Closing Bell - Closing Bell Overtime: Recession on the Horizon? 4/7/22

Episode Date: April 7, 2022

Stocks staged a turnaround and closed just off session highs. Anastasia Amoroso from iCapital says the clock is ticking on a recession and the consumer is going to get caught in the crosshairs. Plus, is the Fed’s attempt to rein in inflation a “high-stakes game of chicken”? Jurrien Timmer from Fidelity Investments weighs in. And, Barclays analyst Karen Short is making a big bet on the consumer and chooses Target as her “Most Valuable Pick.”

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner today. You just heard the bells, but we are just getting started. And we kick things off with our talk of the tape, the big about face. Stock staging a stunning turnaround today, this afternoon. The Dow erasing a 306 point loss to finish in the green, but just off its highs by the bell. Our lead off guest says, enjoy the gains while you can. The clock is ticking on a recession, and the consumer is going to get caught in the crosshairs. Let's welcome in Anastasia Amorosa, Chief Investment Strategist at iCapital. Anastasia, great to have you with us. Good to see you, Mike. So, obviously, the market has been consumed with this question, how much of an economic slowdown can the Fed navigate a soft landing?

Clearly, the market has registered some of those fears. I mean, the utilities have outperformed consumer discretionary by 20 percentage points year to date. Is it your case that the market still doesn't appreciate the potential risk of recession here? Well, I think longer term, I think that's absolutely the case. We do not appreciate the longer risk of recession. And I say that because when I look at the pullback that the markets have had, I mean, if we extrapolate that into implied probability of recession, it's just about 20%. But when you look at some of the historical indicators of recession, whether it's the level of consumer confidence, which is at a 10-year low, or you look at the wage growth and how high it's running, how hot it's running right now, those indicators

are actually flashing much higher probabilities of a recession. So I don't think the markets are prepared for that. But let's be clear about this, right? This is not saying that there's going to be an imminent recession. And this is also not saying that there's going to be for sure a recession in 2023. But I just think if you look out there and you start to assess the risks, you look at the market, it seems like the upside here is really muted and it's kind of capped because we're around this fair value. And the Fed, with its hawkishness, is really kind of trying to cap any sort of rallies that we have. But if you look at the risks and if we are, in fact, headed for a recession, that the market is absolutely not prepared for that. So I think it's a matter of right-sizing

the risk. It's a matter of right-sizing the risk. It's a matter of maybe downshifting some risk in the portfolio. And by the way, we have done so well for the last two years. I think taking some of those gains and positioning them in a more defensive posture right now makes a lot of sense. That's certainly true that over the last couple of years, the market has certainly outdone most people's expectations. Very high returns. However, you know, you have the S&P right now. We first got to these levels, you know, six, eight months ago, something like that.

You've also been living with this idea of a potentially very hawkish Fed for months right now. Do you take any comfort from the fact that the market has kind of steadied itself in the last couple of days, even as the Fed has continued to press that point, that it's going to be pretty aggressive? Yeah, Mike, I think it's a really good point, is that we have actually priced in quite a big deal of hawkishness. We have seen a big reset in stock valuations. We have seen a massive reset in bond valuations. And so, for example, that's the reason why the front of the curve, the twos, the yields on those came down, even despite the FOMC minutes and even despite

the 50 basis point talk earlier from the members of the Fed committee. So I do think that near-term markets have kind of priced in a lot of the kind of the worst case scenarios. The markets have also reset the earnings expectations lower. You know, whereas before going into the quarter for the last several quarters, been ratcheting up the earnings expectations. That's not been the case this time around. And in fact, negative guidance is at the highest level that we've seen from Q1 of 2020. So I do think that's why you have this breathing room. That's why you have this tactical rally that still seems to be playing out. But my point is, enjoy the rally, but also recognize some of the longer term risks that

are building. And kind of to go back to the Fed, you know, by the way, just as we think we have priced in max hawkishness, it seems like the Fed is surprising us once again. Next week, we have the CPI print and most participants do not expect inflation to peak just yet. And it's still going to be high, you know, throughout the year. So I think every CPI print is going to be met potentially with more and more hawkishness. And you combine that with slower consumer data. That's the scenario that we worry about and want to hedge against. That is true that to date, the Fed has seemed to not want to let investors

