Closing Bell - Closing Bell Overtime: Nike sinks on earnings, Commerce Secretary Raimondo talks Taiwan and Chips, Nordic American Tankers CEO on Red Sea turmoil 12/21/23

Episode Date: December 21, 2023

Stocks gained back ground following Wednesday’s slide, but Nike moved lower on quarterly results. Analyst Brian Nagel joins to break down the quarter. Commerce Secretary Gina Raimondo talks in an exclusive interview about chips and reports about China president Xi’s comments surrounding Taiwan, plus thoughts on Nippon Steel’s deal to buy U.S. Steel. The CEO of Nordic American Tankers on protecting his fleet in the Red Sea. And IMAX CEO Richard Gelfond on what big media consolidation would mean for the movie business. 

Well, stocks bouncing back from Wednesday's sell-off, back in positive territory for the week as well. That is the score current on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. And we've got a runaway hour lining up at the blocks in just a moment. Earnings results from Nike, one final read on the state of the consumer before the end of the year. We'll bring you those numbers as soon as they cross. Plus, a cannot miss exclusive interview with Commerce Secretary Gina Raimondo on new efforts to boost the chip supply chain and reaction to reported comments from Chinese President Xi Jinping about reunification with Taiwan. And IMAX CEO Richard Gelfand on talks

about the prospect of a mega media merger between Warner Brothers and Paramount, what it would mean for the movie business. Stocks making a comeback after yesterday's late day sell off. S&P, Nasdaq and Russell 2000 adding more than a percent today. Mike Santoli is back with us at the New York Stock Exchange. Mike, is this bounce convincing and does it even matter given the lack of sellers at the end of the year? Yeah John I would say I don't know about convincing in other words there was no verdict that was really returned today based on you know what happened yesterday and we regained two thirds of it.

It's somewhat reassuring though that yesterday's action this sort of mechanized overshoot to the downside after we hit a few kind of technical tripwires and we're left with no fundamental buyers to get in the way, that it wasn't spilling into another day. I think that's the minimum you can say. Also, that everybody, bull and barrel like, knew that we were due for some kind of a pullback. It kind of came all in one bite and perhaps a few days later than we might have expected. So we still might have a little bit of excitement to work off, given how everybody has kind of gone on to the soft landing side of the boat and maybe it's gotten a little crowded in the short term. However, today's GDP revisions did nothing to really disturb that idea

that a soft economic landing remains plausible, bond yields are tame. So things look fine. It's just a matter of how the stock market's field position gets adjusted here. Visions of sugar plums. You know, we have favorable earnings as well, Mike. Carnival, Cruise Lines, CarMax, Micron. Investors responded positively to all of these tapes. And to your point, it sort of reconfirms this idea that maybe a soft landing is in the cards for 2024. For sure. I mean, you know, the idea that we are emerging from a shallow

earnings setback in the, you know, quarters past is still intact. And if you look at what's supposed to deliver the consensus 10, 11 percent earnings growth next year, which might get revised down, it's actually not that wild an expectation based on the size of the companies that are supposed to have their kind of predictable growth and then just some basic accounting comebacks from some areas like pharma. So it's not as if every company is expected to sort of accelerate to a 10% earnings growth. So it does seem as if incrementally we can get some reassurance that those numbers make sense. So I think it's important to recognize a lot of that growth's supposed to happen in the second half of 2024. So it'll be a while before we know for sure how that trend looks.

Okay. Well, stay close because we're going to see you again in just a few moments, Mike Santoli. But let's continue the market conversation with our first guest. Joining us now is Richard Weiss of American Century Investments. Richard, great to have you on. I mean, we were just talking about it, right? The fact that so much of the market and investors in the market right now seem to be buying into the soft landing narrative. Do you? Well, not really. You know, I think everyone agrees we're landing, right, whether it's soft or a full blown recession is open to debate. But I think to some extent that it's an academic debate. We're still leaning towards something near a recession. And you don't need me to, you know, read off the litany of, you know, clouds on the horizon.

