Closing Bell - Closing Bell Overtime: Mixed Market, New Recession Call & Betting On Wrestling 3/8/23

Episode Date: March 8, 2023

It was a mixed day on Wall Street as investors await Friday's key jobs report, which could determine the Federal Reserve's next interest rate move. Jefferies David Zervos thinks stocks will continue treading water because investors are more confident the Fed will be successful in cooling inflation, but G Squared Private Wealth's Victoria Greene says the bond market is screaming headwinds for stocks. Credit Suisse Chief U.S. Equity Strategist Jonathon Golub explains why bond market signals suggest a recession could still be years away. And CNBC's Alex Sherman discusses his reporting that WWE is in talks to legalize betting on scripted wrestling matches.

Thanks, Scott. Well, that is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Fort. Ahead this hour, a new recession call from Credit Suisse. The firm's chief U.S. equity strategist will tell us why signals are saying we could be years away from a downturn. And plus, shares of WWE, yeah, that one, spiking into the close following a report by our own Alex Sherman that you might soon be able to bet on wrestling matches. Scripted. Did I say that?

Wrestling matches. All the details are coming up. Well, let's get straight into our market panel, shall we? Joining us now, Victoria Green from G-Squared Private Wealth and David Zervos from Jefferies. Good afternoon to you both. Victoria, I'll start with you. We got a little bit of a rebound today after that sell-off, that broad-based sell-off yesterday. The Nasdaq finished up higher, the S&P higher, and the Dow down slightly. Your thoughts on what is priced into this market right now, especially given the

fact that we did get that more hawkish commentary or at least tone from Powell from the Senate yesterday? Just a little bit hawkish, right? Putting 50 basis points back on the table. And what we're looking at, though, is everything held. We bent but not broke. If you look at the technical patterns, the uptrend line got severely tested today, but that afternoon rally helped it hold. The 200 day moving average is holding. so when we look on the technical side there are still supports to this market that have bent but not broken and still the uptrend from october is intact so for now i know we're all waiting friday is going to be a popcorn day as we as we see those jobs numbers come in but for now the uptrend is still working so a little bit of a sigh of relief we didn't continue down today how i'll walk back 50 basis points futures are pricing

in about a two to one now that it's going to be 50 basis points in March, about 42 basis points priced in. So I think the market has absorbed the potential that's happening. Joltz was in line. You know, we didn't get anything else that moved it today. So for us, right now, we're status quo and waiting on Friday. So, David, if you think that the jobs report is going to surprise, whether to the upside or to the downside, you know, tomorrow's your last trading day ahead of that report.

What do you do tomorrow? Well, I guess it's for David Zervos. Oh, sorry. Yes. I think it depends on, honestly, you know, how big of a surprise you think it's going to be, John. And I think, you know, the odds are really that you think it's going to be, John. And I think the odds are, really, that this market, we saw the ADP data, we saw the JALTS data at 10.8 instead of 10.5. I mean, it's a pretty strong labor market. Everything with weekly jobless claims data, the odds that we get something really surprising to the downside seem pretty low, unless it's a

real technical story with seasonal adjustments. So I think we have a strong labor market. We know we have a strong labor market. All the anecdotes suggest we have a strong labor market. The market's ready for a strong labor market and the market's pricing in almost another 50 bps. And then, you know, what we've seen with the two year note is, you know, almost 25 basis point moves. So, David, are you saying that nothing we get on Friday is going to move the market then? Or if it does come in particularly hot, is there something that investors should be prepared to buy or sell ahead of that if you think that's going to happen?

I would say that the market is prepared for a pretty hot number. Unless it's, you know, like another 500,000, which would be pretty epic. I think the market's prepared for something pretty good here. So the odds that that is what moves you and everybody freaks out and says, which would be pretty epic. I think the market's prepared for something pretty good here. So the odds that that is what moves you and everybody freaks out and says, now we need more than 50

seem very, very good. I would be more looking at what this market is telling you about more of the future, which is what is in the 10-year note, what is in the forward break-even inflation data. And the market has still got a lot of confidence in this Fed. The dollar's strong. Basically, the market is telling you that the Fed is going to get this under control. It just may take a little bit longer than many people thought. And that's kind of what I think Powell told you in the last few days as well. Yeah, Victoria, I want you to weigh on this, too, because I could tell you have some thoughts. Do you agree with that? I think if you look at the bond market, the bond market is definitely not pricing in that the Fed has it under control. The worst inversion, over 100 basis

points between the two-year tenure. The bond market has been inverted since July. I know that typically leads to a recession by 12 to 18 months. So yeah, we still have a lag time until maybe a recession hits. But I think if you look, and that's what is so confusing to investors, the bond market and macro is screaming that there's headwinds ahead and things are going to fall off and the wheels on the bus are going away. But then if you look at the equity market, you've seen some continued strength there. You've seen some decent earnings. So you have very, very mixed fundamental technical and macro headwinds right now.

