Closing Bell - Closing Bell Overtime: Rare Interview with Former Yahoo CEO Marissa Mayer and Stocks Surge After Banks Rescue First Republic 3/16/23

Episode Date: March 16, 2023

All three major averages were well into the green today and the Nasdaq is now up over 5% on the week. Vital Knowledge’s Adam Crisafulli gives his take on the action while Broughton Capital’s Donald Broughton reacts to FedEx’s strong quarter as the stock surged in after-hours trading. Plus, is a recession in the cards? Citi’s Scott Chronert and Sumit Handa of Pennington Partners debate where stocks go next. Jon Fortt had a rare interview with Sunshine Co-founder and former Yahoo CEO Marissa Mayer. She shared who will win the race for AI dominance, plus what she thought when she hired Sundar Pichai at Google. GTIS CIO Tom Shapiro joins to talk what clues the commercial real estate market might hold for investors. Finally, Virgin Orbit stock fell sharply after pausing operations and furloughing staff for a week as it seeks more funding. Morgan Brennan reports on what’s next for the company. 

Another day of big market moves with a rally into the close here. 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. We're just moments away from a key barometer of the economy, the global economy, when we get earnings results from FedEx. We'll bring you the full analysis of those numbers. And later, a rare conversation with Marissa Meyer, former Yahoo CEO, early Google employee, current co-founder of Sunshine on the SVB collapse, the big tech AI race, and much more. I am looking forward to that. Now let's get straight to the market action and today's strong rally with our first guest, Adam Crisofulli from Vital Knowledge. Adam,

should we just ignore all of this turbulence with the banks and pay attention to what's happening with the mega caps or what? No, I mean, you can't ignore the banks. It's the most important sector of the whole market. It's really foundational for everything. It drives the economy. So what happened starting last week is certainly very important. It's probably going to have some effect on psychology, if not actual underlying growth going forward. But I think if you kind of look back over the last few days between what was announced Sunday night with the new Fed facility, what was announced overnight with Credit Suisse, and then what was announced about an hour ago with the $30 billion deposit

at First Republic, I think that's going to help to begin the repair process of rebuilding confidence in this group, helping to stabilize some of the stock price action, hopefully stem some of the outflows of deposits that you've been seeing out of certain other regional banks. So can't ignore it at all. It's certainly very positive. You know, today was a better rally in that it was a lot broader. You had more participation. It wasn't just tech. There definitely is a lot of people pouring money into tech, but it was a lot broader, you had more participation. It wasn't just tech. There definitely is a lot of people pouring money into tech, but it was a broader rally type just encouraging. Yeah.

Do you remain constructive at these levels? Because you've been on our show in recent weeks, but this was also before we had bank failures and all the maelstrom around that industry right now. Would you still be buying at these levels? Yeah, I mean, you can't ignore what happened with banks. Like I said, it certainly is very important. I don't want to be Pollyannish and completely dismissive. You know, I don't agree with the analogies to 2007, 2008, but I do think the disruption is enough, coupled with progress

that you are seeing on the data front, certainly not as quickly as the Fed wants, but you are seeing movement on the data in the right direction. So that coupled with what's occurred with banks is going to help to alleviate the aggressive monetary tightening that you've seen from central banks. That's going to remove a big headwind. And you've also, I think, seen the highs for yields as well. And that removes another big headwind for valuation. So I think it's now kind of gauging the growth reaction over the coming weeks and months- and then getting a sense for earnings which you know earnings season kicks off in a in another couple of

weeks just to get a feeling for economic activity during this period of time if it was- you know permanent get permanent damage or just kind of a flip that will get back on track. So then I what matters out of the Fed next week? Does it even particularly matter what the market is pricing in now? You know, 25 basis points or nothing? Or is it more about where the terminal rate is and how long it takes to get there? Yeah, I think the terminal rate question is going to be more important. You know, I think the ECB today, you know, they definitely have a very, very difficult choice to make in this environment where they don't have the benefit of benign inflation. And they also are dealing with all this market volatility.

So I don't think the Fed can completely reverse itself, but certainly they can slow down the pace, you know, stay at 25 basis points. And then, you know, I think where there is a disconnect in the market right now is probably just on the aggressiveness of rate cuts. So, you know, the market as of 20 minutes ago is pricing in a cycle ceiling of close to 4 percent, a little bit under 4 percent. And I'm sorry, a little bit under 5 percent and then pricing in about 80 basis points of cuts thereafter. So there are a lot, there's going to be a lot of moving pieces to the Fed next week, including the balance sheet. I think that's going to be a big topic of discussion. Do they slow the pace of quantitative tightening? Do they cut it off completely? And then the forward guidance that they provide around the cycle ceiling, like you said, I think that's going to be a critical variable. Speaking of Feds, FedEx earnings are out. Frank Holland has the numbers for us.

Hi, Frank. Well, hey there, Morgan. Right now, FedEx shares moving 8% higher. A miss on the top line, but a very strong beat on EPS. Profits 68 cents above estimates. FedEx also raises its full-year EPS guidance to 1460 to 1520 a share. That's well over the estimates of 1356. As it continues a large-scale cost-cutting effort and business

transformation called DRIVE. In the release, CEO Raj Pamanian saying, in part, we continue to move with urgency to improve efficiency and our cost actions are taking hold, driving an improved outlook for the current fiscal year. So one point to note though, FedEx missed margin for Express. That's where it gets about 50% of its revenue. Margin for Express was 1.2% compared to the estimate of 2%. Just to put it in perspective, a year ago Express margin was over 4%, but FedEx beat margin estimates for its ground and its freight networks.