Right. Manufacturing and recession, inflation coming down, but still problematic, lagged effects of monetary policy, et cetera, the debt to GDP ratio. I mean, we had a bunch of stuff to worry about. And this recent relief rally, if you will, in the stock market has clearly priced in the good news. But what are we celebrating? You know, the end of Fed rate hikes and the fact that we won't have a recession? Huzzah! I don't see how that's cause for celebration, quite frankly. And, you know, just looking at it the other day, the U.S. now has the dubious distinction of leading the rest of the developed world in two key financial measures, debt to GDP and price earnings ratio. And how you reconcile those two for the long term,

I don't know. It's a key point. And it's one we haven't really talked perhaps enough about. So given the fact that you're skeptical about what this landing actually looks like, how are you positioned for 2024? Pretty much the same way we've been for majority of the past two years, which is leaning towards fixed income, cash, short term, more recently longer term fixed income. And if you look at the two year period, that's end of 2021 to the present, cash has outperformed stocks. That's the S&P. I mean, if you look at equal weighted stocks, so you take out the Magnificent Seven or you look at the Russell 2000, cash has stomped stocks over the two-year period. And so we're sitting there for the short term. We just believe stocks have gotten a little bit ahead of themselves, potentially cruising for a bruising, if you will. And the

market is just too calm, too chill. Look at the VIX index. Where is it? 12, 13 today, back at pre-pandemic levels. It's just it's quiet. It's just too quiet. But at the same time, Richard, if you sort of bought into the S&P March 2020, say at those lows and just kept dollar cost averaging in, you know, last year aside, you've done quite well. So I wonder, I mean, a recession, if we get one, you say you kind of suspect one is coming, doesn't necessarily mean a horrible stock market. So if the economic slowdown is going to be bad for stocks, what do you think is the canary in the coal mine? How will we know? Oh, I think all eyes on the labor markets, right? That's not news. I mean, we're looking at it too.

When you start to see cracks in the jobs numbers, that's when the Fed's going to have to start coming to the rescue. And let's face it, this is going to be a tough year for political reasons and financial reasons. Just don't see how we're going to get any fiscal policy accommodation through. So if we do hit anything that nears a recession level, it's going to be hard to pull up before we land. It's going to be a hard landing. In 2024, what does a crack in the job market look like? Are you talking about major job cuts or job numbers that are just coming in very weak?

What does very weak mean in 2024? I'll take the unemployment rate. What is it, the SAM rule, right? When the three-month rolling you know, a set distance from the 12 month rate lookout. And that's been historically pretty accurate. So you get that unemployment rate moving up to, let's say, four, four and a half pretty quickly. That's going to spell trouble for the market. There's going to be layoffs. That's going to slow down the consumer. And that's that's the main driver of what's been going on. Admittedly, we're in the majority. We've all been surprised by the resiliency of the U.S. economy and the U.S. consumer in particular. But that has not spread globally. We are one of the few developed economies where that's been true.

Europe, a lot of the Far East, definitely harder landings than we're about to hit. All right. We'll see if the Grinch shows up after the new year. Richard Weiss, thank you. You are just like overflowing with Christmas puns right now. This is the only time. It's the only time, Morgan. So I just got to I just got to do what feels right. And what also feels right is bringing back Mike Santoli with a look at how investors are positioning themselves as we enter this final stretch of the year and of Christmas puns, Mike. Yeah, exactly. Well, John, the one year chart of the S&P 500 tells you that

yesterday's wobble didn't really amount to a whole lot, but it does still suggest that there's a good deal of air underneath the market here. And what would a normal pullback look like? I think that's always the question to ask once we've been rallying for a while, up 16 percent in six or seven weeks. And I think it's the mid-3600 seems somewhat logical to me. That's sort of the 20-day average. Also, it's where we blasted off from when we got the really friendly CPI and PPI reports just a couple of weeks ago, a week and a half ago, and also, obviously, the Fed meeting. So, that kind of would take you back to right around there. Not a big deal either way.

So, the other thing to keep in mind is one of the setups for yesterday's air pocket was people have gotten very long the market. Equity exposures are higher. One way to measure that, there's this weekly National Association of Active Investment Managers poll. It shows their equity exposure. It's up above 90 percent. It's a little bit below the July peak, which did coincide pretty much with the high in the market. I do want to stress, though, that if you went further back in like 2021, 2019 in bull market environments when the market is in an uptrend. It's fairly routine for this number to get up here and stay up here for a while because people basically these folks are active. They ride the rallies and get out of the way of declines.