And investors are confused. So right now we have a pretty neutral stance. I know that's boring. But at the same point, we're not necessarily overweight equities because we understand these macro headwinds. But we're also not wanting to exit equities right now because we think there is some fundamental reasoning why you should own some of these stocks right now. And right now, the uptrend is still intact. So yes, the bond market is screaming problems, screaming recession. The two-year at five plus, the 10-year, you know, can't get above 10. But that's different

than what the equity market is saying. This rally has continued, and we only consolidated in February. But right now we're holding in March. Yeah, and the technicals have certainly been in focus. I feel like we've talked about them more since the start of the year than I can remember. David, you and I have talked about this in the weeks past, but I want to dig back into it again, especially given the fact that we did get this commentary from Powell over the last two days. And that is the notion that monetary policy tightenings are not packing the same punch that they used to pack. And we're seeing that play out in the data right now. And the fact that it is so confusing for investors

to parse through. Why is that? And does it change at some point? So, I mean, it's a bit of a technical issue not to harp on your technical terms there, but I think the size of these balance sheets and the losses that they've taken, as we talked about before, Morgan, I think almost a month ago or three to four weeks ago, these losses act as a bit of a cushion because they're losses that the private sector doesn't have to take. These big balance sheets at the ECB, the Bank of Japan, the Fed, the Bank of England are all taking substantial losses that in a traditional tightening cycle without QE, without these big balance sheets, without what the Fed has done or any of these central banks have done in the past, they would have had to be distributed in the private sector and they're not. So our banks are healthier, our insurance companies are healthier, our funds are healthier.

And so the punch that you would normally get from a large rate hike just isn't as nasty, isn't as mean, isn't as effective as it has been in the past. And as we said, I think the market's going to have to price a little bit more of a move. And we've seen that get priced in in the last three weeks. I think back month year dollar futures are pricing in another almost 50 to 75 basis points from where they were when we first started talking about that, Morgan. So I think the market's kind of catching on to that. Maybe the Fed's catching on to that. And that's a little bit about Jay's sort of hawkishness. But I really push back on this idea that the bond market's confused. I think the bond market is absolutely sort of crystal clear with what it sees. It sees a Fed that needs to raise rates, that will eventually get inflation under control,

that has long-term inflation expectations anchored, and then will ultimately get back to some sort of neutral rate. And it may take a little bit longer and a little bit higher of a short rate to get there. But that's the only thing the bond market's saying. It's not flashing anything red to me. It's just telling me that we got to go up a little bit higher to make sure that inflation expectations stay anchored. And I think that's why stocks trade OK, because they have a pretty good faith that the Fed's going to get this job done correctly. OK, we'll have to see. David Zervos and Victoria Green, thanks for kicking off the hour with a spicy discussion.

All right. Now let's bring in Mike Santoli at the New York Stock Exchange. Mike, what is on your radar today? Well, John, you got folks were talking about the jolts report from this morning, the job openings, labor turnover survey. And, yes, the headline number of job openings did go up and the stock market actually twitched lower on that headline. But this is a little bit more relevant because it's a more substantive measure of labor market type is it's the quit rates, the percentage of people who quit their jobs in the last month. It's a proxy for people finding better pay and better opportunities elsewhere. A super high quit rate of three percent was the peak. And that was historically very, very strong. It showed you workers had all the power, big push toward more wage growth. And you

see at the depths of recession, such as in oh, here in 2020, nobody's quitting their job. So you see a decline here off the peak down to about two and a half percent. Now, it's still elevated. That's still basically the pre-pandemic peak. And it takes you back to the very early 2000s before that recession. So the Fed wants to see a little more weakness, probably in measures like this. But I think it makes more sense to keep an eye on this rather than the absolute number of job openings out there, because it just costs nothing for a company to keep a job opening on the books right now. And it doesn't mean it's going to get filled very soon. And, you know, folks at the Fed have also pointed to the percentage of openings for, you know, every job

in the economy. And that seems like it's still very, very tight. But maybe something like this is showing some more progress, even if it's not fast enough, John. The headlines and layoffs announced, but there are no quits announced. We're not like, oh, Joe Brown in Minnesota, you know, quit today. But it seems like the quits are just as hot as the layoffs right now. Is that kind of what these numbers are telling us? Yeah, basically is what they're saying. It's still very much a kind of a worker's market, right, as opposed to an employer's market. Now, you are seeing some signs, again, things like ZipRecruiter and LinkedIn, all those recruitment sites have showed that,

you know, there's a little bit less labor market power in the hands of workers right now. Companies are having an easier time filling positions, seeing less turnover. So there's progress in that direction, but still not particularly strong or not enough to give the Federal Reserve confidence that wage growth is on the downswing. All right. Mike Santoli, thank you. Meanwhile, MongoDB earnings are out. The stock trading down more than 7%, though it was down a bit lower after hours. Steve Kovac has the numbers. Steve. Hey, John. Yeah, it was down as much as 12% when these results first came out.