get very comfortable and they keep kind of pushing and pushing that the edge of exactly how much they might do in the way of tightening. However, at some point, you know, assumedly it'll be priced at. I do wonder how you define being defensive or being cognizant of the risks or trying to, you know, be aware of the downside tactically in terms of positioning, what does that mean for you? Yeah, I think there's a couple of things that investors can do. I mean, first of all, it's the top down asset allocation positioning. And instead of having a one directional S&P or NASDAQ long only exposure, I think investors need to think differently about this. The risk reward for equities has clearly changed. And so one way to do that is to use options and to use the different

ways to structure those options to alter the payoff that you might otherwise have. So, for example, an investor who is not expecting a whole lot more upside from the S&P or expects that to be capped can sell a call option, collect the premium, you would effectively cap the returns that you would expect. And if the market rallies past that strike price, you might lose out. But if we are in an environment of muted returns, then it actually does make sense to cap that. And you might use that premium to buy a put option to give yourself that tail risk hedge in the event if inflation and the Fed do cause a recession sooner rather than later. So it's about reducing some of the long-only exposure and maybe

structuring a different payoff is one way to go about it. But the other way, Mike, I would say, you want to earn something while we wait. You want to get paid while you wait out the volatility. And that's why the dividend-paying stocks, including healthcare, are doing so well year to date. And then outside the equity market realm, I really like some places in the alternative space and private credit in particular. You get paid eight to 10% on certain strategies, most of which, most of this private credit is floating rate.

So you don't have the duration exposure. So that would be the three-pronged strategy to do risk here. Yeah, all right. So making the case that the fear of missing out is just not that scary right now because maybe the upside doesn't look so compelling. Anastasia, stick with us. Let's bring in our panel, Bryn Talkington from Requisite Capital Management and bespokes Paul Hickey to join the conversation.

Welcome to you both. Bryn, where do you come down on this idea of whether we're sitting vigil for a recession and whether, in fact, the market is still going to have to adjust to that reality? The market's definitely going to have to adjust. The probability of us going into a recession at some point, I mean, is 100%, because we will always have an economic cycle. When we do that, I have no idea. But you have to remember, the markets will have sold off well before we have two negative GDP quarters, which is what the definition of recession is. But I think, though, what's been so incredible is we've continuing, really for the last almost two

years, just having these rotations occur in the market. And whether we started in 2020 with those high growth names, money came out. This year and late last year, that rotation into energy, as Anastasia was talking about, healthcare. So there continue to be pockets of the market where you can make money. But I don't think investors should be focusing

too much time on a recession because we're still gonna have really high GDP prints. Really what you have to think through, I think Bill Dudley yesterday, you know, his op-ed and then, you know, he spoke about it yesterday, former, you know, New York Fed president, is so important where he's walking through really to create slack in the economy,

you need to have unemployment go higher. You know, raising rates and draining liquidity creates a tremendous headwind for markets. And so, you know, I've been saying all year, I think that if we had a zero return at the index level, I think that would be a huge victory because when you're draining liquidity and raising rates, you know, just like you saw in 2018 where you had a 10 percent drawdown and at the end of the year, a 20 percent drawdown. I think that playbook is well and well into play this year, but probably on steroids because we've we have such a double amount of Fed funds of treasuries and mortgages on the balance sheet. Yeah, a flat year would mean up, I don't know, 7, 8 percent from here in the

next nine months. I think a lot of people would take that if it was on offer. Paul, just try to pull some of these threads together for us when it comes to these broader indicators or rules of thumb. So on the one hand, you have, well, inverted yield curve usually starts the clock on recession. On the other hand, maybe not the curve that we're watching so closely is the one that matters. And by the way, it re-steepened recently, two to ten years. And then you have this idea that the market breadth has been pretty lousy. On the other hand, the market tends to do pretty well in the first stages of a Fed tightening. So where do you come down in terms of what's what are the dominant themes and

drivers of this market with all that? Yeah, so Mike, like you said, there's a lot to unravel here. And as Bryn was talking there before, when, you know, the market will have moved well before we have two quarters in a row of negative GDP. So that's why investors are looking for signs elsewhere for a recession. And so you look at, A, the inverted yield curve, which everybody started freaking out about last week, especially the twos and tens. But if you look at the majority of spots on the curve, they're not inverted yet. And historically, you tend to see well over half the points on the yield curve invert before you start to get a high probability of a recession in two years. Add to that the fact that jobless claims came in at a 50-year low today.

Jobless claims tend to be a leading indicator of a recession. They usually trough about 34 weeks before the recession begins. And so if we're at a 50 year low in jobless claims, you don't necessarily have to start the recession clock as it is. But then again, all right. So those are two things. The market will move beforehand. And so the idea of the Fed here, this is why you see all this, you know, back and forth, up and down moves in the market. The idea of higher interest rates is pretty well priced into the market right now. If I were to ask my kids where interest rates are going, they would say higher. And that's bad for growth stocks.

