Closing Bell - Closing Bell Overtime: Jon Sits Down With Famed Activist Investor Jeff Ubben; How Weight Loss Drugs Will Impact Every Sector 10/5/23

Episode Date: October 5, 2023

Averages closed mostly lower but well off worst levels. 3Fourteen Reseach’s Warren Pies breaks down the market action and where stocks go from here. Earnings and a read on the consumer from Levi Strauss, plus reaction to the numbers from Neuberger Berman analyst Kevin McCarthy. Jon Fortt sits down with hedge fund legend and activist investor Jeff Ubben to talk  Fairlead’s Katie Stockton takes stock on the technical picture of her favorite sector. Cowen’s Michael Nedelcovych on how weight loss drugs could impact a wide range of industries and stocks.

The stock's ending fractionally lower, but pairing the worst of the losses in today's trading, even as Treasury yields edged a little bit lower themselves. That is the scorecard on Wall Street. The action, though, is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan, and John Forts will join us in just a moment with highlights from his conversation with hedge fund founder Jeff Ubbin from Inclusive Capital Partners. And also ahead this hour, Katie Stockton from Fairlead Strategies

breaks down the key levels to watch in the S&P 500 following the latest bout of volatility and the parts of the market that are starting to look oversold. Plus, we'll get a read on consumer demand when Levi reports results. We'll bring you those numbers as soon as they cross. We begin, though, with breaking news on Elon Musk. Contessa Brewer has the details. Contessa.

Morgan, the SEC is suing Musk because they subpoenaed him in September to show up in court in San Francisco to talk about his Twitter deal, and he didn't show up. And so he was supposed to provide agreed-upon testimony, they say, and he didn't show up. And so they have sued him in San Francisco federal court to enforce that subpoena. That's the news. OK. I mean, we know Musk doesn't have a particularly good history with the SEC. I think back to the to the tweet and what happened with regulators there. I mean, any sort of sense or detail around what specifically this could could involve with Musk and Twitter?

Well, they just say that the investigation had focused on Musk's purchase of Twitter stock and his disclosures of his Twitter investment. And so they had sought his testimony. They expected him to show up, respond to that subpoena in September. It seems like there was an expectation that he would and then he didn't. And so now they have sued him in San Francisco federal court to enforce that subpoena. OK, Contessa Brewer, thank you for bringing us the latest. Let's get back to the market. Stocks making a comeback throughout the day. The Nasdaq recovering from an early one percent drop with when yields and oil pulled back. Consumer staples getting hit hard, though, as Clorox and beverage and snacking companies took a leg lower today.

Staples were the worst performing sector in the S&P. Let's bring in CNBC's senior markets commentator, Mike Santoli. Mike, I mean, we actually saw the three major averages trade a little bit higher earlier in the session. Then we saw this big fall, and then we moved back towards the flat line. S&P is a great example. I think at the lows, down 38 points, but finishing the day at 42.58, down just 5.5 points. How to categorize the trading action we saw today and why? Yeah, I would say, Morgan, apprehensive and trying to bring things back into some kind of equilibrium. We're down a couple percent on the average stock this week.

You have the jobs number tomorrow. You have a little bit of the pressure taken off, as you mentioned, from Treasury yields, from oil, from the dollar, this stuff that's really been kind of closing in on the equity market, about 50-50 up and down breath today. So it's really noncommittal, I would say, although mildly encouraging so far that the market has kind of refused to go up much lower. We've been hovering above these very widely watched levels. Whether that's enough of a pullback over nine, let's say eight or nine weeks, when this all started, when we peaked back in late July, is obviously the big question. But we are looking like we have some oversold conditions that could catch a fire

if you had maybe the clearance from a further decline in Treasury yields that seems a little bit more persuasive than just a kind of a pause. That's actually exactly where I was going to go with you, because we did see yields come off a little bit today, and yet stocks couldn't manage to eke out the gains. I mean, is the argument there that the relationship between the two are breaking down, or is it just that you need to see even more movement in the bond market for that to really translate to the stock market? Yeah, I would say it's the latter. I mean, the relationship for now, until further notice, until it's proven to be wrong, is still pretty tight. It's just been very modest moves in the Treasury market. I mean, it's still this very, very aggressive uptrend in yields. You know, if you maybe have to get the 10-year

breaking down below 4.6, you know, the level it really took off from is more like 4.3. So, you know, you have some room before anybody would want to convince themselves that the fever is broken in terms of the bond sell-off. Okay. Mike, we'll see you in just a few moments. Stay close. We're going to continue this conversation meantime, though, with 314 Research co-founder Warren Pies. Warren, it's great to have you on. I do more broadly want to get your thoughts on the market here and what Mike was just talking about, which is the fact that you do have an S&P that looks like, and parts of the market, that look like they are in deeply oversold territory. Are you expecting a rebound from here?