But let's talk about what we got here. We got EPS beating expectations, 57 cents adjusted versus the 7 cents adjusted the street was looking for. Revenue, 361 million versus the 337.7 million the street was expecting. That's also a beat, but it's the guidance that seems to be driving things lower here, where they're expecting for the current quarter EPS up to 20 cents. Now, that's stronger than the 14 cents expected, but it's the revenue for the current quarter guidance and for the full year guidance that is lower than expected. Just for this current quarter, up to $348 million versus the $355 million the street was looking for. So that seems to be what's sending shares lower, this guidance, John.

Steve Kovach, thank you. Morgan, this reminds me of Snowflake in the sense that, hey, maybe those newer contracts being signed aren't ramping up as quickly and customers are trying to take smaller bites. It makes sense, right, to see a little bit of smaller bites, candy bars. It would make sense to see a little bit of belt tightening here, right? I mean, we are seeing it in some of the other earnings, as you mentioned already. Same time, Atlas, their database product, MongoDB, has been growing so fast. I think they still saw 50% growth year over year.

So the commentary on the call is going to be important here. All right, after the break, a new note from Credit Suisse says the Treasury market is giving clues about when a recession could start in the U.S. And it could be a long way off. We're going to talk to the firm's chief equity strategist about that call. Plus, you may soon be able to bet on scripted WWE matches. We'll talk to our reporter, Alex Sherman, who just broke this story moments ago when overtime returns. Welcome back. We have a news alert on Uber. Deirdre Bosa has the details. Hi, Dee.

Hey, Morgan. Well, Uber is said to be considering spinning off its freight logistics unit. This is according to a Bloomberg report. We're hoping to find out more, but as of now, Uber has replied to us with a no comment. I would say, though, that it is not unusual that Uber might be having conversations along these lines. For this unit, it has previously raised a billion dollars and it does hold regular meetings with banks. This unit itself grew about 40% last quarter, but it is still unprofitable, even on an adjusted EBITDA basis. Like I said, though, it is one of the faster growing parts of the company. Organic growth, though, has been slow.

It made an acquisition a few years ago of a company called Transplace, and that has sort of got it to the level where it is now. But it has long been speculated that as it's not part of the core business, it could be spun off. Morgan, John, back over to you. It's incredible, Dee, because, I mean, I didn't even realize it's a nearly $7 billion business for them. And I remember even just five years ago or seven years ago, you know, it was sort of seen as the industry kind of, the freight industry looked at Uber and said, yeah, good luck. Good luck disrupting us. And now everybody's sort of reacted in that time period to all the technology that Uber and the concept that Uber brought to the industry. And here it is. It's actually built up into a $7

billion business, although, as you mentioned, not profitable. So one to watch. Yeah. And for a long time, I remember, for a while at least, a while ago, I should say it was thought of as an exciting part of Uber's business that it could perhaps be profitable, be the so-called AWS of Uber's business. But of course, the logistics unit has run into a tough macro backdrop. And I got a number for you. It's doing about 400 million in quarterly gross bookings just before that big acquisition that was worth more than two and a25 billion. So it was really that that put Uber Freight on the map. All right, Deirdre Bosa, thank you. Shares at Uber up almost 4% right now in the after-hours trade. Well, here's another name to focus on. You may soon be able to bet on scripted wrestling

matches. That is according to a breaking story from CNBC.com's Alex Sherman, who reports that the WWE has held discussions with state regulators. Alex Sherman is here with us on set now to discuss scripted wrestling matches. Sounds a little ridiculous, right? Yeah, break this down. It makes sense, though, if you think about it from WWE's perspective. This is potentially a whole new audience of people that are gamblers and gamble on live sports to come into their ecosystem, maybe get introduced to WWE. Of course, the big hurdle here is that these are scripted results. So WWE, from my understanding, is using the Academy Awards as their template, as their pitch to state regulators in Colorado and Michigan,

which have historically been a little bit looser with what they allow in terms of legalized gambling. So the Academy Awards, of course, are not scripted, but they are known results. So it's different from a given game. And these results are under lock and key, famously Pricewaterhouse Coopers under lock and key. WWE is working with EY, commonly known as Ernst & Young, as part of their pitch to say, look, our results can also be under lock and key. We will keep this tight. We will work with a known accountant to make sure that the results don't leak. And we will allow people to bet on these matches, which are known months in advance,

especially the big ones, which is what this would apply to. The interesting thing about that is that they would not inform the wrestlers themselves on who would win or lose, I'm told, until hours maybe before a match even happens. So a lot of times the wrestlers have been apart. To prevent leaks or to prevent them from betting on themselves? Well, maybe both. But mostly, I think, to prevent leaks, they would keep this as tight as possible. So they wouldn't inform the show production crew. They wouldn't inform the wrestlers. This is all, again, part of the pitch at this stage.

So how different is this really from certain games in Vegas where, I mean, really, you know, the house pretty much always wins and people play for the fun of it. I mean, does that sort of become what this is? Yeah, you know, you're just sort of having fun. So maybe you're not putting a million dollars on, I mean, I don't even, Triple H isn't even wrestling. Well, he's head of creative, actually. He creates the content.