So if my kids know that, everybody on TikTok knows it. So there's probably a good deal priced into the market at this point. So I think in that respect, when you look at that, and you look historically at the fact that rising interest rates, this is going back at least 20 years during these periods of rising interest rates, it hasn't been as bad for, say, the tech sector and the overall market as you would as the fears and the headlines have have told us right now so that's that wait you're telling me so you're saying what goes viral on tiktok is not always completely factual and and backed up by the evidence i think i got you it may be factual but it's priced in. Yeah.

Bryn, one thing you mentioned that I think maybe bears a little closer discussion is that there will be high GDP prints. And I think that's actually very interesting, especially when you consider nominal GDP, including inflation. It obviously has a head of steam. It's not the best kind of, you know, GDP growth, but it's going to be there. And therefore, that's what creates the size of the pie for corporate revenues and earnings. So is that a buffer here or is that the risk? Because as long as it persists, it means a tighter Fed. No, I mean, I think it's a buffer. If you go from 2010 to 2019, we did not touch 3% GDP growth in any of those years. And so we've had benign GDP growth for 10 years. And then, you know, obviously we've had so much stimulus

from monetary and fiscal, which has really juiced GDP. I do think, though, it gives us a buffer right now. And so I think the recession talk is so preliminary because I think people forget what is the definition of a recession, and it's important. And so I think people forget what is the definition of a recession and it's important. And so I think it's a buffer, but I think the most important thing investors need to understand, I think if you look back at 2018, Mike, that the balance sheet went from four and a half trillion to about four trillion. And so they took about 10% off the balance sheet. They raised rates from 175 to I think about 250.

And we saw a 10% and a 20% correction. The only reason that 20% correction turned around in 2018 is because Powell came out and said he was done raising rates. And so to me, that's like the risk that I see is keeping clients in their seats long-term. And I agree with Anastasia about being defensive. We do a lot on covered calls. But I agree with Anastasia about being defensive. We do a lot on covered calls. But I do think you have to understand that draining of liquidity is a headwind.

But to your point, the buffer of high GDP. But you know what? Inflation is higher than that. And so I think those definitely are going to fight with each other. And also, I think this quarter's earnings is going to be really dicey. And it's all going to be like what the restoration hardware CEO said. What is the guidance? What are supply chains? What are margins going forward? And so I think investors need to buckle up this quarter because there's going to be a lot of hits and a lot of misses on individual earnings calls. Yeah, no doubt about it. It's going to be a patchy earnings season, most likely.

Anastasia, as we finish up, you mentioned being a little more defensive, maybe paid to, you know, looking for things where you're paid to wait. Do you expect that the large growth area is going to be one that can kind of, you know, regain its status as somewhat defensive and more reliable in this market? Because it has been for sale. It's been where all the gains are. It's been where the valuation premium has been, but it's also already underperformed a lot year to date. Yeah, that's right, Mike. I think that's the area that has been reset significantly in terms of valuations. And if I just take the broad NASDAQ, I mean, we went from 32 times forward earnings to 25 times before rebounding. So I think we've seen a great deal of the valuation reset. And I wouldn't buy wholesale every single, you know, gross stock, but I would look at

companies in the software space and the broader tech space that actually have a visibility of cash flow. They have somewhat predictable cash flow. By the way, I think in this environment, the companies that you want to own are the ones that have higher margin than the S&P 500 because that higher margin would allow them to absorb a lot of potential hits. And I think some of the big tech, big cap tech names have that. Some of the smaller companies have that as well. But I would also think about health care as well, because health care margins are actually over and above the S&P as well. So high quality tech, high quality health care is how I would balance out this exposure. We're going to leave it there. Anastasia Amoroso, Brent Talkington, Paul Hickey, thanks a lot for the discussion.

Let's get to our Twitter question of the day. We're asking which defensive sector would you buy right now? Utilities, staples, health care, or other? Head to at CNBC Overtime and cast your vote. We'll bring you the results at the end of the show. Up next, Fidelity's Urien Timmer is sounding the alarm why he thinks a 20% pullback could be in the cards. And later, billionaire bashing tech investor Peter Thiel

blasting Warren Buffett what he just said about the 91-year-old that's getting a ton of attention. We've got the sound and the fallout when Overtime returns. Welcome back to Closing Bell Overtime, a high stakes game of chicken. That's what our next guest is calling the Fed's attempts to rein in inflation. Let's bring in Urien Timmer, director of global macro at Fidelity Investments. Urien, good to see you. Good to see you, Mike. So this game of chicken, obviously, look, this is what happens in many cycles. Of course, the Fed needs to prepare the markets for the fact that it needs to become less friendly, restrain inflation.