The real story this quarter is pricing power. It was able to increase revenue per package for its ground network by 11%. Its freight revenue per shipment by 21%. In January, FedEx announced a general price increase, able to take advantage of that. One thing missing in this, any details about drive. FedEx has an April 5th event to give more details in New York City. Now FedEx shares up almost 7% after a miss on the top line, but a beat on EPS.

Back over to you. All right, Frank Holland, thank you. And of course, this is what investors have been focusing on, the controlling of costs, what the guidance was going to look like, how they were going to update and whether they're going to update to the upside, and then, of course, what the commentary is going to be from the call about the macroeconomic situation. Remember that FedEx also is very exposed to China, so the reopening there. It will be interesting what kind of comments we get.

Let's get some instant reaction. Broughton Capital Managing Partner Donald Broughton is here. Adam Christofoulis is still with us. Donald, want to get your quick take on those numbers that we just heard from Frank? Well, I think it's heroic, quite frankly, that they're able to make any money in Express. Understand, of course, that the international priority Express business is their highest incremental, highest decremental margin business they have and the place where they are the most focused is in the Asia Pacific area. So when you have China and its shutdown producing for them in the quarter down 25 plus percent kinds of volumes. And for them to actually even make any money is quite heroic.

So this is great news. And the guidance for the full year reflects that. OK. What are you going to be looking for on the call and how important to you, Donald, is going to be that macroeconomic commentary, given the fact that the world really seems to be at a crossroads in terms of where we go from here? Well, we're going to look, first of all, what any color we can get on sequential patterns that they're seeing in that Asia-Pacific market, that all too important area for them, as well as just overall General Express. What is the sequential pattern that's happening for them? And then also what's happening with ground? Our thesis has been that they're going to gain market share against UPS as UPS tries to renegotiate the Teamsters contract, still

doesn't have one. Five years ago at this time, FedEx gained a significant amount of market share in ground, and we expect they're going to do the exact same thing. Yeah, and certainly you've seen FedEx rally today. There was an analyst upgrade, and it moved higher today in the regular trading session. It has outperformed UPS year-to-date as well, so we've seen that shift in terms of the outperformance between these two names. Adam, I want to bring you into this conversation, whether it's FedEx specifically or whether it's what freight companies like FedEx and others are signaling about the economy and how they feed into the broader market thesis right now. Your thoughts? Yeah, I think one of the reasons why people were warming to FedEx a lot was because they had such an aggressive cost-cutting plan in place that

they seem very committed to now. This is kind of, this is almost the third quarter in which they've had this plan in place. And it almost provided you with protection from the macro environment. So to the extent you did see, you know, a downtick in growth momentum, this is one of the companies where they have such aggressive cost-cutting in place that it can help offset that. And I think that's a big theme that, you know,

similar to what you kind of are seeing with Meta as well, where they've been very aggressive on the cost front. And I think in the back of people's minds, that helps eliminate some of your macro risks. And that's really a big theme for corporate America across the board. You know, this year is all about, you know, Meta popularized. This year is going to be about efficiency. I think a lot of companies are going to be adopting a similar philosophy when it comes to costs. All right. Adam, Donald, thank you. Pleasure. Now let's get to CNBC Senior Markets Commentator Mike Santoli at the New York Stock Exchange. What's on your radar, Mike? Well, John, the way the market has ended up really performed all week, it's looking like it's mostly been a bit of a test of the

recent rally from October. And so far, it's at least not failing it. Take a look at how the S&P 500 is now situated. We now have this little recovery move coming here. The lows for the day today versus yesterday versus Monday have all been higher. It has not buckled below those levels. And it's also kept in place this little uptrend from all the way back at the highs. You know, we've kind of crossed over the longer-term bear market pattern. So it seems okay, even though we're right in the mid of this 10-month range, it feels like we're getting to hover here largely thanks to some of the biggest stocks that you guys have been talking about.

And take a look at this relative performance chart of the MSCI quality subset of the S&P 500. So you hear people all last year come on here and say, we prefer quality stocks. We like quality, strong balance sheets, consistent and high profit margins, things like that. Well, it was a bad trade relative to the market. This is against the equal weighted S&P 500. Why? Because it was largely a proxy for very large and somewhat expensive tech stocks. Not entirely, but they were overrepresented in the quality basket.

So you see the long downturn from when the Nasdaq peaked back in late 2021. Well, look at what this is. Just vertical. And that doesn't even count the afternoon's activity here. So the question is how much it can last. It's clearly a bit of a catch-up move. The Nasdaq 100 is still farther from its all-time peak than the broad S&P 500 is. So a lot of this seems like just sort of shuffling around the edges and sort of going toward the stuff that hasn't performed as well. But it's clearly very, very popular all of a sudden to go grabbing for the so-called quality

names, John. Okay, that's popular for now. but I mean, I remember you told us a few days ago that things were going to be choppy ahead of the Fed decision, and we're getting chopped, but within this chop, is there a confidence building because the markets haven't fallen apart with bad news, or is this just, hey, anything could still happen? I mean, I think confidence is building, but it's pretty fragile in terms of, you know, it'll last as long as tomorrow's open. I really think we're in that kind of a zone where, you know, I always say this, when you have crisis type headlines, I wake up every day, I look at the S&P 500 futures, and if they're up 60 points or they're down 60 points, I say, yeah, that makes sense because you absolutely can see why the last catalyst got them in that direction.