What would you be watching for to know that it's actually truly taking root in a meaningful way? Yeah, I think Mike set the table, as he always does, really well there. In my view, the market, it's a tale of two markets. You have the mega caps that have held the market up, S&P up double digits. And under the surface, though, it's pretty bad. Russell 2000 is now down for the year. Equalway S&P is down for the year. Microcaps down a lot for the year. So there's a major divergence between these big cap tech stocks and big cap stocks in general and the rest of the market. And this goes right back to where

we were at the beginning of really June. And that was when we saw this original divergence between big cap stocks and the rest of the market. And what you need to see for higher overall equity prices here, I think, is number one, obviously, these big cap stocks need to hold their levels. But the rest of the market has to participate. So we're looking for breadth. That's what we would call it is we need to see breadth improve here if we're going to get a sustainable move higher in Q4. If it had gone to my head, I would say I don't expect that because of what's happened in the rates market. I think the rates market on the long end moving up has really been damaging to the fundamental story for the rest of the market. So to me, it's hard. I'm hard pressed to see how we get significantly higher equity prices without the rest, I'd say the bottom 490 stocks in this rate environment.

So you need the perfect storm of rates coming down, the rest of the market participating. OK. It doesn't look likely to me. OK. I mean, the Russell 2000 was the one average that kind of eked out a little bit of a gain here today. Just listening to what you're saying and knowing that you have shifted in terms of your investment calls just recently, what does that mean for the bond market? Do you like treasuries here? Yeah. So when we started the second half of the year, when we looked out at the broad asset market, we thought that bonds were the most overvalued asset on the menu and mispriced. And we thought that commodities were the most undervalued. So we were kind of playing that

long commodity and underweight bond trade. And within the last few weeks, I think value has reemerged in the bond space. So we've pushed a lot of chips back into fixed income. We're now market weight. We were significantly max underweight. Now we're market weight bonds. And we've come out of that commodity trade. And so that was within the last two weeks that we made that move. And really, I mean, there's still a lot of stuff to not like the deficit, fiscal spending, all these things we've talked about on this show before on the fixed income side. But the bottom line is there are no bad assets, only bad prices. And I think you're getting a better price here when you when you look at bonds from a number of different angles. We're in fair value, I think. And so that's where we're

going. So so what are those angles? And I ask that because where we've seen the dramatic move in Treasury yields and the sell off in prices of those treasuries has been the longer end of the curve, right? It's been 10 and 30-year bonds. If you actually look at some of the short-term bonds, for example, the two-year, the yield on that hasn't really risen. It's something like 5.05% versus 5.03% a month ago. So is it the long end that you're targeting? Yeah, we've been moving into duration. So, you know, five to 10 years out is what I think looks attractive here. 10-year yield, just take that for example. Based on nominal GDP, I think that fair value is about 5%. We were at 3.8%, just like, you know, a couple of few months ago. So here we are basically back to

what I would call fair value based on nominal GDP. And if you look at the Fed funds rate, and you assume a 3% terminal rate, you know, that basically puts us again at fair value on the 10-year. So on a spread analysis on nominal GDP, I think we're at fair value for the 10-year. Yeah, there's a lot of supply. I doubt that we've, you know, seen the high in yields for this year, but you're getting paid for taking that risk here. And it makes so much more sense compared to just the beginning of the second half. Yeah, I should note you downgraded commodities, too. But at a time where we don't have a lot of bond bulls, it's good to get your take, Warren. You tend to be contrarian. But as we've said in this program before, you've also tended to be right. So Warren, thank you.

Thanks, Morgan. Let's get back to Mike Santoli with a closer look at two broad measures of the of the market. Mike. Yeah. Morgan, picking right up on some of what Warren was talking about in terms of the weakness of Brad, the average stock really struggling here. This is the equal weighted Russell 1000, essentially the biggest 1000 stocks in the market. One year chart new low for 2023 at this point. And this was that, you know, October bottom of last year when the overall market did finally, you know, that bear market culminated and got shot much higher. So you see that this is obviously a big struggle. Now, one thing I'll mention is, you know, you wonder if you can ever get this sort of the majority of stocks starting to catch up to the narrow group of leaders? Well, it certainly happened to a degree coming out of that panic we had around the regional banking crisis in March into April. So it can happen that you have very weak breath and most stocks catch up to the index,