Inflation higher right now. Arguably, the job is part of the way done in terms of preparing the markets. But how do you see this playing out in terms of where markets go from here as the Fed gets underway? Yeah, so, you know, so the Fed is obviously trying to shock the system into basically slaying the inflation dragon, right? It needs to do that with kind of a shock and awe, which is what it's doing. And the bond market, of course, is following in lockstep, as the bond market should, because the bond market is just a series of forward rates. So if the market starts pricing in a more hawkish Fed,

which of course it's doing, the LIBOR curve is now looking like it's going to peak at 3.5% next year, after which it starts to come down. So 3.5% is about 100 basis points above what is considered neutral. So R-star plus about 2% in terms of the inflation target. But the one market that hasn't really followed suit, as you know, is the equity market. And that's really where the disconnect is right now because when we look at equity valuation, and by the way, in the lead-in, you mentioned a 20% correction. I just want to

clarify, when I say 20%, I mean valuation, not necessarily price, because earnings are growing or expecting to grow at 10% this year. So a 20% haircut on the PE plus a 10% increase in earnings is about a 10% risk to S&P 500 price, which actually would only bring us down to the previous lows from late February because we're at 4,500 right now. But having said that, you know, when you look at equity valuation, discounted cash flow model, you put earnings growth in the numerator, the cost of capital in the denominator. Interest rates everywhere are going up. Corporate rates, treasury yields, mortgage rates. The one area where they haven't gone up is the cost of capital in the discounted cash flow model.

That's still at 5%. That's where it was before rates started to move. And the reason for that is that the market or investors are offsetting the increase in treasury yields with a decline in the equity risk premium. And to me, that doesn't really sound right. So if the cost of capital instead of 5% went to 6%, that's five PE points right there. Looking at it alternatively, the PE ratio tends to follow the two-year yield on an inverse way. That's exactly what it did back during the 1994 Greenspan Fed cycle, which is a long time ago. Based on where the two-year is trading today, the PE should be at 16, not at 19 to 20. So that's where I get the 20 percent risk to valuation.

And again, that's not necessarily the same as price. You mentioned 1994. I remember it, too. And it was very dramatic, even though the equity market peaked to trough, didn't really fall that much. The S&P down really just about 10 percent and then sideways for a while. And it's also been held out there by Fed officials and others as the textbook soft landing, the way it was executed. Very rapid and aggressive Fed tightening to really get in front of inflation and then easing the following year as the economy slowed. But it basically was seamless and the equity markets were off to the races. Is there anything in the fundamental backdrop that tells you that we are in for something similar? At least there's a

possibility there. I mean, I would point out that unemployment was much higher, above 6% in 94 when they got started, and inflation was much lower. So maybe there was more room to maneuver back then. Yeah, I think there are a lot of similarities to the 1994 cycle. And I think when this latest episode, before this latest episode began, I think we were all looking at the 2015, 16, 17 playbook. But that was a cycle where inflation was not an imminent threat. So I think we can toss that one out. And now, of course, we have the Fed even acknowledging that, you know, a couple of successive 50 basis point rate increases might be in store. And that certainly starts to channel, you know, the Alan Greenspan Fed, of course. Back then, the Fed was not transparent at all.

You know, the maestro liked to keep the markets on their toes. And so the Greenspan Fed raised rates 300 basis points out of nowhere. It was a preemptive strike against inflation and it was a successful one. And in 1995, the Fed was able to cut rates 75 basis points. So maybe that's wishful thinking this time around, because the Fed obviously is not staging a preemptive strike against inflation, it's being reactive. And so it has a higher hurdle to clear. And when we go back, you know, over the last 40, 50 years, and we look at where the Fed would go during easing cycles, and tightening cycles

relative to what we consider the neutral rate or our star, the Fed would normally go two to 300 basis points below our star during an easing cycle, and then two to 300 basis points above it during a tightening cycle, including the 1994 cycle, by the way. The only time that it didn't do that was 2018, when the Fed only got too neutral. And then, of course, the markets protested and the Fed backed off. But it could back off because inflation was not a threat then. So, you know, the Fed just going to neutral or going slightly above neutral may be a glass half full way of looking at this cycle. But in many other ways, the 94 cycle, I think is apropos. Back then, the S&P 500 went sideways for a year, two 9% to 10% drawdowns. Underneath the surface, though, there was a lot more chart damage. Two

thirds of stocks were down more than 20%. So that reminds me a little bit of the meme stocks during this cycle. And earnings grew very robustly. The P.E. ratio actually fell nine points in 1994, but it was largely offset by earnings growth. And so far, at least to the recent low in February, the P.E. has fallen seven points during this cycle. So there are quite a few parallels. Yeah, at a higher absolute level of PEs, but definitely some similarities there. And of course, in 95, the S&P was up about, I guess, 30%.