I just think right now there's a little bit of a sense that whatever the Fed does next week, it's not make or break necessarily because it's going to be 25 or nothing probably. And more importantly, the Fed's probably done sooner than we thought they would be a couple of weeks ago. Whether that's for bad reasons or good reasons, we don't know. But I do think that's currently giving some comfort to traders right now. Okay. The pre-market zone. Mike Santoli, thank you. Goldman Sachs just raising its recession odds as the turmoil in the banks ramps up fears of an economic slowdown. Up next, two experts on opposite sides of the recession debate make their case. We are back in two.

Well, stocks finishing out a strong session today with the Nasdaq leading the pack up, as you can see there, two and a half percent, the Dow and S&P up two and a half percent. The Dow and the S&P also up higher. But a number of strategists are upping their odds of a recession following the destabilizing events in the banking sector, including Goldman Sachs, which now says there's a 35 percent chance of a slowdown in the next 12 months. Joining us is Citi U.S. equity strategist Scott Krohner. Scott, great to have you on. And you reiterated your call for a mild recession. Walk me through why you continue to be confident that that will be the case. Right. So we've been kind of projecting a mild recession or like conditions for the first half of 23, actually since the middle part of last year. We felt that the Fed rate hike trajectory

was ultimately going to impact the production side of the economy, which you're seeing now, and whether it's industrial production, a lot of the related production metrics, you're seeing it in the leading indicators data. We have been seeing it in consumer-consumer stabilized, but I'd say all told,

we think that if you look at some of these traditional macro metrics, the U.S. economy should be tracking along something akin to a recession-like condition the first half of the year. And what's happened most recently with the banks, we think probably puts a little bit more of an onus on the credit conditions element, which should continue to show some typing. Okay. I want to dig into that a little bit more, but first joining the conversation as well is Sumit Honda of Pennington Partners, who is here on set. Welcome. You would take the other side of this debate, I think, because you're constructive right now

on markets and you don't necessarily think that a recession is upon us. I would say that. And thank you, by the way, for having me. It's a privilege to be here. And nice to meet you, Scott, as well. With respect to the state of the world, obviously things are not pleasant this week. It's been a very challenging week. But with that said, we've had a decline in oil from $120 to essentially $70 today from where it was when Ukraine happened. That's very bullish for the consumer, right? Those of us who have, who don't drive Teslas and are, you know, and actually have to fill up our gas tank, you know, last year it was around 80 bucks a gallon. Now it's, you know, now, excuse me,

$80 to fill your car. Today it's closer to about 50 bucks. So that $30 is an enormous savings. It goes right to the bottom line. We saw that in the retail numbers that came out just on Monday or the day before. Obviously, that's nominal numbers, not adjusted for inflation. But obviously, I do remain constructive. I also remain constructive because China has opened up. And so China is the world's largest trading partner in the world. They were closed. COVID happened. They injected a trillion dollars. A tsunami of liquidity came into the world, more than offsetting the Federal Reserve's actions, along with the Bank of Japan, who is continuing to engage in their sort of YCC or twist, if you will. So all of these reasons are why I remain optimistic in the near term. Okay. So, Scott, if we do get a recession, you're saying your base case is for it

to be mild, but if it's not, right, if it's not, what do you expect the triggers to be of a worst case scenario? So the triggers very simply would be a combination of economic data continuing to show deceleration. At the same time, the Fed continues to lean into its rate policy in the quest towards being able to see a 2% CPI. The combination of those essentially accentuates the issue that you're already seeing in the macros and would trigger something that we would kind of characterize as a more severe recession. We place low odds on that or 15% probability, but it's certainly something that needs to come into the discussion as we wade through the banks over the past week

and combination of Fed actions coming up, as well as some of the collective efforts to ensure the, you know, that the safety nets around the banks are in good shape. So, Sumit, did you shift your outlook on the likelihood of a recession over the past week with all the bank action? Well, we haven't yet, but we've certainly been thinking about it. What I would just... That one was for Sumit. Sorry, Scott.

So, you know, Zeus and Athena, Jay Powell and Janet Allen came down from Mount Olympus to save the banking system. And so, over the last week, they have guaranteed $9 trillion of uninsured deposits in the United States. The two banks in particular, you know, SVB and Signature, that filed on Monday, they were about 1% of the U.S. banking system's assets. So if we look at the banking system, it has $30 trillion of assets. The two combined assets for SVB and Signature are about $300 billion. Right.

So in the scheme of things, while it certainly is a problem, it's a virus, but it's not something that the doctor acted very quickly to correct and provide a solution. With that said, another $2 trillion of liquidity has come into the world because of the actions taken by the governments. And so, again, there's a double helix when it comes to the world. It's not just fundamentals. It's also liquidity. And liquidity is coming in to the system. And it's going to come in even more probably after next week. Scott, thank you. So hold on. We got to leave it there, unfortunately. We'll come back. We'll finish this conversation at a later date. Yeah, I hope to do that. We got breaking news on First Republic

Bank. Bertha Coombs has that. Bertha. John, this afternoon, First Republic Chair Jim Herbert and CEO Mike Ruffler issuing a word of thanks to the banks that have helped shore up their facilities, saying that their collective support strengthens our liquidity position.