the big cap indexes, as opposed to the largest stocks falling back. But, you know, we don't always know in advance clearly how that's going to go. Now, speaking of large versus the rest, this is the Nasdaq 100 index relative to the equal weighted S&P. This goes back almost four years or so. And what you see here, this was the peak right here. That was around Labor Day of 2020. It was a huge rush of the pandemic trade and the stay at home, all that stuff, real exuberance toward very large stocks. Remember, Tesla was going to the moon, Apple making new highs, all that. We did back off from there and we sort of had the majority of stocks catch up once you had the reopening. This is the bear market of last year, which actually hit the largest stocks the hardest.

So a lot of what we've seen this year is a catch up trade. But I do find it interesting that we've essentially gone back to the highs on relative performance right here. Whether this means it's just too stretched to last or not, I think it's worth noting today the mega caps are acting more as sort of a defensive and predictable place to hide as opposed to, I think, really a lot of excitement and huge hopes for the future in general, with the exception maybe of something like an NVIDIA, Morgan. It's pretty incredible because we're talking about the mega cap tech names at highs amid higher rates.

And that has always been an inverse relationship. To your point, the fact that they are behaving as almost the new defensive or safe haven stocks in this environment. I mean, are we entering a new era, a new world order? And I asked that on a day where staples got whacked and in a week where utilities have been hit by double digit percentages. Well, my take on that has always been that yields matter a whole lot for expensive growth stocks like that make up the Nasdaq. but they are far from the key variable. Last year, they moved exactly as you would expect based on yields effects on valuation, but also earnings

estimates were getting slashed. If you looked at Alphabet's earnings estimates last year, they were coming down. This year, yeah, we got the yield effect, whatever you think that does to their P.E. ratios, their valuations. But you also have earnings going up and you have better balance sheets and it's an environment where the market wants something like that. So, you know, these relationships are not fixed and predictable over time. All right. Magnificent, as you say, right there on your chart. Michael, see you later this hour. Thank you. Let's turn now to my co-anchor and partner in crime, John Fort, who joins us now from DePauw University in Greencastle, Indiana, where he spoke with hedge fund manager Jeffrey Ubin about the investor impact of everything from politics to AI. John, break it down for us.

Morgan, hey. Yeah. Greetings from Greencastle, my second home. DePauw University, my alma mater, one of the best small liberal arts institutions in the country. Last night, we were opening a new school of business and leadership here, and I led a conversation with Steve Sanger, class of 68, former CEO of General Mills, and Jeffrey Ubbin, founder of Inclusive Capital, whose parents are both class of 58. I asked Jeff about the implications of the congressional chaos in Washington and the economic risks.

Yes. I don't think about this much, but we have an ultra-polarized society where four or five congressmen can do this, which I guess in the old days stalemates were perceived to be good, but this is not stalemate. This is total inability to act. And it's happened at the same time that the risk of this kind of very comfortable bipolar world that was dominated by the American dollar and American exceptionalism is changing, with China emerging and creating essentially their own fiefdom with the gangsters,

Saudi Arabia and Russia. So the risks are quite high in, you know, a dysfunctional legislature and dysfunctional society is treacherous. As you know, Jeff Ubbin is on the board of ExxonMobil. He's into ESG. He's an activist. I talked to him about AI, about ESG in this era. Markets, a lot more. Have that for you later in the show, Morgan. I'm looking forward to that. I mean, was there anything, I guess, just to give us a tease to later in the show, anything that really jumped out or really surprised you from this conversation, which was so wide ranging? Oh, he doesn't hold back. He talks about Taylor Swift. We talk about Beyonce a little bit. We get

a little bit of everything in there. He's also an investor in UTA, you know, talent agency, creative space as well. So that's part of where the AI conversation goes. You don't want to miss that. All right. Looking forward to that a little bit later this hour, John. We'll see you shortly. All right. Levi Strauss earnings are out.

Courtney Reagan has the numbers. Hi, Court. Morgan, yes. So this is Levi's reporting for their third quarter. They are beating estimates by 20. They have an estimate of 28 cents adjusted. The street was looking for 27 cents. So it's a one cent beat there.