Yeah, he and his wife are running the thing. That's right. So, you know, maybe you don't put a million dollars on it, but for fun, maybe it makes it more fun to go to see it. That's, I'm sure, part of what WWE hopes happens here. There's two main hurdles. One, they have to convince the state regulators that this is okay. But after that, they also have to convince the gambling companies

themselves, meaning FanDuel and DraftKings and whoever else may agree to this, to actually agree to put leverage behind this. In other words, are you okay with being the bookmaker here? Are you okay with the risks theoretically that are involved here? Again, WWE will try to make this as risk-free as it can, but ultimately it's going to fall on the betting companies themselves to say, okay, the regulators allowed this. You know what? We'll take the next step and see how it goes.

WWE is, and wrestling in general, is a fierce brand, and its audience is very, very loyal. So what would this do to WWE, which we know is on the sale block to the valuation? So I'll give you an optimistic and a pessimistic, right? The pessimistic is that there's some scandal here and then it all hell breaks loose, right? It's really bad for the company. It's bad for the betting companies. On the optimistic way, it opens up a whole new way of storytelling.

So for years and years, there have been these story arcs. Some are fairly predictable. You can kind of see who's winning before, you know, it's like, oh, we know ultimately, you know, the good guy will beat the heel here in this, you know, we just need to wait. I think in this case now, the results are really up in the air. And I think it adds a lot more unpredictability potentially to some of these big matches. And that could be really exciting for wrestling fans. I guess if you can bet on stuff other than just who wins or loses, like how many of a certain move or crowd reaction.

I mean, they can't script that. You can also imagine, if this is okay, you could say, maybe we could bet on which character dies in a scripted TV series. What's the difference there? As long as they can make sure that's under lock and key, too, you could bet on which character in White Lotus is going to die. It's sort of the same idea. Okay. Well, Alex Sherman, quite an interesting story there. Appreciate it. Well, there are also plenty of bets on Wall Street about when a recession could start, and that's not scripted, according to Credit Suisse. So the answer might lie in the three-month,

10-year yield spread, and it is signaling no recession for years to come joining us now is the author of that note Jonathan Golub from Credit Suisse Jonathan this is based on kind of historical patterns of how things things shift when things uninvert but aren't we in uncharted territory now about the nature of the Fed's influence over markets and what the economy is doing? Yeah, I mean, let's start with what the premise here is, which is that the yield curve is the most valuable, the most useful indicator of when your next recession is going to be. And the yield curve has been inverted now for several months, which is making a lot

of pundits believe that we're on the precipice of recession. The opportunity here, though, is that if you look at the futures curve, you can buy and sell treasury bills, treasury bonds, whatever, for delivery a year from now, two years from now, three years from now. So you actually have a market-based prediction of when the yield curve is going to return to a non-inverted position. Or putting it differently, how long the yield curve is going to stay inverted.

And it normally stays inverted for a year, maybe six months, maybe 18 months. And right now, the market is predicting that the yield curve is going to stay inverted until the beginning of 2026, which is just extraordinary. So if you're looking at that, the only logical assumption is that the next recession isn't going to start until at least sometime in 2025. But isn't there also stagflation risk here? I mean, you say inflation is going to continue to run hot, but growth is going to be muted at best. I mean, that doesn't mean a recession far off doesn't mean an all clear. Right. So we kind of coined the term stagflation light. If you look back at the 1970s, what did stagflation mean? It meant that you would double digits inflation and double

digits unemployment. I mean, right now, what we're looking at probably over the next year or two is inflation that's going to be three and a half to four percent and the unemployment rate that's going to be three to four percent, which is super low, and economic growth, which is probably going to be one percent, which is low, but not recessionary. It's kind of like an uninspiring economy, annoying inflation, but nothing that's dramatic, weak economic growth, but nothing that looks like a recession, not really great for stocks, not a bad environment to be putting your money in T-bills or something like that. And that's kind of what's most likely is a backdrop. All right. I want to

get into that in a little more detail. But first, just to go back to the 2025 recession call and the fact that you are looking to the bond futures market and kind of working your way backward to make that recession call. It raises the question, how accurate is the bond futures market however many years, three years out? Yeah, it's a great question. I mean, whether you're using the futures for oil to predict oil prices or whether you're using consensus estimates from analysts to predict corporate profits, there's always a question on whether any of these as signals, you know, how good are they? Directionally, this should be really good.

So do I know whether or not the recession is going to begin in early 25 or late 24 or mid 26? That's really, really hard. But is the market telling me that the Fed is going to raise rates a couple more times and then they're going to stop, and they're going to stop for a really long time. The market's telling you that the Fed is going to tolerate inflation above their 2 percent level, and that the economy is going to be weak. And all of those directionally seem pretty smack on. The exact time and the exact numbers, to your point, impossible to predict. Now, last week, you lowered your earnings guidance for 23, 24. So where would you be putting money to work in the stock market right now, especially if we're not looking at a recession until potentially until 2025? Yeah, Morgan, just maybe just to highlight what you said.