The company saying as of March 15th, 2023, the bank now had a cash position of approximately $34 billion, not including the $30 billion of uninsured deposits from B of A, Citi, J.P. Morgan, Wells Fargo, Goldman Sachs, Morgan Stanley and others. And those are at an initial term of 120 days at market rates. They'd also borrowed between March 10th and March 15th from the Federal Reserve. Those borrowings varied from $20 billion to $109 billion at overnight rates of 4.75 percent. They also went to the Federal Home Loan Bank and got $10 billion as of March 9th at a

rate of 5 percent. They say that their daily deposit outflows have now slowed considerably and insured deposits since March 8th to the close of March 15th have remained stable. They also are announcing they are suspending their common stock dividend as a result of being focused on reducing borrowings and evaluating the composition and size of their balance sheet at this point. Back over to you. All right. Trying to stabilize things, Bertha.

Thank you. Stock's down 21% right now. Yeah, yeah. Another big move. Yeah. After the break, we're going to talk to a real estate investor who says one part of the market is seeing a, quote, default avalanche. That's going to gather speed in the coming months. We'll be right back.

Welcome back. Could office real estate be the next shoe to drop in this uncertain market? Our next guest says a default avalanche has started in that space and it's going to gather speed in the coming months. Let's bring in GTI as president and CIO Tom Shapiro. GTI is a commercial real estate firm with holdings in major markets in the U.S. and Brazil. Tom, explain the mechanics. I guess stuff coming up for refinance with loans coming up, with rates higher.

What's driving this avalanche? And is there any investor opportunity here in the long term? Right. Thanks so much for having me. I really appreciate it. Why don't we start with the macro in the office space? I mean, I think there's, you have to go by asset class where, but if we start with office, you know, office has 18% vacancy and climbing. And the issue is, is that only about half of the workers are coming in compared to pre-COVID numbers. So the demand is down. A lot of the tech companies made a mass expansion during COVID. Now they realize they don't really need the space. So they're dumping space back on the market. You saw a lot of announcements. Facebook obviously just announced

more layoffs. Google's been putting space on the market, etc. So you have the demand side has been very tough. So vacancy rates have been going up. There's a lot of space on for sublease. Now you couple with the fact that you have a lot of valuations that have now dropped because interest rates have gone up dramatically. And that is a real problem right now because you have a lot of loans coming due. This year alone, non-bank loans and commercial is about $92 billion that are coming up. And it's extremely hard to refinance that in a very high rate environment with incomes dropping on these properties. So what's happening in office in particular is the cost of keeping a tenant has gone up

dramatically. In a place like New York, it's probably about $300 a square foot. So if you're an owner of a property and you have a tenant come up for renewal and your building is worth at or around what the mortgage is, are you really going to want to put in another $300 a foot to either keep or bring in a new tenant? And that's causing a huge problem. So you used the word avalanche. I agree with it. We're already seeing the start of that. A lot of snow coming down. There are a lot of loans already in default. Some of the most sophisticated borrowers out there, very smart investors, are starting to lose office properties. And I think that's just the tip of the iceberg. Yeah. So it raises the question, what does this mean for REITs, especially office REITs? also, just as importantly, in a week where there's all kinds of focus and concern on the banks and the possibility of a

banking crisis, what does it mean for those banks that are holding all these commercial real estate loans? Well, they're going to be taking them back, and then they're going to have to make a decision whether they want to put the $300 per foot back into it, or to your point, where's the opportunity they're going to start selling it off. But it's hard to understand where the bottom is. So we really haven't been investing in office, haven't invested in office in many years. We have under 1% allocation to office in the United States. So we've been super careful and selective in the office space. But it's going to be a real problem. And, you know, right now, sitting since Friday, when we started to see the banking crisis emerge, most lenders aren't even quoting loans. So even if you had a loan that was coming due in a property that that had substantial equity in it, you can barely get a quote right now.

So now hopefully that will be. This reminds me I'm a tech reporter at heart. So this reminds me of the dark fiber situation 20 years ago, and Google bought up a bunch of dark fiber and then it was good. Is there a dark office situation here? At what point do the prices drop so much that somebody can buy that up and wait? It's a great point. I have to tell you, it's going to be an investor that's not in real estate is going to do that because right now, if you run the numbers, you'll see that the properties, a lot of them don't have really any value. Now, I want to emphasize there's a tale of two cities because newer office product and high quality office product actually is leasing extremely well. So I don't want to throw all the office into one bucket. I also want to do it, but regionally as well, because an area like Palm