Revenues, though, missing slightly. 1.51 billion compared to 1.54 billion dollars. They are now adjusting their earnings guidance to the low end of their previous guidance. You might remember last quarter, they really slashed that guidance. So now they're saying it's going to be even at the low end of that. Once again, America, specifically here in the United States and the wholesale business, was really sort of the laggard business. Earlier, when the company reported in July, CEO Chip Berg had said that so far in this quarter,

that we're talking about right now, things had started to improve. But I guess that turned around and actually went the other way because that ended up again to be an issue here. While their direct-to-consumer business was strong, China, again, pretty strong. But again, their wholesale business, particularly their business also here in the United States, not as strong as it had previously been. And then the CFO is making some comments talking about how they have started to review their operating model and their cost structure.

So could be hearing about some cost cuts here ahead potentially on the earnings call and then thereafter. You can see shares are falling by about 5 percent in the after hours. Back over to you, Morgan. OK, Courtney Reagan, thank you for bringing us that. Don't miss Jim Cramer's exclusive interview with Levi's CEO tonight at 6 p.m. on Mad Money. Up next, jumping into the gene pool, we're going to talk about Levi's results and the read-through for the broader spending landscape when we're joined by New Burger Berman's consumer expert, Kevin McCarthy. Overtime's back in two. Levi's down five. Welcome back to Overtime. More news just coming in on the power of Taylor Swift. AMC Theatres says advanced ticket sales for her Eras tour film have crossed $100 million,

more than a week before the movie hits theaters. The company's saying sales are particularly strong in the U.S. and for large screen formats like IMAX. AMC getting a pop after hours on the news. Well, up 2% right now. This comes after Taylor Swift's presence at last week's Jets-Chiefs game led to a huge boost in NFL ratings, making it the most watched Sunday TV program since the Super Bowl. Shifting gears, Levi just reporting third-quarter results moments ago. The company posting a revenue miss and disappointing guidance.

You can see the shares falling right now, down about 4%. Joining us now, Neuberger-Berman Managing Director Kevin McCarthy. Kevin, it's great to have you on, and what a name to have this week. May I just say, and get that out of the way? I appreciate that. I'm looking forward to when this is no longer the punchline. Well, talk to me about Levi's, because, yes, they they they beat on the bottom line, but slight miss on the top line. They've narrowed their guidance to to the lower end of the range, guidance that was already representing a cut from what they had said previously. And they're citing some weakness

here in North America in the wholesale channel. How concerning is that? I mean, it's not dissimilar from the concern I think that's been reflected throughout the channel checks all quarter. But it does take off the table the potential for, you know, this being like a Nike situation where there was abysmal sentiment. And all they had to do is kind of directionally suggest that the wholesale environment had stabilized. I think the silver lining here is that the inventory situation is going in the right direction for Levi. You know, they've had five quarters, five consecutive quarters of a negative sales to inventory spread. So now I think the number was up 6% or so after up 18 last quarter. So directionally getting to a more balanced perspective. But, you know, in general,

this name, you know, you ask the question of whether or not the bottom line number matters. Not really. I think what matters here in this situation is like they need to provide conviction that the wholesale environment has at a minimum stabilized and we're not going to see incremental styles going on sale across mass merchandise and department stores. I think that's still a looming risk. Okay. The fact that you have comments from Chip Berg, the CEO, basically saying that they're focused on the levers within their control and talking about the actions they took in the third quarter to begin to drive improvements. I mean, is that a

signal to the market and to investors that, you know, there's more cost cutting potentially that's going to come at this company? Well, I think Chip definitely wants to set up, set the groundwork for success for Michelle as he kind of transfers the leadership here. So I wouldn't be surprised if there is some element of, you know, a notion of, you know, cost cutting and trying to, you know, if there needs to be further pruning that needs to be done to get to their mid-teens kind of profit margin goals over the next several years. So that wouldn't surprise me. You know, this is a brand with some ambitions. There's not, you know, there's plenty of names out there in consumer land right now that have abysmal sentiment, but there's probably only a handful

of very high quality names with legitimate self-help. And I think Levi is probably in that camp. Now, might it be a little too soon? Maybe. Yeah. So I think you probably have a little bit of time with this as the kind of the dust settles on the wholesale side. But they're doing smart things, you know, like they're implementing the ERP system that's going to allow them to have more flexibility across channels and making more real time decisions across pricing there. So, you know, I think that they are taking the steps. But, you know, the things that we're looking out for, you know, for long term shareholders, you know, we want to know really more of the soft touch things like are the service levels

improving? Are they continuing to grow momentum with their women's category, which that's obviously a very important one. And then what everybody's focused on is, you know, is there any sign of stabilization with their under $100,000 consumer across the mass merchant and department stores? Okay. So quickly, let's talk a little bit about that and broaden this out because you don't just cover apparel makers and retailers. You also cover consumer facing companies that are involved in services and experiences as well. So what are we seeing in general with consumers and spending patterns, whether it is that consumer that makes less than $100,000 or above at a time where I think about Costco September sales just last night. Great example. Non-discretionary is getting the

majority of spend. And now we have additional pressures like higher interest rates, higher energy prices and, oh, student loan repayments back. Sure. So what I think we're seeing is that current consumer spending is slowing indeed, but it's in line with consumer wallet income, which was expected to slow anyway because of the reasons that you said before and kind of lapping some one time things and some inflation. So I think that it is slowing and it is, you know, reason to kind of throw up a red flag. But at the same time, it's not the bottom is not dropping out.