So I would say it's another sign that people are almost all in. And maybe it's time for the market to cool off a little bit, but isn't necessarily a big red flashing light for the bulls. I wonder, Mike, if they do ride the rallies, then isn't that just a sign that there's been a rally or is there something else underlying that particularly is a yellow light? It's both that just the market has gone up and they've gained exposure to it. But you do want to see the relationship between those things, because, you know, just a week ago, it was a good deal lower. So basically, there are times when they try to catch up to the market and times when they fight the direction at least a little bit more. So yeah, it does sort of oscillate along with the ebbs and flows of the market. But there are periods of time when it sort of just represents the fact that people have more or less capitulated into the market.

Are geopolitics factoring into any of these surveys, any of these data that we're getting in terms of how investors are putting their money to work for 2024? Because we certainly are getting a lot of headlines from a lot of different parts of the world right now. You know, it's really hard to isolate that, Morgan. I mean, I would suggest maybe part of the depressed consumer sentiment type numbers reflect just a sense of things don't seem perfectly right in the world, as opposed to a specific economic complaint. I'm not sure if that's the case, but you really can't find it in the behavior of actual investors, where money is flowing and where it's not. So I don't think that that's necessarily a big overlay on sentiment at the moment.

Mike Santoli, we'll see you in a bit. Meanwhile, Nike is due to report its results in just a few minutes. We'll bring you those numbers and get instant analyst reaction next. Plus, we will talk to the CEO of Nordic American Tankers. Speaking of geopolitics, he has a ship currently operating in the Red Sea. He is going to tell us what the company is doing to safeguard its workers and cargo when overtime returns. Must have life cereal on the brain. Nike will be reporting its second quarter earnings any moment.

Joining us now is Oppenheimer Senior Equity Research Analyst Brian Nagel. Got an outperform rating, $150 price target on the stock. Brian, what matters more in these numbers to whether you can still buy Nike here, margins or China? Well, good afternoon. Both of those are important. Look, I think as far as what's going to drive the direction of the stock as soon as they report, it's probably more China. But again, margins are very important because that tells us how much Nike's selling through full price. It tells us about the inventory situation. So both very important points, John.

So long term, which matters more? I mean, because China, even if it's bad for this quarter, maybe not as bad going down the line. And if China's bad and it sells off, does that mean if the margins are good, investors can look at buying? It's a tough question. I mean, there's no there's no there's no question that we're Nike trades and how investors think about this stock over any length of time. China is a very important piece of that. OK, but again, margins tell us a lot. Like I was saying, margins are going to tell us the health of the business right now, but also gives us some hints into kind of the direction on the product innovation side, gives us direction on the uncompetitive side. Again, both very important. But I have to say, if you're thinking longer term, it's probably more of a China dynamic.

OK. I just want to note that Nike results are out. We're going through them right now. We'll bring them as soon as they are ready. In the meantime, Brian, I realize that we're waiting to see what the stock does and what those numbers actually entail. But do you buy at these levels, especially since, I think you've sort of implied it, the bar is kind of low coming into these results? Yeah, look, I think you very much buy Nike here. I mean, Nike's had a nice bounce off the bottom. I know, you know, I've been talking on CNBC quite a bit about it.

So it's had a nice bounce. But look, I think the stock is still inexpensive here. I think this is an extraordinarily well-positioned global brand that's sort of, say, just getting its momentum back. And I think, again, I think we're going to see that in the results here for Q2, but I think it's very much a story for 2024 where we see this momentum returning to the Nike brand. Brian, we're going to hang tight because we've got the results. Sarah Eisen has the numbers. Sarah. Hi, Morgan. So it's a big bottom line beat for Nike, $1.03, earnings per share. The expectation was more like $0.84 per share. So big beat on the bottom line. On revenues, it's pretty much in line, 13.4 billion. Expectation was around 13.39 billion. It represents 1% growth. And that was expected to be flat growth, especially comparing it to

this quarter last year when they saw 70 or excuse me, 27% growth. Just want to bring you some other numbers here, including gross margins, which were obviously impressive here. It was a profit led beat, 170 basis point increase in gross margins, 44.6%. So that is a beat on margins. And then another piece of news here, sort of unexpected piece of news. Nike is announcing a new cost savings plan, deliver up to $2 billion, they saying, cumulative cost savings over the next three years. Potential savings areas, according to Nike, include simplifying product assortment, increasing automation and use of technology,