Beach, some of the new buildings are getting $100 net per square foot, higher than Park Avenue rents. So I think you have to be a little careful. When I'm talking about like a class B office building in New York or San Francisco or Chicago, Los Angeles, that's where it's going to be really tough. But you have to actually throw out your underwriting to do that. You would not make the numbers work because it's really hard to underwrite where rents are in concessions. Because today to achieve, let's say, a $70, $80 rent in New York City, you have to put $300 into the property. So when you look at that, and don't forget, $80 you have operating tax is $34 a foot. So net, you're making $40 a foot and put $300 in. It's really tough math right now. All right. So I personally think there's a lot

easier ways of making money in other asset classes. Well, we have some breaking news, but we appreciate the thoughts. Tom Shapiro, thanks for joining us. We want to get to Steve Leisman, who has breaking news on the Fed. Steve. Thank you, Morgan. We have the Fed's balance sheet for the week ending this past Wednesday, and it is up by $297 billion as a result of a couple failed banks as a result of borrowing at the discount window. The discount window rose by $148.2 billion. And then this new program that the Fed launched on Sunday in order to provide par value for high-quality collateral for the banks, It rose by, first time borrowing,

it's $11.9 billion was borrowed by banks from this new Fed lending facility. Half of this increase, this $297 billion, is linked to bridge loans that the Fed, when there is a bank failure, normally provides and is guaranteed by the FDIC. So this number here, Morgan, we do not know if it reflects one bank, two banks, three banks, a whole bunch of banks borrowing the discount window. We're going to have to wait to see. Now that these two particular banks were closed, whether or not this lending at the window, which can be a sign of stress or it can be a sign of banks just trying to liquefy themselves and get ready for any deposit withdrawals if it continues into the week.

But right now we know there was a good amount of takedown of borrowing at the Fed's emerging discount window and some borrowing at the new facility. Morgan? So how does this speak to this discussion that's afoot right now about everything that's going on in banking and this idea of liquidity crisis and whether it's very serious, whether it's potentially systematic or systemic, I should say, or whether it really will be confined to just a handful. It's still too soon to know. It's just difficult to know right now. We know there was a lot of borrowing at the window. For example, there was something like

$4.5 billion of discount window borrowing in the week before this past week. And now it's one hundred and something billion, one hundred and four hundred and forty, forty eight billion. So that's a big increase right there. And so the issue being, was it one bank, two banks? Was it a single bank or two banks that were trying to liquefy themselves or was it multiple banks? There's transparency by the Federal Reserve around the bar at the window, but not enough to know how widespread the issue is. Steve, what kind of a position does this put the Fed in? It's been trying to reduce its balance sheet along with get rates higher, but things happen.

It does happen. I think the key here, John, and I do need to report this end of the story here. You are correct. The Fed has been trying to bring the balance sheet down, and this is a market increase in the size of the balance sheet. The question is how much of this money actually gets into the economy in the sense does it become the source of loans to the economy? And I don't think that's probably what's going to happen there. To the extent that banks borrow to liquefy themselves,

it's probably not going to be something that's going to create lending into the economy. It may keep the existing lending that was going to happen in place or keep it at the prior level. But I don't know that this is going to be actually inflationary. But it depends on what happens over time. Does the progress towards reducing the balance sheet continue after this? All right. Key questions. More will be revealed. Steve Leisman, thank you for bringing us those numbers. Still ahead, we'll take a closer look at what's going on with Virgin Orbit, falling off a cliff after the company paused operations and

furloughed most of its workers. Plus, John had a rare sit-down interview today with former Yahoo CEO Marissa Meyer. What can we expect? Well, I mean, you might have forgotten, but she was early at Google. She is an AI expert, right? Her master's was in that. So lots of perspective, not just on this startup, but also on what's happening in Silicon Valley now with the need to slim down, Morgan. We'll get to it when Overtime returns.

I spoke just a couple hours ago with Marissa Meyer, now the co-founder of Sunshine, an AI company focused on contacts and productivity. She's, of course, the former CEO of Yahoo and employee number 20 at Google. We covered a lot, including the AI battles, efficiency in tech, but we started on Silicon Valley Bank. I think for us, what we realized is, you know, Sunshine, we had one bank account at one bank. It wasn't Silicon Valley Bank. But we were like, you know, in this situation, it makes sense to be diversified, whether it's because of a system going down or an unfortunate decline in the bank or a failure of a bank. But when you're talking about needing to make payroll for your team, pay your vendors, you know, those are all things that you want to be able to do reliably as a business owner. And so having, you know, we're engineers

fundamentally. I'm an engineer by training. You want redundancy in your systems. And so, you know, you may choose to have some imbalance between them in terms of where you ultimately put the bulk of your cash. But, you know, and now I would say I'm a bigger believer in that type of redundant approach. Now, when it comes to artificial intelligence, I asked her how we're going to know whether Microsoft has a significant head start with its open AI investment or if Google's actually catching up with Bard. I think, you know, there was the stumble with Bard coming out of the gate, which I think, if anything, got blown in some ways out of proportion. You know, it's natural for a new technology to have an error like that. It was a pretty simple miss

just in terms of fact-checking and reviewing the content in that demo. But I think it points to a bigger issue of what do you do with the fact that there's a lot of great information on the web, but there's also misinformation on the web. And how do you make sure that you aren't ingesting that for training?