We're seeing, you know, slowing across all demographic cohorts, more acute at the low end for sure, and that has continued, and you're seeing challenges. As you're very close to zero, you know, you have situations where it's, you know, it can go one way or the other. So generally a slowing, but not, you know, I said red flag earlier, but we're not really seeing, you know, a step function down here. There probably can be made some distinctions between services and goods right now. You're starting to see a little bit of the services side roll off, especially on the leisure side. I look at lodging names, lodging names, especially the weekend travel and the leisure category starting to roll off a little bit. But in general, it's not it's not,

you know, it's not a step function down. It's a slowing, I would say, Morgan. Kevin McCarthy of Neuberger Berman. Thanks for joining us. Thanks, Brad. When we come back, Fairleads Katie Stockton tells you the technical levels on the S&P 500 that you need to watch after this week's ramp up in volatility and the sectors to potentially buy on the dip. A major blow to management's credibility. That's how Deutsche Bank analysts describe what's going on at Alstom.

Check out shares of the French train manufacturer, the stock losing nearly a fifth of its value today after slashing its free cash flow forecast dramatically. The new guidance, negative 500 million to 750 million euros. It's a major reversal from the company's earlier prediction of, quote, significantly positive. The cause, major delays and projects mostly in the United Kingdom with some in the United States, leading to a big increase in inventory, which in a higher interest rate environment is only fueling investor concerns further. Shares finished the day down 20 percent, including the ADR. Meantime, the S&P 500 is on

pace for its fifth negative week in a row, with energy and utilities seeing the biggest pullback this week. Our next guest joins us with key levels to watch and some potential areas of opportunity. Joining us now is Fairlead Strategies founder Katie Stockton. Katie, it's great to have you on. Good to be on. Let's start. Let's start with some of the levels for the broader market here. We've been hearing about 4,200. Is that one of those levels that you're watching or is it something else? Yeah, it certainly is. And when a level is widely followed, it sometimes adds to its importance. So we don't mind being part of consensus in that regard. Our level is a little bit wider. It's between about 4180 and 4205 or so.

That includes three technical factors, the 200-day moving average for the S&P 500, also a previous resistance level or previous high on the chart, And finally, a Fibonacci retracement level for the technicians out there. And those are very key levels. If they're broken, and by broken, I mean decisively, we spend more than a week or so down there, well, that's a problem for the market because it would suggest that the corrective phase that we've seen, which is in this sort of very clean ABC corrective wave format, is more than that, probably the start of a bear market cycle within a broader neutral context. So we really want to see that support hold. And we do have indications that it should hold. Okay. So if it does hold, where do we go from here?

The initial resistance, you can even reference as simple as the 50-day moving average. We have another model we track that puts it around 4460. And that's only a minor hurdle before we get into the resistance that's much stronger in the 4600 level. And that level, if it's surmounted, we feel like new all-time highs are very likely. So that 4600 level is a really key level in our work on the upside. We're not convinced that it's surmountable at this time because we do have downturns on our long-term charts. Our long-term indicators don't look great, to be honest. So we can't make the assumption that we'll see a breakout. But at least that level is far enough above current levels that it does dictate some seasonal strength. We have usually rebounds in October into November,

if not even through part of December. And we think that the market is in store for the same this year. OK, so if I if I pull back on or I guess draw back on a conversation I was having with Mike Santoli earlier in the hour and the outperformance we've seen in the Magnificent Seven versus the rest of the market, this divergence that's happened. Does that mean that some of these tech names, consumer discretionary names, communication services names, that they continue to outperform here? Yeah, you know, we do expect the current leadership on the sector front to exhibit leadership going forward from here. And that's normal. It's really the offensive areas of the market, technology probably being the most obvious.