streamlining our organization, i.e. layoffs, and leveraging our scale to drive efficiency. I added the layoffs part, but no doubt that's what's involved here. I don't think on any major scale or else they would have announced that. But clearly Nike is shifting into a position of prioritizing profitable growth, Morgan & John, at a time where overall revenue growth is clearly downshifting. This is a company that gives forecast guidance on the call, usually comes toward the back end of the prepared remarks. So that'll be important as well, especially what they say about the overall demand environment. One other number that I'm just noticing here is

digital sales, which also I think shows a little bit of softness in the overall economic and spending environment. They increased 4%. And that's a number that we haven't seen in a while. Nike has been seeing strong growth on digital sales. I'm going to dig through this. I'll try to get you some of the China numbers as well. Just initial take here. It looks like 8% growth in China, which is pretty much in line, but also represents a bit of a downshift because the company had been seeing double-digit growth in China over the last two quarters.

So I would say revenue is pretty much in line. A profit beat not good enough, I think, for the market right now, which may be more worried about the demand environment. But I'll continue to go through it for you and bring you any updates. All right. Sarah Eisen, thank you. Thanks. Shares are down 3%. Brian, I want to go back to you, get your initial reaction to what we just heard from Sarah, whether it is 1% top line growth, whether it is the cost savings initiative or the gross margin beat, despite the fact that we're seeing some slowdown in digital sales in China and in overall top line growth? Well, look, I was just looking at Sarah very closely. I think there's a number of positives there, right? I mean, they're clearly the more profitable than

expected quarter. She called out the gross margins again, which like positives there, right? I mean, they're clearly the more profitable than expected quarter. She called out the gross margins again, which, like I was saying previously, I mean, you know, we'll get more information on the conference call. But, you know, usually that's a pretty good sign that there's greater sell through, greater full price sell through. I apologize. And, you know, there's probably, you know, we're working past the supply chain disruption. So that's a positive. I think the cost savings is going to resonate really well with investors. You know, there's been one of the knocks, if you will, on the Nike story on the part of investors has been Nike has spent a lot to a lot of investment. We haven't necessarily seen the returns on that. So now that we start

to implement these cost savings, I think that will be a positive. Now, the one negative, and this is probably why the stock's trading down, at least initially, slightly, is the top line. You know, you didn't get that big beat here. Again, we'll see what they say on their conference call. But we've got to keep in mind that Nike has been very diligent in basically, when I say starving their wholesale champ. They have not been shipping a lot of product. They wanted to make sure as we go to 24 that inventories were in very good shape. So I think we're seeing that effect on the top line. Again, I think it would be more important with their commentary kind of where we go from here. You know, if inventories are now clean, do they start shipping more product?

All right, Brian, thanks. We've got to get back to Sarah Eisen now for more on this report. Sarah, you mentioned the 8% constant currency growth in greater China, but that's all in apparel, not footwear. I wonder if that matters. Yeah, I mean, it's certainly interesting. And all the comments on China are going to be interesting. And it does represent, as I mentioned, a little bit slower growth than we've seen in previous quarters. But another reason the stock might be lower here, and this is unusual for Nike to call out, at least in the release. There's a quote from Matt Friend, who is the CFO of Nike. And in it, he says in this release, as we look ahead to a softer second half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management.

Nike is telling the street we're looking at profitable growth. It's why we're doing the savings. But we are expecting a weaker second half outlook. Remember, this is the second quarter for Nike. They're on a funky fiscal calendar. So I think that that probably raises questions about what they're going to say about guidance on the call. And they haven't warned about the demand environment like that, at least in the release in a while. Interesting, Sarah Eisen. Thanks, Brian. Lastly, to you, apparel is stronger for them in footwear in China. That reminds me of Lululemon and how they're doing. But there's also this pipeline of new products that people have been hoping will be strong for Nike. What does all this say about that? Well, it's kind of mixed. I mean, so I don't think

that the new products they've been teasing, so to say, I don't think those are the numbers yet. And that's really a 24 issue or 24 dynamic. And, you know, particularly as we head towards towards the Olympics. So we'll probably get some more color on the conference call, but I don't think we're necessarily seeing that in the numbers. I just meant the weaker guide as far as that goes. Yeah, that's a good point. We're going to have to defer to the conference call to get more color from Nike, but I think Sarah brought up a good point. The tone in the press release is definitely more downbeat on revenue or sales, I think, than most people were expecting.