Yurian, thanks a lot for your perspective on all this. Appreciate it. Great. Thanks, Mike. Yurian Timmer. Up next, betting on a bounce. Our next guest finding value in a handful of beaten down names. We will bring those to you.

And later, our most valuable pick, one analyst getting bullish on the bullseye. More on that call when Overtime returns. Welcome back to Overtime. Time for a CNBC News Update with Kelly Evans. Hi, Kel. Hi, Mike. Hi, everybody. From the news on CNBC, here's what's happening. The U.S. Supreme Court has its first female black justice. The Senate confirmed Judge Katonji Brown-Jackson 53-47, with three Republicans voting for her. Democrats celebrated with a standing ovation as many Republicans quietly left the Senate floor. European Union voting overwhelmingly for a resolution to ban all Russian energy imports.

However, the measure is non-binding. An actual ban on Russian coal imports was approved today. So for coal, an actual ban. The EU says the ban will cost Russia over $4 billion a year in lost revenue. In Tel Aviv, at least two people have been killed and eight wounded in a series of shootings. The shootings come amid heightened tensions in a series of shootings. The shootings come amid heightened tensions following a series of deadly attacks carried out by Palestinians. And back here at home, three more Starbucks stores going union today.

That brings the total across the nation to 13. The new stores include one in Kentucky and another in upstate New York. On the news, two men arrested for posing as federal agents and giving lavish gifts to Secret Service agents. See what gave them away tonight, right after Jim Cramer, 7 p.m. Eastern. I will see you then. Back to you, Mike. Kelly, thank you very much. With the major averages and the majority of sectors firmly in the red to start the year, our next guest is finding real value in a handful of beaten down names. Jonathan Boyer is principal at the Boyer Value Group. He joins us now. Jonathan, great to have you on here. I want to get right to your picks. And I know this one was not necessarily time for the first day of the Masters today, but you like Callaway Golf. Curious as to the case right here. This is a stock that, you know, it's had a little bit of a struggle and at least statistically

from the top down, doesn't look super cheap. Yeah, no, first, thanks for having me. And yeah, no, Callaway is interesting. Just a quick note, you know, it's interesting, the Russell 3000, the average stock in it is down about 32% from its highs. Callaway is extremely interesting to us. They opportunistically bought Topgolf during the throes of the pandemic, and they got, in retrospect, a fantastic price for it. It's a fast-growing concept. So Callaway is not just a pure golf equipment maker. It's, you know, the Topgolf concept is kind of a nightclub meets bowling alley meets, you know, it's a very exciting concept. They have about 70 locations globally.

They think they can get to 450 over the next few years. So it's a huge addressable market. And golf is obviously hot right now. Yeah, kind of a sort of overgrown sports bar, driving range, you know, group activity type of place. Now, in terms of the overall demand for golf, there was a perception that there was a kind of a pull forward through the pandemic. A lot of people got into golf. Rounds plays were up. Is that an issue of having a hangover effect there? There could be. I mean, time will tell, but it's not particularly expensive to begin with. And then you have that other part of the business, Topgolf, which is growing rapidly. And it's also

about 50% of the people who go to Topgolf are not golfers. So that brings a whole host of new people into the sport. So it's kind of a flywheel effect. Gotcha. Now, I like this other pick. It's a self-serving thing. Comcast, our parent company, of course. Now, the cable stocks, the pure cable stocks have been sort of penalized lately. There was a perception that broadband subscription trends are not very friendly. A lot of investors seem to prefer 5G levered, you know, telecom wireless carriers instead. So what's the case for Comcast here? To us right now with Comcast, at the current level, you're effectively buying the broadband

business and getting everything else for free, which we think is worth about another $34. That's NBCUniversal, which includes the theme parks, the studios, CNBC, obviously. So there's a lot of hidden value there that investors are not really taking into account. And you have a good capital allocator. They're buying back stock there. They've raised their dividends, a dividend, I believe, for the 14th straight year. It's a really interesting long term play with, I think, limited downside. Speaking of good capital allocators, I guess, through history, IAC, Barry Diller's kind of Internet conglomerate. Where do you see value right there? This is often a sum of the parts type story.