Our take is that corporate profits are going to be basically flat for the next two years um and which is pretty bearish um argument so the question is what does better and what does worse if we don't end up in a recession which it doesn't look like we're going to you don't need to be in defensive stocks like staples or utilities if you think that the consumer is in OK shape, job demand is, you know, is still pretty strong. I was listening to Mike Santoli's comments a moment ago. Wages look like this year they'll go up faster than inflation. The consumer looks strong, especially on the services side, less so on the good side. Industrial demand looks OK. Housing related looks terrible. And tech looks uncomfortably weak. I would love to be investing in tech companies.

But the earnings just in the earnings outlook make it really difficult to put your money there. OK, Jonathan Golub, thanks for joining us. After the break from Weight Watchers to Best Buy, a number of companies are making surprising news in health care this week. We're going to talk to a top VC about potential takeout targets in the space and why she says the sector is recession proof. Stay with us. American Express hiking its dividend by 15 percent to 60 cents per share from 52 cents per share. The company says the board is also authorizing a 120 million share buyback. Shares are up about 1 percent after hours.

Morgan. Well, it is time now for a CNBC News update. And for that, we go to Bertha Coombs. Hi, Bertha. Hey, Morgan. Here's what's happening at this hour. The two surviving Americans that were part of that group kidnapped last week in Mexico are back on U.S. soil. They're being treated at a Texas hospital just across the border from Mexico.

The convoy of ambulances was escorted by Mexican military Humvees and National Guard trucks with mounted machine guns. One individual is recovering at the hospital with no injuries, while the other underwent surgery for three gunshot wounds. TikTok is unveiling a new European data security plan amid growing pressure from regulators on both sides of the Atlantic. TikTok says it will begin storing European user data locally this year, with migration continuing into 2024. TikTok has also engaged a similar strategy in the U.S. in an attempt to placate American lawmakers. And preparations are underway in Los Angeles for Hollywood's biggest night of the year. The red carpet for the 95th Academy Awards was rolled out and this year's host, Jimmy Kimmel, was on deck to meet members of the press before

this weekend's show. And not mentioning my favorite movie this year, but I'm hoping they get all the Oscars everywhere, everything all at once. All right. I saw it. It was a weird movie. I love it. Thank you. The health care industry, meanwhile, seeing plenty of action this week. Best Buy partnering with Atrium Health to sell and install in-home hospital care devices and Weight Watchers entering the weight loss drug market through an acquisition. We spoke with WW CEO Seema Sastani yesterday here on Overtime about that move. This isn't a pivot. It's an and. So alongside of these medications, it's really critical that you are also receiving the right lifestyle and behavior change. The stock surged nearly 80 percent yesterday, gave back a bunch of that today, down 21 percent.

Our next guest has invested in a number of companies in the health space, says health care is recession-proof. Joining us now is Dina Shakir, a general partner with venture capital firm Lux Capital. Dina, great to have you here on Overtime. So health might be recession-proof, but not every health venture is going to work. So in this economy, in this situation that we're in, what's strategically advantageous? Great to see you, John. Thanks for having me. To your point, I think we're going to continue to see a lot more consolidation in this industry and many others. But in particular, health tech saw so many tailwinds with COVID.

There was a proliferation of venture-backed companies, a myriad of point solutions, as they're often called, many of which are struggling now to maintain the kinds of fundamentals that are critical in this economic environment, and that will be looking for a home as they struggle to find venture dollars as capital may or may not be drying out. At the same time, you're seeing these massive acquisitions happening by some of the big public companies, including one you just mentioned. And I think that speaks to the really increasing TAM, if you will, as non-traditional players are looking to dip their toes and maybe a bit more in health tech. Public company wise, who's best positioned in women's health, which is

an area you pay a lot of attention to? Maven is in your portfolio. I was just talking to Gina Bartesi from Kind Body last week. They raised $100 million in capital and part of the back of cash flow they're getting from Walmart and Medtronic. But what public companies do you think are best positioned in women's health to actually make gains during this period? Yeah, you know, the thing about women's health is it really expands across categories as we've seen some interesting moves from CVS, which is also an investor in Maven Clinic in the last several rounds, as they're definitely expanding their interests beyond the retail footprint into their Aetna managed care portfolio. And so that's definitely one company. Progeny has also been outperforming if you look at the earnings call from this quarter. And so I think it's increasing

not only in fertility, but across the spectrum of women's care. Just to dig into that a little bit more, and for better or worse, putting the politics aside, abortion pills have become this lightning rod. Even just this week, as you've seen some states, you know, move on that topic and other states counter and some companies like Walgreens say that they're not going to carry them. Is that an opportunity for someone like you in terms of what you're looking for for future investments and startups? Absolutely. I'm glad you brought it up. It's International Women's Day today. And women's health is an area that we have been focused on for many years at Lux and an expanding opportunity. I think there are a plethora of examples of companies that have used technology in the face of regulatory headwinds across different industries. And this is this is one example in health care where there is so much need.