So we'll have to get more color on that. But that that that potentially seems like an unfavorable shift here on the part of Nike, just with respect to revenue growth. OK, shares accelerating in terms of the selling right now, down almost 5 percent in overtime. Brian, thanks for joining us and giving us your instant reaction. When we come back, an exclusive interview with Commerce Secretary Gina Raimondo on the Biden administration's push to reduce national security risks posed by Chinese chips. Also, her first thoughts on U.S. steals deal with a Japanese rival. Stay with us. Welcome back to Overtime. The U.S. Commerce Department announcing today it will begin gathering information on the semiconductor supply chain to better understand where American companies are getting their legacy chips and the role China specifically is playing in that.

In January, the agency's Bureau of Industry and Security, BIS, will survey more than 100 companies across sectors about their sourcing of these chips, which aren't cutting edge but still vital to the global economy. I spoke exclusively with U.S. Commerce Secretary Gina Raimondo just a short while ago, and I asked her why the survey is necessary and what she expects to discover from it. It's necessary because we're starting to hear some anecdotes about evidence that China's subsidization of the legacy chips that they're making is starting to distort the U.S. market.

And these are chips that matter so much to, these are the chips that are in cars, medical devices, medical equipment, military equipment, all across the defense industrial base. And so we need a vibrant U.S. industry. We can't have China's subsidization distort this entire global market. So I've heard enough anecdotally that I'm worried. And so now we want to get the data so that we can have all the facts before we take any action. So given the fact that you're going to launch this survey January next month, how long will this process take to actually collect this data and then be able to assess it? You know, it depends how quickly companies reply. Of course, it's in their interest to reply.

But, you know, I'd say a few months. So assuming that this is the situation with China, and we have seen this with China flooding the global markets for steel or solar, for example, you do have a number of tools at your disposal. You have tariffs, which have been used in the cases of steel and solar. You've got export controls, which you're now using with cutting edge AI chips. How would you approach this situation? What would be the right tools to address it? Right, exactly. So you mentioned solar, which is an important point. The reason I'm doing this survey is to be proactive before it's a giant problem. So right now, we have no reason to believe that there is any kind of massive market distortion,

but it may be coming. And so we want to be proactive, collect the data so that we can be precise and targeted when we use our tools. I don't know what the tools will be. You mentioned tariffs. That's an option. Export controls. That's an option.

Working with our allies around the world. You know, there are different tools in the toolbox. Step one is get on top of it early, get into the supply chain deeply, figure out is there a problem, where is it, how big is it, and then work with industry and our allies to do whatever we need to do in order to protect American companies and American industry. In the release, you say the survey is going to inform policy to bolster the semi-supply chain as well. Does that mean that it will help shape some of the future investments and funding that will happen through the CHIPS Act as well? Absolutely. You know, every piece of data that we gather makes us smarter investors of the taxpayers' money. So, obviously, as we know, part of the funds from the CHIPS Act we want to use to expand domestic manufacturing of these chips by companies doing this in the United States. We have to make sure that they're able to do that economically and that the Chinese aren't, you know, dumping a bunch of subsidized chips into the market.

That makes it uneconomical to do this in the U.S. Last week, you announced the first CHIPS Act funding, the first investment. It's to BAE, a defense contractor, sends a clear message on the priority that national security is playing in all of this policy as well. How reliant is the American defense industrial base on some of these legacy chips? Do you have a sense of that yet? Massively reliant. Most of the chips in the defense industrial base are the current, what's called current and mature, as you say, legacy chips. I mean, that is what's in so much of military equipment, tanks, drones, fighter jets, all the naval equipment. So this is a big

deal. And that's why we need more of it made in the U.S., packaged in the United States, and why we have to be so careful to, like I said, be proactive. We know the Chinese playbook, right? We shouldn't be surprised. This is the playbook they've taken with solar, with critical minerals, with steel, with aluminum. So I want to get ahead of it to protect U.S. industry and workers and meet the needs of our military. So shifting gears a little bit, just this week, NBC reporting that China's President Xi warned President Biden during that recent APEC summit that Beijing will reunify Taiwan with China, though the timing, at least according to reporting,

not laid out or at least not determined within that report. You were in the room for that meeting. Has there been a shift in tone from China regarding Taiwan? Has that threat become more acute? I don't think so. I don't see any change. I was in the meeting. President Xi didn't say anything to us that he hasn't said before. And, you know, as I think I told you before, it was a good discussion between the two world leaders.