How do you make sure if the artificial intelligence does ingest some of that information, that it understands how to keep it in check so it doesn't start to overrun and become perceived as fact? I think those are all big challenges that all of these systems will ultimately face. And I am always an optimist. I think there's ways that they can build an architect around that. But I think that that's where we are right now. And I think ultimately who wins the race in the long run, it will come down to how they manage that misinformation piece, right? Who has the best and most authoritative answers? And also who has the most novel and useful applications of the artificial intelligence in the end. How do you apply it? How does that feel to people? And I think those

two factors are likely to drive who wins the AI race, so to speak. Efficiency is the buzzword in the Valley these days. Meyer also reflected on her time at Google and how one promising new hire set a high bar for productivity. I remember when I hired Sundar Pichai, I had him come in and he, I said, you know, I'm not sure exactly what to assign you to, but why don't you take a look over the portfolio of consumer products that, you know, my team is working on. And he came back a week later and he's like, you know, there's this thing called Google toolbar and it has 200 million users and there's no one product managing it. And I was like, good point. Like, why don't you start working on that? And Google Toolbar then gave rise to Chrome, which then, of course, started

merging with the Android operating system, and Sundar was a brilliant hire and did a great job with all of that. But it gives you an idea that we had, like, this giant product with millions, hundreds of millions of users that wasn't being actively product managed. And so, you know, I think that that's what really the power of growth is that when you've got a company that's growing that quickly, there's new opportunities for everyone around you along the way. And you can figure out where are my skills best applied. But what happens in 2023 when that dynamic reverses and there are more people than work? The pandemic affected every company in different ways. But one of the things I would always tell people to look for is whether it's Google or somewhere else, you want to look

for companies where there's more work than people, plainly stated. Because if you're in a place where there's more people than work, the opportunities aren't as big. A lot of the minuses you talked about that, you know, Zuckerberg has lately highlighted are absolutely true, right? You've got people who are really capable thinking about small things that don't matter. And that's just a terrible waste of time, money and energy. And, you know, it's hard when you go through that challenge. And I will say, you know, the pandemic has been challenging, I think, for leaders across the industry, big and small. You know, here at Sunshine, we wanted to move fast. I have to admit,

some of those times during the pandemic, we didn't move as fast as we wanted to move. And I think at some of the bigger companies, what they found happening is when their productivity dipped, they hired. And suddenly at the end of it, you look back and you're like, now I've actually hired 50 people where under normal times I might have hired 30 and now I've got more people than work. And that's a situation where ultimately it has to get righted somehow. And sometimes it will get righted just because people like to work on bigger things. They like to work where there's growth and they might migrate for other opportunities.

And sometimes you have to take, you know, action on the company side, which is what we're seeing a lot across the industry right now. It's great to hear from her. It had been a while. Sunshine Contacts is AI driven and Morgan, it kind of cleans up your contacts and we'll see where she goes with it from here. But she really kind of laid out the challenge for the Valley right now as someone who is one of the architects of its scaling in the web era. Yeah, it's been it's been quite a while since we've heard from her. So I just find it very fascinating to hear all of her different thoughts on all of these different topics. And you can make this argument, especially around efficiency and this idea of more people than work, around a number of industries right now where you're seeing belt tightening, including, by the way, FedEx, which has basically said, you know, they're now targeting $4 billion in

cuts for the fiscal year with the earnings that we've just gotten as well. So the pandemic distorted a lot of stuff. And now you're seeing this return to normal, dare I say? I guess the question is, is it a return to pre-pandemic norms or is it a sign of stuff and now you're seeing this return to normal, dare I say? I guess the question is, is it a return to pre-pandemic norms or is it a sign of a slowing macroeconomic environment? And that's what everybody's trying to parse through. Also a return to efficiency, right? And innovation. You got Marissa Meyer working on her startup. Brett Taylor, who was one of her sort of mentees at Google out of Salesforce working on his. It's a small world, isn't it, in the Valley?

Yep. All right. Great stuff, John. Thanks. Wall Street has been worrying about a slowdown, speaking of, in loan making. Mike Santoli breaks down how tighter credit could impact the economy. And we just talked about it, but we're going to do another check on FedEx as we head to break. You can see those shares are shooting up 9% in after hours trading on the back of earnings after the delivery

giant hiked its full year earnings. I spoke just a couple hours ago with Marissa Meyer, now the co-founder of Sunshine, an A.I. company focused on contacts and productivity. She's, of course, the former CEO of Yahoo and employee number 20 at Google. We covered a lot, including the AI battles, efficiency in tech. But we started on Silicon Valley Bank. I think for us, what we realized is, you know, Sunshine, we had one bank account at one bank. It wasn't Silicon Valley Bank. But we were like, you know, in this situation, it makes sense to be diversified, whether it's because of a system going down or an unfortunate decline in a bank or a failure of a bank.

But when you're talking about needing to make payroll for your team, pay your vendors, those are all things that you wanna be able to do reliably as a business owner. And so having, we're engineers fundamentally, I'm an engineer by training, you want redundancy in your systems. And so, you know, you may choose to have some imbalance between them in terms of where you ultimately put the bulk of your cash.

But, you know, and now I would say I'm a bigger believer in that type of redundant approach. Now, when it comes to artificial intelligence, I asked her how we're going to know whether Microsoft has a significant head start with its open AI investment or if Google's actually catching up with Bard. I think, you know, there was the stumble with Bard coming out of the gate, which I think, if anything, got blown in some ways out of proportion. You know, it's natural for a new technology to have an error like that. It was a pretty simple miss in just in terms of fact-checking and reviewing the content in that demo. But I think it points to a bigger issue of what do you do with the fact that there's a lot of great information on the web, but there's also misinformation on the web. And how do you make sure that you aren't ingesting

that for training? How do you make sure if the artificial intelligence does ingest some of that information that it understands how to keep it in check so it doesn't start to overrun and become perceived as fact? I think those are all big challenges that all of these systems will ultimately face. And I am always an optimist. I think there's ways that they can build an architect around that. But I think that that's where we are right now. And I think ultimately who wins the race in the long run, it will come down to how they manage that misinformation piece, right?