Yeah. Barry Diller does not get enough credit. Since about 1995, IAC has compounded about 15% per year. And IAC owns 85% of Angie. It owns dot dash Meredith, which is the largest publishing company basically in the world. And it has a host of other businesses. Toro, they own 25%, which is going public this year and right now uh the way we look at it is you're buying their 85 of angie stake plus their uh their you know position

in dot dash meredith which they own 100 of and getting everything else which including care.com for free and about two and a5 billion worth of MGM stock. And you get it to be managed by Joey Levin and Barry Diller, who are excellent capital allocators. And the upcoming catalyst on that, because that's critically important in a market like this, is Toro going public, which is a car-sharing kind of service. And a lot of analysts value it at about $250 million, which is their cost. It's probably in actuality worth a lot more than that, as well as eventually spinning out dot dash Merida.

Yeah. And of course, Diller has a history of value surfacing transactions when in terms of spinoffs and things like that over time. I did want to quickly get to MSG, arguably not run by great capital allocators over time. You know, you have the Dolan family in there, but is it a real estate play? Is it a sports betting play? How do you view it? Yeah, you know, everyone loves to hate the Dolans, but if you're a long-term patient investor

and you've invested alongside of them, you've done quite well. Remember, they're sellers of assets. They've sold Cablevision at a price we never thought that we would get. Right now, with MSGS, you own the Knicks, you own the Rangers. The enterprise value of the company is about $5.2 billion. The Knicks alone, or Forbes values them at $5.8 billion, so you're getting the Rangers for free. I think sports gambling is going to be a huge beneficiary. For example, New York State

legalized sports gambling not too long ago. They gave you nine licenses. And immediately MSGS got nine new potential customers. So the sponsorship opportunities are enormous. Private equity has been involved in this space. We wouldn't be surprised to see private equity taking a stake in both the Knicks and or the Rangers. It's worth noting that Silver Lake, the well-known private equity firm, owns a fairly large part of the company. So we wouldn't be surprised to see the Dolan sell all or part of it. Interesting. And of course, sports franchises have essentially never gone down in value over time. Jonathan Boyer, appreciate your time today.

Thanks for having me. Good to see you. Thanks a lot. Up next, Barclays getting bullish on the bullseye. The firm naming this retailer their top pick. You'll hear from the analyst behind that call. And later, star fund manager Kathy Wood firing back at a big call made right here on Overtime. We'll bring you those details after this quick break. Welcome back to Overtime. I'm Mike Santoli. Let's go to today's MVP, our most valuable pick. Barclays making a big bet on the consumer, naming Target its top pick.

Joining us now is the analyst behind that call, Karen Short. Karen, good to see you. Good to see you. Thanks for having me. Sure thing. I mean, if you look at the charts of Walmart, Costco, they've gone straight up. Target clearly has lagged. Presumably people don't really consider them consumer staples players. What's the at the root of your call here with Target at a relatively lower valuation as a top pick? So I think Target is a little stuck in no man's land

where investors are trying to decide if it should be valued as one of the more discretionary staples names, which are obviously valued significantly lower, or if it should be valued more along the lines of best in class retailers, which are a lot of the names I cover. And basically the root of the top pick today was that we conducted a survey to gauge purchase intention. And I think that's very relevant because I think consumers and or investors think that Target is just a discretionary play. And my sense was always prior to doing the survey was that consumers go to Target or guests as Target calls them, go to Target much more for essentials than they have in the past. And so we conducted the survey

that basically validated that thesis and 82% of our surveyed consumers go to Target for essentials. So that proves to me that Target is much more of a non-discretionary staples play than a discretionary play. And I think the other component of this is that, you know, Target has been in stock. Target has been a beneficiary of consolidation of trips. You know that when you go to Target, they are in stock. So it's just this flywheel that keeps validating the fact that Target should not be valued at the current level. It should be significantly higher from an EB and or PE perspective. And it was relatively recently, wasn't it? I mean, at some point, people really thought