It was frank. It was positive. It was direct. Taiwan came up, but no new news. OK. Steel, as we've been talking about, Japan's Nippon Steel announcing a $14 billion deal to acquire U.S. Steel earlier this week. The union has already come out against this deal. We've had a number of lawmakers across the aisles come out against this deal as well, some of them citing national security concerns. Where does the administration stand? Well, President Biden is so focused on making sure that we have a vibrant steel industry in the United States for national security purposes. And we could not ever support any deal that would undermine U.S. workers, the steelworker union, or the steelworker industry.

So without commenting on this particular deal or any regulatory approval that it would have to receive, I think it's fair to say it would receive a good bit of scrutiny because we have to protect the U.S. steel industry, U.S. production and U.S. steel workers. You know, it's interesting, John, because Nippon has been out this week saying that this deal would actually help to counter the heft and the dominance in the steel market that we've seen from the likes of China. But the Biden administration also this week taking the first step toward regulating AI, part of that rollout of the executive order. All of that's happening under commerce right now. And I asked the commerce secretary about that and specifically the balance

of doing that, safeguarding and regulating generative AI, even as some of these other countries like China race to develop their own capabilities and their own technologies. And the secretary is saying you can only harness the benefit if you keep a lid on the risks that, quote, if we let bad things happen, that will actually stifle innovation because that will lead to over-regulation, which I think is very indicative in general of how she's approaching policy and this balance between national interests and business interests. Yeah. Yeah. The other part that's interesting to me, cheaper chips from China would be deflationary, which would be a good thing as long as they're not dumping them and subsidizing chips. That's also what we're doing with the Chips Act. So I guess it's a question of volume.

Time now for a CNBC News update with Bertha Coombs. Bertha. Hey, John. Ahead of an expected vote on Gaza aid from the U.N. Security Council today, a new report from the U.N. and other agencies says that more than half a million people are starving in Gaza. The report says not enough food has entered since Israel declared war on Hamas. An estimated 1.9 million residents in Gaza have been driven from their homes. The widow of murdered Saudi journalist and Washington Post columnist Jamal Khashoggi has been granted asylum in the United States. His widow, who went into hiding after he was murdered in 2018 by Saudi assassins, has asserted that her life would be in danger if she returned to her native Egypt

or the UAE, where she lived for many years. And Hyperloop One, the company founded in 2014 with the prospect of ferrying people and freight in tubes at high speed is going out of business, according to a Bloomberg report today, which says the company has laid off most of its employees and is selling its remaining assets. Yeah, I don't think we're all ready to go in that particular tube. Not that particular one. Sign of the times, Bertha. Thanks. Up next, Mike Santoli, still relevant. He's returning with a look at companies that have high exposure to the Chinese market, like Nike, how they've performed since the beginning of the COVID pandemic. Overtime will be right back.

Welcome back to Overtime. Let's get another look at Nike. It's down more than 5.5% right now in Overtime. Mike Santoli returns with his take on the stock. Hi, Mike. Yeah, Morgan, you know, it's hard to categorize Nike along with its direct peers. It's so much bigger, so dominant in that area. So another elite U.S. consumer brand with a huge global footprint and also exposure to China. Starbucks seems like it's a decent comp just in terms of how investors view the opportunity. And you can see over four years, really not a lot of ground gained by net by Nike and Starbucks,

though Nike has had a little run into today before this and did have a big kind of period during the pandemic when people were flocking to those durable U.S. brands. So definitely some comeback potential against the S&P 500 if they can obviously sort out those bigger issues. Also, still trade at premium multiples. Now, take a look at Nike relative to Netflix in market capitalization terms. Surprisingly, perhaps, they've really moved in lockstep again over the last four years or so. They're in the same spot. And I think also they are kind of category leaders. Obviously, they're sort of the default brand for what they do. Very much secular growth, very much global exposure, but not necessarily seen as the easy bet that they were both during lockdown times when they

did get that pandemic premium, Morgan. All right. Interesting comparison there. Mike Santoli, thank you. Shares of Nordic American tankers surging more than 14 percent over the last week as attacks on ships in the Red Sea fuel a shipping and prospective supply chain crisis. Up next, the CEO of the oil tanker company is going to discuss how that's impacting his business and whether he plans to raise rates. And later, find out how potential merger of Paramount Global and Warner Brothers Discovery could impact the movie industry when we're joined by the CEO of IMAX. Overtime will be right back. Welcome back to Overtime.