There is so much desire. There is an opportunity for technology to make care more accessible, to enable access to information, especially in the face of so much misinformation, which is a big problem across the board in health and certainly in women's health as well. Companies in our portfolio, like Maven Clinic, like Alife in the fertility space, and a number of others have really stepped up. And I think the fact that they have, you know, outperformed on the private side as well as the public side in the environment that we're in really speaks to the broader investor appetite for the space. All right. Dina Shacker, thanks for joining us.

Thanks for having me. Well, we've got breaking news on President Biden's budget. Kayla Tausche has the details. Hi, Kayla. Hi, Morgan. We're getting an early look at some of the spending cuts that the White House plans to propose in its fiscal year 2024 budget that is out tomorrow. According to a document obtained by CNBC and first reported by The Wall Street Journal, the White House plans to propose a cutting federal spending by one hundred and sixty billion dollars over 10 years by increasing the number of drugs that Medicare can negotiate the price on. Currently, the number of drugs that are negotiated or able to be negotiated are capped at 20. Some of the other spending cuts that the White House is eyeing, eliminating fossil fuel subsidies that they say would save about $31 billion

by eliminating special tax treatment for oil and gas company investments. We should note that these budgets are simply a starting point for the negotiations. And President Biden has been proposing cutting those fossil fuel tax subsidies in each of his budgets since he took office, and they have not made it through. The White House is also proposing lowering Medicaid costs by over $20 billion by forcing insurance companies to reimburse the government for excess, essentially excess payments they're getting under Medicaid. And finally, eliminating a very key tax treatment for real estate called the like kind investment that essentially keeps real estate investments from being taxed. So long as the capital gains from the first investment are rolled into a new investment.

The White House says real estate is the only asset that gets this sweetheart deal. We're still awaiting some firm details on exactly how the White House plans to pay for other parts of the program, but certainly very interesting spending cuts that I know will move the needle for a lot of industries. Morgan, John. Yeah, excuse me, spending cuts there. But I think the expectation that we're not going to see a cut where defense is concerned, that that's actually going to increase when we get this blueprint in its entirety tomorrow. Nonetheless, it's amazing to me that there isn't more ability to negotiate where some of these Medicare and Medicaid contracts

and drug prices are concerned by the government, because it's such a huge part of the budget, at least where health care is concerned on the government spending side. Certainly. And the Biden administration is trying to change that. There is a very powerful lobbying organization, lobbying ecosystem for the pharmaceutical industry, where they have been fighting a lot of these protections, arguing that, you know, if you negotiate the price, if certain drugs are allowed to have generics earlier

than a certain number of years, then it's harmful for research and development and intellectual property. Certainly some of those arguments have landed, but the Biden administration wants to increase the number of drugs where they'll be able to negotiate the price for the government. Kayla, did I just hear you say that the Biden administration is proposing a change to how real estate tax works, where if I've got an investment property and I sell it, I can then use those proceeds to buy another real estate property without having to pay the tax. They want to change that because there's so much money tied up in real estate investment properties, counting on that tax treatment remaining as it is. And it's a huge windfall and it is a huge catalyst and motivation for a lot of real estate investors.

I mean, I hear a lot of them talk about how, you know, that is sort of the gift that keeps on giving and allows them to keep buying these properties. You know, certainly there are other arguments on the other side where, you know, they say, as the Biden administration says, this is the only asset class that gets this type of sweetheart deal where essentially your capital gains are completely exempt from taxes. But, you know, we'll see if it makes it through. As I mentioned, this is the starting point. This is the opening salvo. All of this will be heavily negotiated. A lot will end up on the cutting room floor. And certainly Republicans will have their say as well. Oh, there's going to be many, many dances over many, many months. And that would have been the case even if it wasn't already teeing up to be a contentious year in terms of the budget. Kayla Tausche, we know you're going

to be very busy the next couple of days. Thank you for bringing us those headlines in the meantime. You think inventories are low now. Can you imagine if that went through? It's going to be interesting. Actually, we've got some breaking news now having to do with the crypto landscape. Christina Parts Nevelis has it. Silvergate, Christina? Yeah, Silvergate Capital Corporate is now announcing their intent

to wind down their operations and voluntarily liquidate Silvergate Bank. So this is just another negative headline coming from the company. Just last week, they delayed their annual report. They also, on Friday, they said that they were going to discontinue Silvergate Exchange Network. And all of this comes when the company we know in Q4 posted a billion dollar loss after the collapse of FTX. So again, Silvergate shares are down 40% right now just because they've announced their intent to wind down operations and voluntarily liquidate Silvergate Bank. So there's been a lot of negative headlines.