Who has the best and most authoritative answers? And also who has the most novel and useful applications of the artificial intelligence in the end? How do you apply it? How does that feel to people? And I think those two factors are likely to drive who wins the AI race, so to speak. Efficiency is the buzzword in the Valley these days. Meyer also reflected on her time at Google and how one promising new hire set a high bar for productivity. I remember when I hired Sundar Pichai, I had him come in and I said, you know, I'm not

sure exactly what to assign you to, but why don't you take a look over the portfolio of consumer products that, you know, my team is working on? And he came back a week later and he's like, you know, there's this thing called Google Toolbar and it has 200 million users and there's no one product managing it. And I was like, good point. Like, why didn't you start working on that and google toolbar then gave rise to chrome uh which then of course started merging with the android uh operating system and and and sudar was a brilliant hire and did a great

job with all of that but it gives you an idea that we had like this giant product with millions hundreds of millions of users that wasn't being actively product managed and so you know i think that that's what really what the power of growth is that when you've got a company that's growing that quickly, there's new opportunities for everyone around you along the way. And you can figure out where are my skills best applied. But what happens in 2023 when that dynamic reverses and there are more people than work. The pandemic affected every company in different ways. But one of the things I would always tell

people to look for is whether it's Google or somewhere else, you want to look for companies where there's more work than people, plainly stated. Because if you're in a place where there's more people than work, the opportunities aren't as big, a lot of the minuses you talked about that, you know, Zuckerberg has lately highlighted are absolutely true, right? You've got people who are really capable thinking about small things that don't matter. And that's just a terrible waste of time, money, and energy. And, you know, it's hard when you go through that challenge. And I will say, the pandemic has been challenging, I think, for leaders across the industry, big and small.

Here at Sunshine, we wanted to move fast. I have to admit, some of those times during the pandemic, we didn't move as fast as we wanted to move. And I think at some of the bigger companies, what they found happening is when their productivity dipped, they hired. And suddenly at the end of it, you look back and you're like, now I've actually hired, you know, 50 people where under normal times I might have

hired 30 and now I've done, I've got more people than work. And that's a situation where, you know, ultimately it has to, it has to get right in somehow. And sometimes it will get right. And just because people like to work on bigger things, they like to work where there's growth and they might migrate for other opportunities. And sometimes you have to take, you know, action on the company side, which is what we're seeing a lot across the industry right now. It's great to hear from her. It had been a while. Sunshine Contacts is AI driven and Morgan, it kind of cleans up your contacts and we'll see where she goes with it from here. But she really kind of laid out the challenge for the Valley right now is someone was one of the architects

a bit scaling in the web era yeah I it's been it's been quite a while since we've heard from her side just find it very fascinating to hear all for different thoughts on all these different topics in you can make this argument especially around efficiency in this idea of more people than work around a number of industries right now are you seeing belt tightening including by the way FedEx which is basically said you you know, they're now targeting $4 billion in cuts for the fiscal year with the earnings that we've just gotten as well. So the pandemic

distorted a lot of stuff. And now you're seeing this return to normal, dare I say? I guess the question is, is it a return to pre-pandemic norms or is it sign of a slowing macroeconomic environment? And that's what everybody's trying to parse through. Also a return to efficiency, right? And innovation. You got Marissa Meyer working on her startup. Brett Taylor, who was one of her sort of mentees at Google, out of Salesforce working on his. It's a small world, isn't it, in the Valley? Yep. All right. Great stuff, John. Thanks. Wall Street has been worrying about a slowdown, speaking of, in loan making. Mike Santoli breaks down how tighter credit could impact the economy. And we just talked about it,

but we're going to do another check on FedEx as we head to break. You can see those shares are shooting up 9% in after-hours trading on the back of earnings after the delivery giant hiked its full-year earnings outlook. We'll be right back. Welcome back to Overtime. Let's get back to Mike Santoli taking a look at the loss of appetite for loanmaking. Mike? Yeah, John. In fact, a loss of appetite in terms of credit extension,

but also just overall credit conditions have deteriorated. Maybe no big surprise. We knew the economy was slowing. Rates are higher. This is a measure. The National Association of Credit Management, they do a survey of credit managers. And these aren't just loan officers. These are people talking about how fast companies are paying their bills, whether people are willing to extend further credit to them and such. And so you see that they've kind of declines to this line right before typically you get into one of these shaded areas, which is a recession. So we're pretty much approaching that stall speed again. It goes along with a lot of other leading indicators of the economic pace to suggest that recession risk has become more heightened. I did want to

point out one thing, which is just exactly how high that peak was and obviously the low was in 2020. You have so many of these measures that show massively heavy activity near the highs in 2020, 2021. And so you're declining off of that. And it's a rate of change business. But it doesn't necessarily mean that the activity level right now is particularly weak. This is an inflationary, high nominal growth economy. That's one of the implications. Take a look, though, at leveraged corporate loans, the value of these loans. They trade and they also are contained in this ETF from Invesco.

A lot of struggle here. These are mostly floating rates, so it's not just the interest rate effect. It's about perceived creditworthiness and whether there's liquidity in this market. So we're above the lows from last year, but not a whole lot. So it's one of those things you can monitor in real time to see what the investor appetite is for owning a piece of corporate debt that's extended by banks. Something we'll continue to keep a close eye on. Mike Santoli, thank you. Virgin Orbit launching a search for new funding as it ceases operations for a week and furloughs most of its workers. What that says about the state of the space industry when overtime returns.