And, of course, technology is largely Apple and Microsoft. And they are both well positioned, in our opinion, to take advantage of an oversold condition in here. So we just think it really will require a sentiment shift. And that sentiment shift probably needs to come from some consolidation in Treasury yields. That is, of course, what it's all about in terms of market sentiment. What was really interesting this week is that we got our most oversold extreme in our market internal measures. And these are readings of breadth or participation in sentiment. And they were the most oversold extreme since

June 16th of 2022. So I had thought when we would look, we'd see them go back to about October of last year as an equivalent reading, but we had to go even farther back. And after that oversold indication that we had from the market internals, we saw a relief rally of 18% by the S&P 500. Maybe that's being a little bit hopeful here, but the extreme definitely has us paying attention. It enhances the oversold condition in price terms, and it also suggests that breadth should improve from very low levels. All right, Katie Stockton, always great to get your analysis and your take on the technicals. Thanks for joining me. Of course. After the break, even Jeff Ubbin can't get through an interview

without invoking Taylor Swift. John Ford sat down with the hedge fund manager at DePauw University. John. Yes, yes. We also talked about AI, though, and you don't want to miss his perspective on whether value is back with interest rates up. I'll have more from Jeff Ubbin after the break. Welcome back to Overtime. It is time now for a CNBC News update with Bertha Coombs. Bertha. Hey, Morgan. The man who shot 10 people on a New York subway in April 2022 was sentenced to life in prison. The shooter set off smoke bombs on the train before shooting

into the crowd during morning rush hour. A district court judge sentenced him to 10 life terms plus 10 years, one life sentence for each person he wounded. The defendant pleaded guilty in January to 10 counts of terrorism and weapons charges. Former President Trump could pay a visit to the Capitol early next week as Republicans consider who should be the next speaker of the House. That according to two GOP lawmakers and two Trump allies who spoke with NBC News. The former president's possible visit is billed as an effort to unify the party after Kevin McCarthy's ousting earlier this week. And Crocs are adding a Western flair to their latest shoe. The Croc boots feature the classic shiny Croc texture with Western-inspired stitching completed with spinning spur charms on the shoe's back strap.

They launch October 23rd in time to celebrate Croctober. I didn't know Croctober was a thing, but I guess it is, Morgan. They look good on you, Bertha. Bertha Coombs, thank you. Let's send it back over to John Ford in Indiana with more of his conversation with hedge fund manager Jeff Ubbin. John. Yep, Morgan. I'm here at DePaul University, Greencastle, Indiana, my alma mater.

They're opening a new school of business and leadership. So I also spoke with Inclusive Capital's Jeff Ubbin about the challenges of the digital economy, AI, and this overall impact of algorithms on financial markets. Everything about digital economy kind of sucks, you know, really, when you think about it. Like, we thought we could get a ticket online through through a digital ticket ticket Ron but it turns out the chat bots beat us to it and now we're gonna pay $10,000 for Taylor Swift that's ridiculous you know we thought you know we come to the Vikings Kansas City

Chiefs game this Sunday you might see her Yeah, exactly. Speaking of the online search algorithm and Taylor Swift, right? So the idea was the internet was going to surface a lot of lesser known ideas and product. But in reality, what it's done is it's made the better known products and people more attention. That's the summer of Beyonce and Taylor Swift. Right. Yeah. And so we're getting these perverse outcomes

from this digital economy. We could do a bank run in a day, right? That's not cool. That's not good. So the whole idea of slowing things down, thinking twice, is the opposite of where we're going. and it may, like I said earlier, be exactly what we need, but it is an unmovable force. This is just what happens. These tech guys,

they ask for forgiveness, not permission, and they just go. And AI is going to rob. It's fake to begin with, and it's going to rob us of creativity. What do you mean it's fake? Well, it's all input. It's borrowed input. It's borrowed input, no matter what you say. And so as it gets built over the years on borrowed input, you're going to have less and less of the regenerative force from the outside of the system beauty of content creators. You're going to have less of that. So Simon Rich

came to talk to UTA last week. He was a writer. He was the seventh writer hired at 25 years old at SNL. And then he went on to do two Pixar movies. He's 37 years old. He wrote a book called i am ai um his buddy i guess is is it open open ai dan somebody um so he's kind of right there watching what's really happening behind the scenes which is da vinci version 3.0 is way smarter than what we're getting here at chat gbt because it's just chat gbt's dumbed down they want to they want to show it to us slowly. And they're going to launch Da Vinci's 5.0 in January 2025. That's the Armageddon right there. That's the apocalypse.

But you're not apocalyptic about climate. I am on this one. It's not because it's going to kill us or anything like that. But what Simon says is that he would never be hired as the seventh writer in SNL. That's going to be outsourced to AI.