This is just another one contributing to the stock drop. I will note the stock is down a lot, but I'm looking at the price of Bitcoin. It's still right around $22,000. Doesn't seem to be doing much in response to this. I mean, I don't know if you have a sense of whether, you know, this is seen as being a ripple effect of FTX and not a trigger of any particular crypto systemic risk in and of itself. No, I would definitely say that and all the bulls would argue that this has to do particularly with FTX and not necessarily crypto. And you can even use yesterday's 500 point drop in the markets. And Bitcoin didn't really fall

that dramatically, which is helping the case that crypto or especially Bitcoin and maybe Ether might be a little bit more stable now that these conversations about regulations have been coming forward. But in this particular case, they're blaming FTX. It is. It's just it's staggering what has happened to this bank and how quickly it has happened. I know it's a great business case. That's for sure for school. Yeah. And the stock is lower. But you have Signature Bank, which is also has, you know, crypto focus is trading lower, down five percent right now in sympathy as well. There have been a lot of shorts in the silver in the Silvergate stock in anticipation as the FTX situation was blowing up that you could see the demise very, very quickly. It was just a year

ago, maybe not even, that at least among some in the investing community, investment banking community of Wall Street were really kind of looking at Silvergate as the next big hot thing, given the fact that the SEN was growing so rapidly. At the same time, we might not be done seeing the ripple effects here. I saw a headline today from Coindesk about Gemini's relationship with JP Morgan. Apparently, Gemini pushing back, saying there is still a relationship with JP Morgan, but maybe that's on the wane. I thought that maybe once the price of Bitcoin stabilized above 20K, you'd stop seeing this. But I wonder, you know, how long does this turn around and how much do things like Friday's job report have an impact, not just on stocks, not just on bonds, but on crypto as well? It's a key question. And certainly I think and this is particularly true of like the Bitcoin maximalists.

They will tell you that that Bitcoin, you know, is kind of been looped in with all the other cryptocurrencies. And it's not warranted. Now, whether you want to get into that or believe that or not, as a whole, another we could just ask Tom Lee about that. We should ask Tom Lee yesterday. But Bitcoin was, in fact, you know, kind of dragged into it with a lot of the trading. We've you know, we saw with the leverage that sort of dragged into it with a lot of the trading we've, you know, we saw with the leverage that sort of went into the system, et cetera. But it's going to be curious, and I should pull it up right now on my screen, and I will in a minute, to see how all the other coins besides Bitcoin, besides Ether and Ethereum have been doing, because I think the whole industry across the board has just continued to get rocked. Yeah. All right.

Up next, Mike Santoli breaks down an under-the-radar indicator on the housing market that's flashing a rare signal about pricing expectations. Stay with us. CNBC Senior Markets Commentator Mike Santoli is back with a look at the housing market. Mike. Yeah, John, Fannie Mae is part of its housing survey work. Ask people, do you expect home prices to be going up or down? It's been happening for a number of years and it's relatively rare for there to be more people saying I expect home prices to be down in the future versus those up. But it's happened right here. You see about 35 or so percent saying they expect weaker home prices to be down in the future versus those up. But it's happened right here. You see about 35 or so percent saying they expect weaker home prices. Now, you've had these couple of pockets back in around 2011 when you also had this be upside down. Then really briefly there,

pandemic time did not last very long. For what it's worth, the housing market was actually sort of embarking on a bit more of an upswing in 2011. And, of course, it came roaring back after 2020 with rates extremely low. So to me, maybe what this says is that housing sentiment has really gotten toward rock bottom levels. And so maybe it's only up from here. At least sellers might be a little more willing to put some supply out on the market if they're no longer thinking that prices are going to go up in the future. But of course, affordability is a big problem right now, Morgan, with mortgage rates around 7 percent. Affordability is really near record low. So a lot has to happen to soften up home prices at these rate levels to really get the market moving again. Yeah, it's a tricky thing, especially if you have locked in on a mortgage that's 2 or 3 percent and maybe you're not as

motivated to sell, even if prices are coming down, this is the key question. I think something like 80% of mortgages are now below 4%. It's incredible. So you're kind of in some handcuffs there. Mike Santoli, thank you. Up next, we're going to talk about what to expect from tomorrow's Senate testimony from the CEO of Norfolk Southern. That's following the train derailment in East Palestine, Ohio.

Welcome back. Federal regulators today opening special investigations into Norfolk Southern safety practices. The National Transportation Safety Board announcing its probe after a Norfolk Southern train engineer died yesterday at a Cleveland Cliffs facility in Cleveland. The fifth significant incident, according to the NTSB, since December of 2021. And the Federal Railroad Administration also planning a 60-day, quote, supplemental safety assessment of the company's operations as well, also announced this morning. This is scrutiny amounts for the freight railroad and the industry overall in the wake of last month's East Palestine derailment that resulted in the release of toxic chemicals. And as more accidents have occurred, including Saturday, when another Norfolk Southern train

derailed near Springfield, Ohio, it continues to be a talking point. Tomorrow, Norfolk Southern CEO Alan Shaw will testify before the U.S. Senate Committee on Environment and Public Works, ahead of that Norfolk Southern, released a six-point safety plan effective immediately, and today said it's conducting, quote, safety stand downs for leaders across the company. I will be at the Capitol for the hearing and will speak with committee member Senator Ed Markey after that testimony finishes up. John, in general, if you take a look at shares of Norfolk Southern, they are down about 12 percent since the start of the year. They are underperforming everything else within the transports, perhaps not surprisingly.