Welcome back to Overtime. Virgin Orbit pausing operations and furloughing staff for a week as it seeks a funding lifeline. Sir Richard Branson's rocket launch company, which went public via SPAC in December of 2021, is facing a cash crunch that's been exacerbated by a failed orbital launch attempt back in January. The company's saying in a filing this morning that it's implemented the pause as, quote, it conducts discussions with potential funding sources and explores strategic opportunities. It's my understanding that all options are on the table. Investment, you could see sale of company, maybe some other possibilities. Orbit has raised about $55 million via debt through Branson's Virgin Group in the four months through February. But in general, it speaks to a broader industry dynamic, a crowded launch market that is facing consolidation and even culling as the Fed has tightened and capital has dried up and some

rockets have experienced anomalies. It's something VC investor Megan Crawford of the Space Fund has been watching closely. Right now, we're currently tracking over 160 private launch companies around the world. So these are startups who are trying to emulate Elon Musk and Jeff Bezos, and they all have their own little original spin on their rocket engines or their business model. But there's not room in the market for 160 launch companies to exist. Even if 100,000 satellites are launched in the next 7 to 10 years, we believe 10 to 15 companies can fulfill that demand. And some folks even say maybe it could be fewer companies. But either way, there's too many on the market right now. More of my conversation with Crawford about investing in

this sector on my podcast, Manifest Space, which is available through the closing bell overtime podcast wherever you download your podcast. John, it's worth noting that this is a name in the case of Virgin Orbit that, you know, when it went public in December of 2021, it was trading right around that $10 mark. It was de-specced. It's now very much a penny stock with everything we've seen play out here, even just in the last couple of days. We have a lot more on all of this on cbc.com, too. What kind of options do they have when you're talking about launching stuff into space?

I mean, Santoli was just telling us it's hard to get a loan. This is risky stuff. Is it kind of binary? Either you've got great technology and you make it or you don't? It's a little bit of that. Space is hard. It's very capital intensive. It tends to take time. And there is a lot of competition on the market, not the least of which is SpaceX, which is cornering all aspects of the market. And there's different lifts, heavy lift, medium, small lift, et cetera, in terms of in terms of types of rockets and launch capabilities. Rocket Lab is another one that's already regularly launching to orbit. But you are, as I was mentioning, starting to see some culling or at least some consolidation, because even just as we've had this conversation, Astrospace, which I know is a name that you are familiar with, has been facing delisting on the Nasdaq after it, too, had suffered some issues with some of its attempted missions.

And it just laying out a few a short while ago, its plan to try and avoid that delisting, including the possibility of a reverse stock split. So you're seeing pain in the space space. Ouch. Great, great perspective on that. And up next, we're going to talk about the concern among some options traders in a shift who bet big on the collapse of SVB and Signature Bank, and the roadblocks they're now running into as they try to cash in on that correct bet. We'll be right back. All right, let's talk options, specifically regarding the bank failures. Robinhood reversing course today, telling its retail trading customers holding profitable in the money positions on Signature Bank

that it would make an exception and allow them to keep their positions open beyond tomorrow's expiration. So what are we talking about? Well, those traders that own puts or have bought the right to be short a stock, looking to exercise their options into an actual short position of the underlying stock, in this case, Signature Bank, being told, before today at least, that they couldn't do that and realize their profits. Why? Because the stock was halted. For the platforms, this would be potentially too risky a thing to do with no underlying stock trading.

If you can't exercise an option ahead of its expiration, the position would be rendered potentially worthless. So today's announcement from Robinhood, which matches Fidelity and Interactive Brokers, extends those retail positions beyond their expiry date with some conditions attached. In particular, this is very much in focus, not just because of how much we've been focused on and talking about the banks, but because retail investors specifically have been, according to Vandatrack, quote unquote, buying unprecedented amounts of financials. Mike Santoli, I want to bring you into this conversation. It's an area of the market that I know you know a little something about,

and certainly you cover and speak to these trading platforms for us here at CNBC. So your thoughts? Yeah, I mean, it's obviously not a unique situation, but it doesn't happen all that often that you have a long-standing halt in a stock. People assume the equity of signature is going to be likely worthless, but there's no confirmation of that. They will likely, once they get some information out there, retrade the stock, start to allow it to trade, perhaps if they don't immediately render it zero. So what it has meant for a put option holder who has a very profitable bet on paper right now is an inability to monetize that. Right. You could

always sell a put option to another investor or trader before expiration. But tomorrow is expiration. And so likely they would not be able to do that. So the brokers are saying, look, we can maybe try to work with you here, because as you said, a put option gives an investor the right to sell a stock at a certain price. If you don't already own those shares, you're effectively shorting the stock to realize the profit. Robinhood doesn't allow that. So they're going to have to go out in the market and maybe close out these trades once Signature starts to trade again. You know, no guarantee that it goes right to zero though guys to keep that in mind is still a little bit of play in there.

Yeah this is like I bet that the Eagles are going to lose by two touchdowns they're down by three but the game gets snowed out and do they pay get suspended. Yeah OK. I get it. Yeah there's a lot more we could do here but our hours done so that's going to do it for overtime. Fast money starts now.