So the existing showrunners, Shiana Rimes or whatever, they're going to be great for the next 10 years because they're going to be super productive. But where's the content going to be after that? So to me, AI is the, you know, we keep moving to shorter and shorter term time horizons. The stock market, when I got involved, was the holding period was seven years. Then it was five years. And then commissions became free, which is, again, speed, efficiency, fast as possible. Talking about Robin Hood here. Yeah, and so once trading is free, the computers take over. They just do.

It's data sets, it's computers, trying to read something ahead of the next computer. They have put me out of business and their time horizon for the average stock is three months. Seven years to three months. In my lifetime, is that a discounting mechanism or is it just a voting machine, a voting system, you know?

So we have, the digital economy is fraught with risk. We just don't see it. And to celebrate AI, it's going to gut, it's going to hollow out the creative industry, but it's going to be super productive for the next few years. that's what we're celebrating the super productivity Of this thing that's robbing us of our creativity over the next three years and we love it Some of us here might argue that's why we need the liberal arts because there's more to life than math and Algorithms and software, but we'll see where this leads us Morgan It just it's an interesting viewpoint and it sort of goes right back into this debate about whether AI is going to be a net positive or a net negative for the economy

and I guess for society writ large. It does. It is an argument for that, and that's, I guess, in part what the School of Business and Leadership here is going to try to prepare students for. Undergraduate School of Business and Leadership, by the way. Again, this is a small liberal arts college. But, you know, you think Jeff Ubin is a force. His mom, Sharon, was there with us tonight as well. She is a force.

Steve Sanger, again, former CEO at General Mills, has donated generously to DePauw to help stand up this school, and particularly the leadership part of this. So lots of people across industry with business background thinking about not just AI, but how this digital economy is affecting the way that we live and work and the U.S. position on the global stage. All right. Great stuff, John, as always. Small school, big formidable roster of graduates, including our own John Fort. We'll see you back here soon.

See you soon. Up next, Mike Santoli looks at whether sinking sentiment on Wall Street could be a signaling, a buying opportunity. Stay with us. Welcome back to Overtime. There are plenty of signs of negative positioning in stocks. The weekly exposure index from the National Association of Active Investment Managers is near its 2023 lows. Mike Santoli is back to break down those results and more. Mike.

Yeah, Morgan, during a market correction, it's what you really want to track is has positioning become very defensive. Therefore, it changes the risk reward, perhaps in favor of the bulls eventually. And you see this. These are very tactical investment managers. They're not just buy and hold. They're kind of performance chasers or momentum players. They can go over 100 in equity exposure because they use leverage. And here you see, right down near the August lows.

Now, keep in mind, the August lows only got us about a two-week rebound from a 5% pullback in the S&P. And then we went to rolled over again. So it doesn't mean there's any magic to it, but we're really not up that much from where we were at the bottom of the market in October of last year. So things starting to fall into place. I would point out hedge funds as well, according to Goldman Sachs, down in the second percentile in terms of their long and short exposures right now. So the evidence is piling up. Okay. If the evidence is piling up, how spring loaded then are we for the jobs report and for that to maybe if it were to show a softening in labor and a continued softening in wage growth?

I mean, would that be enough of an impetus given how much negativity is out there to see a real rally going into the final day of trading? No, there's no doubt we're very coiled. I would not be able to venture a guess as to what the precise reported number for the jobs payrolls should be in order to unleash that. It is much more about, you know, how much in the Treasury market are people offsides having sold off a lot of bonds already and what that reaction is. But yeah, I mean, these are the kind of conditions under which, you know, the S&P could be up a percent and a half, two percent in a given day at some point. And you'll be asking, what happened? Why did we do it? And the reason is we built up the potential energy in all this selling for eight weeks. OK, Mike Santoli, thank you. Yeah. Levi shares under pressure after a revenue miss and disappointing guidance. The earnings call getting set to kick

off at the top of the hour. Plus, we will discuss how much weight loss drugs like Ozempic could hurt the grocery and restaurant industries. Stay with us. Welcome back. Walmart warning consumers are buying less food because of weight loss drugs like Ozempic. Up next, an analyst has some food for thought on how much of an impact these drugs will have on everything from restaurants to airlines. And speaking of drugs, check out Mirati Therapeutics surging today. After reports said Sanofi was considering buying the cancer therapeutics company, shares finished the day up 45 percent. Stay with us. Welcome back to Overtime. Walmart is the latest company to note the impact of weight loss drugs on its business, saying they're making people buy less food. Walmart U.S. CEO saying in an

interview, quote, we definitely do see a slight change compared to the total population. We do see a slight pullback in the overall basket. Just less units, slightly less calories. Wall Street firms like Jeffries, Bernstein, Morgan Stanley publishing research on the impact across industries, saying the drugs could negatively impact restaurants and some food and beverage producers. Mizuho even downgrading restaurant management software company Toast. And who would benefit? How about airlines? Jeffries noting United would save $80 million a year on fuel expenses if the average passenger loses 10 pounds. Keep in mind that's still a drop in the bucket on fuel costs for an airline like that.