But very much what's going to be in focus tomorrow, I think, is safety and the environmental impact of what we saw play out in East Palestine last month. Yeah. Hopefully we've got some more answers. All right. Up next, how President Biden's budget proposal could impact Wall Street and your money, especially if you make more than $400,000. Welcome back to Overtime. It has been a wild overtime session of breaking news. We've got big moves from MongoDB, Uber, American Express and Silvergate Capital, which is currently down 31%. And tomorrow, President Biden is set to unveil his budget proposal, which is expected to include higher taxes on Americans making more than $400,000. We just heard this hour about new details, including eliminating tax subsidies for oil and gas and certain real estate and crypto transactions. Let's bring in Brian Sullivan, who's going to be discussing this topic on tonight's premiere of Last Call.

Brian. Yeah, thanks. Hey, guys. And there was just a commercial heading into it for the show. There's way too much Sullivan today, but I appreciate the love and support. The entire Last Call team does as well. Thank you very much.

A couple things. Number one, the oil and gas thing is interesting because as we showed at Sierra Week, oil and gas companies are paying like 33 percent in federal effective after deduction income taxes. Apple pays like 19 percent, 15 percent for some of the other tech companies. Pfizer, I think, was at nine. So there's this misconception that oil and gas companies don't pay taxes. It's clearly wrong. That's the kind of stuff that we would probably do on the show. You had Silvergate Capital. You were showing that maybe Leadgate Capital. This point's a better name for it.

You guys will hit the news, the stock. I think on last call, we'll take it a step further as far as what does it mean for industries, policies, the economy in general, money more generally, maybe a little fun, John. Are you going to talk about the debt ceiling and what it means? Because we're setting up the negotiation that's going to head there. I don't think there's any way. House Republicans, are they going to go for this real estate thing? Are they going to go for this oil and gas thing? They're not, are they?

No, no, no. I don't think the president's proposals. The budget's coming out tomorrow, by the way. That's going to be sort of our lead story, kind of lead with like a little opening riff on something. And I urge everyone to watch, not because I just would really appreciate if you watch the show at 7 o'clock, 4 o'clock Western time, by the way. But we're going to show some numbers from the budget, which I think literally will just like, you know, we had the RBI random, but interesting on Worldwide Exchange. That's

coming back, by the way. We're going to blow people's minds with some of the stuff on just how much we're actually spending in the federal government. You could agree or disagree. Doesn't matter. Preview. A little preview here. I give away. It's called a long tease. How about this? Give me a number. I'll meet you halfway. I'll meet you halfway, Brennan. It's almost per capita inflation adjusted. The federal budget and what we've spent, which is over the budget, thus the deficit, is almost doubled in 25 years. And that is in today's dollars. That's not in the money then and compared to the money now. If 2000 was today, the same money, we've almost doubled our per capita spending. We've all got children here. John, I want to ask you, right? Has your alma mater, DePaul,

and I'm not picking on DePaul, it's the same for mine too, has tuition gone down or up in 25 years? Well, are you talking the sticker price or what people are actually paying? The sticker price. Well, the sticker price has gone up, but that's not necessarily what the kids pay. But my point is- That's gone down in some cases. Fair enough. Healthcare costs. Some people pay more. Some people pay less. But I think any political persuasion would agree, I hope. And that's we don't want to be one way or the other on the show is that as the federal government has doubled its spending per person, every man, woman, child.

Have we gotten double our money's worth? I don't I don't. I think that's a key question. I don't know. It's a good it's a good question. During the pandemic, I mean, a lot of people got checks that kept them afloat. We live in New Jersey. We all. Well, you live in New York. We live in New Jersey. Our taxes in New Jersey. Now I'm talking state and federal keep going up. You're hurting me now. Guess what else goes up? Guess what else goes up? The tolls into Manhattan, the tolls of the New Jersey turnpike. Where's the money going? That's kind of what we're going to talk about, not just tonight, but a lot of... I wish it did.

I mean... Because you talk about... I think a lot of money is going to Texas. By the way, this is a couple years ago, and still Jackson, Mississippi can't get clean drinking water. Yeah. We're taxing the hell out of a lot of things, and why do we have places like Jackson that can't get clean drinking water? They're getting something, though, because net, they're getting money from the federal government as opposed to New Jersey, right?

Yeah, well, then where's the money going on the state level? But that's the kind of stuff we're going to take. It's all one country. We don't need to fight. We don't need to fight. I don't think it's fighting. I think everybody, no matter red, blue, green, whatever political persuasion you might be, and I got a nasty letter today from New Jersey because I'm unaffiliated. And now I can't vote in primaries because I'm not registered with any party. Because why would I?

I'm not either. You get the same letter. You're going to get it. I don't know. That's fine. I'll frame it. And then if you go to vote in a primary, you're automatically registered as a member of that party. So I couldn't vote for, like, a person now.

I know it's the primary. It's different, but it's gonna be a lot of stuff we're gonna do on last call. It's fun. It's live. Anything could happen tonight. It's the first night. Anything probably will happen. All right. We're looking forward to a trip or something. All right. Tune in 7 p.m. Eastern right here on CNBC. In the meantime, that is going to do it for us. That's money starts now.