I don't speak about speculation or rumors. What I can tell you is that we're not in an open process

to sell the company. The shareholders are investing in our company and in long-term growth. We've put $200 million in our store. We are putting $200 million in our stores. We're investing in our company and in long-term growth. We've put $200 million in our store. We are putting $200 million in our stores. We're investing in our supply chain. And we have strong balance sheet and strong liquidity. Now, if someone is interested in buying the company,

they are always welcome to engage with us. But the shareholder view is we are here for the long-term. There's no urgency to make a transaction. And indicating commitment to our business model and the long-term viability of our company. Okay. Geoffroy von Remdonk, thanks for joining us. The CEO of Neiman Marcus from ICR, I should note.

Thank you. And we have a news alert on Boeing. The Wall Street Journal reporting some details from the employee town hall taking place this afternoon. Boeing CEO David Calhoun reportedly telling employees, quote, we are going to approach this, number one, acknowledging our mistake and saying we're going to approach it with 100 percent and complete transparency every step of the way. He said Boeing engineers are examining the door plug that was found in Portland now, looking for clues about what went wrong. Okay, we continue to monitor that. Up next,

the directors of the NSA and FBI on how generative AI is being used to help protect the American economy and national security. And more on the other side of this break. Welcome back to Overtime. What an hour it's been. We got Bitcoin spot ETF approvals and then quickly right behind it, the news that no, in fact, we did not get those approvals, but that the SEC's X site or account had been hacked. So we talk about it a lot, but cybersecurity hacks, what that threat looks like. I discussed it today as well. I sat down exclusively today with FBI Director Christopher Wray and General Paul Nakasone, the director of the NSA and commander of U.S. Cyber Command, at an event for the CNBC CEO Council. Now, this was a very, very rare, wide-ranging interview

in which we discussed the cybersecurity threat landscape and how that is playing out from a national security standpoint amid activities from U.S. adversaries, including China. So China, you know, by far and away,

the biggest hacking program in the world has stolen more of Americans' personal and corporate data than every nation combined. If you took all of China's cyber hackers and focused them on the U.S., which is their priority, if I took all FBI assets and said, forget Russia, forget Iran, forget cyber criminals, just focus on China, we'd be outnumbered 50 to 1. Wow. So the scale of China's hacking program, both from a cyber espionage perspective, a pre-positioning for in the event of a conflict at some point, and even on the influence side, is very, very significant. We also discussed the

role of generative AI and whether it is creating new risks or just accelerating and proliferating existing ones. Generative AI is as a significant amplifier, both in terms of quantity and sophistication of threats that are already out there. That probably understates it, but that's the way I look at it, as opposed to a threat in its own right. It is a tool that enables a lot of these adversaries we've been talking about, nation states, criminals, others, to have lower barriers to entry, to make their attacks more sophisticated, more credible, more pernicious. And so it raises its own share of challenges for our organizations working together. Because right now, the place where it's most significant, that is generative AI in the world of cyber attacks,

is what I would describe as taking kind of junior varsity athletes and making them varsity. But we are rapidly approaching a stage where the varsity adversaries are going to be able to find enough value from generative AI to take their game to the next level. And that's going to put this partnership at an even higher premium. But that doesn't mean there aren't opportunities as well, especially since most of the leading AI companies are American. Let's talk about the opportunities of generative AI. You know, our adversaries are using U.S. AI capabilities. That tells me that we have the lead in artificial intelligence. We want to maintain that lead. And being able to protect,

you know, intellectual property of businesses, This is where the partnership again comes in. Protect AI. How do we do that in terms of what the National Security Agency does with what the Federal Bureau of Investigation can do? Because this is, you know, this is our future. This is where we're going to have a marked impact in terms of our economy, our national security and other things. So much of the discussion has been on how bad guys can use AI and how we can use AI to defend. But there's a key piece of that, especially in our lane at the FBI, working closely with Paul's folks, which is defending American AI, R&D, American innovation in AI. I think 18 of the 20 most successful AI companies in the world are American and you can bet your bottom dollar That foreign adversaries, especially the Chinese are actively targeting that innovation

That was just a sliver of the conversation We also talked about things like election security and more but that's gonna do it for us here at overtime