that Target had sort of figured out omnichannel, was getting the benefit of that doubt. Do you feel right now it's just general skepticism about the ability of the consumer to continue to perform here that's weighing on it? I'm trying to figure out if there's another story that's reflected in the underperformance. No, I mean, I think it's that, you know, Target only works in a good macro. And I just don't think that that's valid today. That may have been valid in 2008, 2009, but their price points and gaps to Walmart are basically almost non-existent. They're a much better retailer today than they were in 2008 from an essential perspective. perspective, right? So this survey showing that 82% of consumers and or guests go to Target for essentials proves that you're walking in the door for essentials, and then you will buy discretionary

when you're in the door. They're just a much stronger, more resilient retailer in a weaker macro than they have been. And I think investors are kind of stuck with like, why would I on Target call it an eight times EBITDA versus some of the very discretionary names of four or five times? And I don't necessarily cover that. Or should it be a best in class? And I very strongly argue that this should be best in class. And I would just tell you, I mean, I've only had three top picks in my entire career and this is the third. The other two have worked, And this is the third. The other two have worked, but this is my third. All right. Well, no, hey, stock up almost 6% today on this call. You have your

price target at 280, which is just a little bit above its 52-week high. So we'll see how this one plays out. Karen, great to talk to you. Thank you. Thanks so much. All right. Up next, blasting Buffett, tech billionaire Peter Thiel calling Warren Buffett a, quote, sociopathic grandpa. We have got the sound and the fallout next. We think that as competition increases in crypto, this is not all on on crypto or Bitcoin prices or anything like that. But we think as competition increases amongst the exchanges, you're going to see fee compression. And as it is, Coinbase will probably not be profitable this year with a $40 billion market cap. That was legendary investor Jim Chanos announcing he is shorting Coinbase right here on overtime just a few weeks ago. Coinbase is one of the top holdings in Cathie Wood's ARK ETF.

Now we're getting fresh reaction from the star fund manager. Kate Rooney just caught up with Cathie Wood and joins us now with more. Hey, Kate. Hey there, Mike. Cathie Wood still very much bullish on Bitcoin. She's still a bull when it comes to Coinbase. And that is their fifth largest holding for ARK. She says she actually agrees with Jim Chanos on that fee compression argument,

but she's thinking bigger picture when it comes to the crypto company. That's no surprise. It's baked into our model. What Coinbase for us is, it's a crypto asset play, and it's institutional and retail, so it could be a digital wallet. We're looking for who are the winners in the digital wallet space. Is it Cash App? Is it Coinbase? Is it Robinhood? And they're all in the running, and they're coming at it from different angles. Elsewhere at the Bitcoin conference, Peter Thiel really making some waves here in his keynote. He starts out by throwing cash into the crowd.

Then he really draws the battle lines between the old guard on Wall Street, what he calls the gerontocracy, and the new guard of crypto. He lays out what he calls enemies of Bitcoin and those who he thinks are stopping Bitcoin. On the list, J.P. Morgan's CEO, Jamie Dimon. Then we have BlackRock CEO, Larry Fink, and Berkshire Hathaway's Warren Buffett. Enemy number one.

I think he's sort of... I think the sort of the sociopathic grandpa from Omaha is, you know, is perhaps the most honest and the most direct in it. Warren Buffett and his business partner, Charlie Munger, of course, have been vocal critics of Bitcoin and cryptocurrencies. We reached out to Berkshire Hathaway. No comment from them yet. Back to you. Yeah. No surprise. No comment on that. And, you know, I also have to say, Kate, that, you know, I get a little bit of amusement from Peter Thiel. He's, I guess, 54 years old and he's trying to say those are the old guys. I'm here with the young ones who are, you know, kind of creating tomorrow.

Yeah. On the Cathie Wood. Go ahead. Oh, go ahead. I was going to say, he actually closed with a line about sort of let's go change the world and a rallying call to the younger crypto folks. But like you said, he's not the youngest of the group. Showed a picture, actually, of himself and Elon Musk from 1999.

And they look a little bit different. But go ahead on Kathy. No, there you go. I was going to mention quickly on the Coinbase position of Kathy. Where understandable, she's sticking behind it. It's a bigger picture play. But arguably, Coinbase is the incumbent there perhaps to be disrupted by other exchanges and other crypto platforms, right? I mean, she's supposed to be looking for the upstart disruptors.

You wonder just how that plays. Yeah, it's interesting. One of Jim Chanos' points was that Coinbase is over-earning. And you've got some of ARK's other investments, including Robinhood, that have already gone there and are offering crypto trading for zero commissions. Other private companies like FTX charge significantly less on the retail side than Coinbase. So it does seem to be in this scenario, at least Coinbase is sort of the incumbent charging more and might get disrupted in the same way we saw happen with the brokerage industry on Wall Street. Yeah, could be, of course, Tesla's the incumbent in EVs, too. So maybe not too inconsistent.