But does the math actually add up? Are enough people really taking these drugs to make a meaningful dent in so many industries? Let's bring in Michael Nedeljkovic, T.D. Cowan, Vice President of Equity Research. It's great to have you on. And I'm going to start with that question. Are enough people on these drugs for this to actually meaningfully start to impact companies like Walmart? Thanks, Morgan. Thanks for having me. Thanks for the question. Step in the act just for a minute. The GLP-1 class of weight loss drugs is poised to really transform the treatment of obesity. And Novo Nordisk is at the tip of the spear of that effort. me act just for a minute. The GLP-1 class of weight loss drugs is poised to really transform

the treatment of obesity. And Novo Nordisk is at the tip of the spear of that effort, followed closely, of course, by Eli Lilly. Late last year, we at TD Cowan estimated that the global obesity drug market could reach about $50 billion by 2030, with Novo and Lilly roughly splitting the share of that market. But it's important to note that in that estimate, if you look just at the U.S., that contemplates about 3 million or so people on a weight loss drug in 2030, which represents about 1% or so of the adult population in that year. So while we are very optimistic for the commercial prospects of this drug market, it's probably premature to suggest that uptake of this drug class will reach kind of epidemiologic proportions such that we start to see its effects on other sectors, at least in this decade. It's

important to note that, of course, there's another decade to come, we hope, at least. And in that decade, some of the important drugs will probably go generic and that could boost uptake. It's also important to note that there's a significant amount of uncertainty in forecasting a drug class like this with such a large addressable market. I mean, I keep hearing that this is expected to be, these are expected to be some of the biggest drugs of all time. Why is it premature? Is it because of health insurance constraints and cost constraints? Is it because of supply constraints, which is something we've talked about with a number of folks, including the CEO of Weight Watchers back in August? Is it something else? Well, it could be one of the biggest drug classes of all time.

But in an addressable marketplace that represents roughly half the population of the United States or more, both things can be true. It can be an enormous drug market in terms of sales and also only reach a level of penetration that is relatively modest when you think about how many millions of people have obesity and overweight. Okay. So do you buy Novo Nordisk? Do you buy Lilly? And what does it mean for some of the other drug makers, like maybe a Pfizer that's potentially waiting in the wings? We are recommending both Novo Nordisk and Lilly. I should say that my colleague Steve Scala covers Lilly. Pfizer, I think, obviously has an attempt to enter this market, but it's probably too early to tell. And as I say, we're optimistic on the commercial prospects for the obesity drug market. And we think that it will drive Novo and Lilly in the near and midterm. And their long-term

outlook looks positive as well. Okay. So does that mean that this, and especially when you look at GLP-1s, that this is really sort of the key area of growth across the drug industry? Or is there something else that you actually like better here? GLP-1s are very likely to become one of, if not the largest class of drugs in history over the course of time. And that share of revenue will come both from diabetes and obesity. But certainly the growth driver here is obesity, because obesity is really a marketplace in its infancy with significant potential that's been untapped historically. And Novo seems poised to tap it along with some competitors, of course,

Lilly being primary among them. Okay. One last question for you, and that is how sticky is this drug usage? And I ask that when you do have a Weight Watchers or there's certain startups out there like Calibrate that are focused on trying to create off ramps for the people that go on these drugs once they've realized results. Can that actually happen? Average treatment duration on a drug like Wegovy is a key question. It's unanswered at this point. We're going to get data from an important and very large trial called Select. It's a phase three trial that was over 17,000 participants. We'll get those data AHA in November. That was a five-year-ish trial. So that'll probably be the first and best look at what an average treatment duration might look like. Our KOLs, some of which we hosted this

week at TD Cowan's Therapeutics Conference, think it'll be between 12 and 24 months. Okay. So we'll look to November. Michael, thanks for joining us. Thanks for having me. Tomorrow, jobs report, but also Mannheim used car index credit. That's going to do it for us here at Overtime. Fast Money begins right now.