The Red Sea remains in focus as shipping companies reroute tankers originally headed through the Suez Canal following Houthi attacks. Nordic American Tankers currently has one tanker there right now while diverting other vessels to go around Africa. Nordic American Tankers CEO Herbjorn Hansen joins us now. Herbjorn, it's good to have you on. You have a fleet of 20 vessels. You have one that is traversing the Red Sea or I think the Suez Canal, if I'm not mistaken, now. What is the situation as it's playing out, as you understand it, on the ground? At this time, we have a few main considerations. That is safety for crew, safety for ship, safety for the environment.

And furthermore, we get a very strong support from the United States. As you may know, we are listed on the New York Stock Exchange. And this is a very complicated matter, and all major decisions associated with this, they come onto my table. And what we see now, there are too few ships, and that means that ship prices go up and freight rates go up, because we need to divert the ships, say, from America to China via South Africa. In the past, we went from America into the Mediterranean and through the Suez Canal, and we avoid that now. It is a complicated matter, but we are working in this area extensively. So you're already seeing in real time that insurance costs and shipping rates are going up as you divert and others divert vessels around Africa. How much is this going to impact delivery timing and supply chains and perhaps even directly energy prices now? It will impact the total time from America to China around South Africa.

It's about 10 to 15 days longer than going through the Mediterranean and through the Suez Canal. So it will impact freight rates. It will impact impact ship prices. And we, our main customers are the biggest oil companies in the world, ExxonMobil, Shell, British Petroleum, etc. And they will have to foot the bill when insurance costs go up. In the end, you know, it will end up on the table of the consumer. Yeah. And Herbjorn, you said earlier this year that high spot rates were going to help you and your company pay off debt, eventually raise dividends within two years. How does this

situation affect that? It is going very well forward. We will become debt-free within a year or so, and that will enable us to raise our dividends. And we are a dividend company, and we have paid dividends for 104 or 105 quarters, and we shall continue to pay a dividend. What we are dealing with here is a risk management question. And our main profession, that is to manage risk. That is our work, and that is our focus, and that is what we have done all our life. So in light of that, when we talk about managing risk, I mean, this is an area of the world, the Middle East, the Red Sea, the Suez Canal, that has seen its fair share of risk over the decades. How does this compare to other incidents we see? And as the U.S. Navy and other countries beef up security with Operation Prosperity Guardian in the region, how do you expect this to end? We are doing business in the Middle East all the time because that is where we find

our cargo. We have a lot of business with Iran, which is a close ally of the United States. And we have a lot of business with Saudi Arabia and all the countries in that area. And we are used to managing risk because whether we like it or not, we are in a risky business. But that is our profession, to manage risk. And we have done that successfully. And you know, we are used to it. And this business in which we are involved is not a business for nervous people. They should find something else to do. All right. Herb Bjorn Hansen, thanks for joining us of Nordic American Tankers.

Pleasure to be with you. Thank you. Up next, the CEO of IMAX is going to weigh in on how a potential merger of Warner Brothers Discovery and Paramount Global could impact Hollywood and the box office. Over time, we'll be right back. Welcome back. Warner Brothers Discovery and Paramount both ending the day lower after reports that the companies talked about a potential deal. Let's bring in IMAX CEO Richard Gelfand. Rich, would this tie up be good for you or no? So, John, I think it's way too early to speculate. I think the media got a little bit ahead of itself. You know, they reported there was one meeting.

Obviously, there are a lot of obstacles to something like this happening. And I trust taxes, financing, a lot of debt there. You know, for IMAX, I mean, we have a great relationship with both companies. You know, I never get ahead of my skis that far. And I think that's too far ahead to speculate. Well, I'm not saying whether they should do it or whether it's going to happen, but I'm asking whether it would be good for you if there were fewer players in the business. Often, I mean, because I think that's the kind of question regulators would ask, right? Like, what's this going to do to Rich Gelfand or other, you know, theater operators? Would this be bad for them?

Well, first of all, we're not a theater operator. We're a technology licensing company. You know, we play blockbuster movies. So the question is what the impact would be on blockbuster movies. And the answer would be, you know, I think we're still going to end up doing Mission Impossible 8, which we're doing in 25 with Paramount. And I think we're still going to do Dune 2, which will be a great movie that comes out this year with Warner and Joker. So for our particular company, I think there'd still be a lot of blockbusters. That's a segment of the market I don't think it would affect.