Kate, thank you very much. Appreciate it. Talk to you soon. Coming up, the consumer-facing stock one money manager is betting on in the face of inflation. We'll reveal that name in our two-minute drill. But first, Christina Partinevalos is breaking down the biggest movers in the OT. Christina, what's on deck? Well, I'm going to start with some Slim Jimims, some leather, and a MasterCard.

And no, that's not my usual Thursday night shopping list. Coming up, I'll break down four stocks headlines in just 45 seconds. You won't want to miss it. Welcome back. Let's get a check on some movers in overtime. Christina Partsenevelos is tracking the action from the NASDAQ. Hey, Christina. Hello.

Let's talk about Fashion House Tapestry down over 1.5% right now on larger volume in overtime trading. The company owns coach Kate Spade. And although there's no specific news in after hours trading, a little tidbit today. The company said they are spending $3 million to trace their leather value chain to avoid deforestation. And then we've got graphic chip darling NVIDIA that's facing the biggest weekly drop on the S&P 500, down about 11%. So far, it's considered an expensive stock when compared to the sector. Keep in mind, though, semiconductors in general have been lagging all week. Big question. Sector rotation. Who knows? And in case our viewers missed it, the maker of Slim Jim's, Conagra Brands, warned that meat ingredients will cost 50% more this year.

That means higher cost squeezing margins. The stock's still pretty flat on the year. And then we've got a late-day move from our own Jim Cramer. He's exiting his position in MasterCard, citing the stock's premium multiple. Stock down about 2% on the year, and he says, quote, it's time to sell the rest and move on. I do encourage our viewers that are watching right now to sign up for the Investing Club he says, quote, it's time to sell the rest and move on. I do encourage our viewers that are watching right now to sign up for the investing club to learn more about Kramer's picks. Mike, there you have it. Christina, thank you very much. We are also

watching shares of Carnival as the company gears up for a high stakes investor meeting tomorrow. Let's get to Seema Modi with the setup. Hey, Seema. Hey, Mike, and I'm told a big topic of discussion at this meeting will be the structure of executive compensation and the metrics tied to pay. CEO Arnold Donald made around $15 million in 2021. That's a combination of salary, stock, and a non-equity incentive plan. Shares of the cruise operator losing about 7% in that same time period. However, management will likely point to other metrics like the $27 billion in financing transactions that really helped the cruise line get through the worst part of the crisis. Carnival recently reporting a very strong bookings number

suggesting the recovery is underway. Other agenda items, ESG goals and efforts to adopt more fuel efficient ships. Keep in mind, some of its biggest investors include BlackRock, Vanguard and the PIF. That's Saudi Arabia's sovereign wealth fund. Mike's meeting starts tomorrow at 9 a.m. Back to you. All right. We will check back with you once it gets underway. Seema, thank you very much. Up next, we have our two-minute drill. I want to take a quick look at Biogen. It is down after hours here in overtime, down almost three-quarters of a percent. Medicare officially limits coverage of Biogen's Alzheimer's drug. That was somewhat expected, but you see here it's now official and seems to be hitting the stock just a little bit. Now, results to our Twitter question of the day. The majority of you saying health care is the best defensive play right now

with 41 percent of all responses. Time now for our two minute drill. Joining us is Danielle Shea, director of options at Simpler Trading. Danielle, before we get to your new picks, we have a trade update. You recommended Hershey three weeks ago. That stock up nearly 8% since then in a weak market. What are you doing with that one now? Well, Mike, it's met my first target at $220. I think it can squeeze out another few dollars, perhaps up to $225. But if it starts losing momentum, I'd go ahead and take profits. All right.

And then get on to Tractor Supply. Actually been a pretty strong stock the last couple of years. Why do you like it now? I like Tractor Supply. You know, it's the Costco of couple of years. Why do you like it now? I like Tractor Supply. You know, it's the Costco of rural America. People are not going to stop feeding their chickens, even when prices go up. In fact, they're going to run to Tractor Supply because it's much cheaper. Additionally, they've been doing great on earnings the past two quarters.

They gapped up. We have a strong technical structure and relative strength in this chart. So I think we can target about $250 on the stock. All right. $250 as an upside target for Tractor Supply. Close at $231 right here. Danielle Shea, sorry to cut it so close. Danielle Shea of Simpler Trading with Tractor Supply is one of the retail plays right now. That's going to do it right now for overtime on this Thursday. Fast money begins right now.