So I think it would probably be neutral. Rich, what's so amazing to me is I'm just looking at some of these stats. And IMAX Global Box Office, you're on pace for the company's second highest grossing year ever worldwide. Domestically, the highest grossing year ever in North America. What do you attribute the fact that folks seem to be going back to the theaters, going back to watch films right now? I mean, how much of this is higher traffic? How much of this is higher prices? Most of it is traffic, Morgan.

I think, you know, there are a number of reasons, but we're diversified globally. We're in 90 countries. So we're not really, you know, tied only to the North American box office. I think 20 percent of approximately of our revenues this year were from local language films, meaning know, that's made a tremendous, that was a tremendous growth area for us this year. And I also think, you know, it's a premium experience. We create awe-inspiring content. Post-pandemic, people really want something different than they're getting on their television set streaming. And I think we benefited from that.

Our market share is up a lot. All of those factors. On a day where Nike just reported earnings and investors are keenly focused on the state of the Chinese consumer, China's your largest market worldwide in terms of screen numbers. What are you seeing? So, you know, this is somewhat surprising, but as weak as the economy was this year in China, the movie industry really made a very strong comeback. So we're not quite where we were in 2019, which was the highest point ever.

But we certainly were much higher than over the last couple of years. And Chinese New Year was the biggest Chinese New Year ever, which is important because Chinese New Year this year comes in February. And the summer box office in general in China came back a lot. So, I mean, it's surprising to me, and I'm sure to a lot of your audience, but for whatever reason, that was a consumer sector that did well that year, last year. And I think that'll continue. Streaming business focus turns to profitability. Does that mean windowing's back for good? I think so, John. I mean, you know, I think all of the streamers and the studios that do both have noticed that their streaming revenues are higher for movies that have

a theatrical window first. So last year, Top Gun Maverick, which was the highest box office movie in 22, was also the highest PVOD and streaming movie. And you look at what the streamers are doing. So, you know, Apple this year released both Napoleon and Killers of the Flower Moon, theatrically, because they believe that that would help their streaming revenues, as well as the overall run of the movie. Amazon has done the same thing. So, you know, Netflix beats to its own drum, and I think we have to see what they do. But in general, I think the windows are here for the future.

All right. Richard Galfond, thank you. I love seeing a movie on the big screen, personally. That all leads perfectly into the latest installment of my On the Other Hand newsletter. This week's debate started on Squawk Box. Should Warner Brothers Discovery buy Paramount Global? I weigh both sides of a potential deal. You can sign up for that newsletter at cnbc.com slash O-T-O-H.

It's a great debate, as it always is, every week. Is a bidding war in the works for the space industry? Find out why a deal for United Launch Alliance could be heating up when Overtime returns. Some space news just crossing. Rocket Lab jumping after the company said in a filing it had entered into an agreement with a U.S. government customer to design, manufacture, deliver, and operate 18 space vehicles in a contract worth $515 million. Shares are up 11%. In other space news, United Launch Alliance, which has been on the sale block since earlier this year, reportedly receiving takeover bids from Jeff Bezos, Blue Origin, and private equity

firm Cerberus. That's according to the Wall Street Journal, which also says Textron expressed interest. Either no response or no comment from all of the companies, including ULA's joint owners Lockheed Martin and Boeing. Jeffries has estimated ULA could fetch as much as $3 billion. The rocket maker is poised to launch its new heavy lift Vulcan for the first time as soon as January 8th. It's on the launch pad. Blue Origin, whose own orbital rocket has faced years of delays, supplies engines for Vulcan, and sister company Amazon is a big ULA customer. For Cerberus, such an acquisition would represent a new foray into launch services,

but certainly not its first brush with the industry. Cerberus owns Stratolaunch, which it bought from the estate of late Microsoft co-founder Paul Allen in 2019. Stratolaunch was originally intended to air launch rockets to orbit, but the company has pivoted to hypersonic testing and research.

Strata Launch is actually the subject of the latest episode of Manifest Space, having just recently marked a milestone in its path to that hypersonic testing. You can listen to that Manifest Space interview with Strata Launch CEO wherever you get your podcasts. All right. And tomorrow we've got durable goods, Michigan consumer expectations. There's a lot to watch. There's a lot to watch. Nike selling off right now. That's going to do it for us here at Overtime, though.