Closing Bell - Closing Bell Overtime: Second-half Tug of War 06/30/22

Episode Date: June 30, 2022

A big tug-of-war is playing out in the market between inflation shock fading and growth fears rising. Eric Jackson of EMJ tells us which he thinks will win. Plus, a potentially crucial deal in the crypto space. We break down the details and what’s at stake. And, Bank of America Securities’ Francisco Blanch tells us the top commodity plays for your portfolio.

Welcome to Overtime. I'm Mike Santoli in for Scott Wapner. You just heard the bells, but we're just getting started. Just ahead, we'll get earnings from Micron, the chipmaker releasing results at any moment. We'll bring you those numbers as soon as they cross. But we start with our talk of the tape. The great tug of war playing out in the market between inflation shock fading a bit and growth fears rising. Which will win out as the S&P 500 officially hands in its worst start to a year since 1970, over half a year. Let's ask EMJ Capital founder Eric Jackson where he stands with all this. Eric, you know, we can talk about this sort of macro squeeze that investors have been in for a while. We've known the Fed was kind of tightening into a slowdown.

We get some remarks this week from Jay Powell suggesting that, you know, recession might not be a bug. It might be a feature of this process. And the market's trying to sort that all out. How does that play into your investment process, your stock picking in a market where the average Nasdaq stock's already been cut in half? Yeah, it's a good riddance for the first half of the year, Mike. And obviously, inflation fears have been paramount. Today, we got a bit of a break with a drop in the 10-year all through the day. And it's going to be interesting to quarter earnings from all the big tech bellwethers, which are going to have risks of having a restoration hardware type of event.

But what makes me hopeful about investing in tech is just that the beatdown that a lot of the names have taken already, and specifically the growth tech names. I think there was a survey done today by CNBC for Delivering Alpha where they asked respondents, which of the subsectors are you most excited about for the second half of the year? And I think growth tech was at the bottom of the list, was something like 3%. So that sentiment is hopefully a counter signal about what may work. Something so bad, it has nowhere to go but up in the second half of the year. So despite all the noise right now about fears of inflation, I hope that, you know, the core

PCE from this morning showed that we're back to November levels. It seems to be dropping for three months now. Hopefully, the 10-year dropping is beneficial for. The tech stocks in general because as that drops and people get beyond the inflation fears- they'll start to look around see a lot of these names have been.

Significantly sold off. Yeah I mean obviously the growth pack. Segment of this market. Led the downturn right me they really peaked almost a year and a half ago as a group if you look at the kind of disruptive tech. Baskets recentOs, all that stuff. And they did have, you know, I guess, in aggregate, a decline of 70-ish percent, if you want to look at the most

extreme version of that. What gives you confidence, though, that the thing that led the way up into the peak last time is going to be the place that's going to revive in the most dramatic way right now? Or do you actually not think that the whole group is going to have that kind of recovery? Yeah, I think it's fair to say, you know, we're not just going to snap back to all-time highs or anything like that. There's obviously been a lot of damage done and a lot of names are going to never recover probably within growth tech. But what makes me hopeful, Mike, is just that the outperformance of the NASDAQ and even the Russell to, you know, if you want to say growth tech is represented by ARK, you know, ARK peaked in February of 2021. I think

up until today, the outperformance of NASDAQ and Russell versus ARK was something like 40 to 50 percent. You know, ARK down like 70 plus percent. Obviously, that's extreme. It was extreme on the way up in 2020. But prior to that, you know, ARK and Nasdaq, you know, stayed pretty close together. So I think there is an overdue nature to see that snap back. And one thing that I find interesting is that since the May 12th lows, ARK has actually outperformed both Nasdaq and Russell. So it wouldn't surprise me. So much bad news is priced into so many of these kinds of

names that they can continue to work, even if we get a warning from a Facebook or an Amazon next month. Well, speaking of warnings and the test of real results, Micron earnings are out. Christina Partsenevelis has those numbers. Christina. Well, we're seeing EPS earnings per share that came in stronger than expected at $2.59. Revenue was in line at $8.64 billion. But the big concern going forward is its guidance for Q4. The company has reduced it quite a bit, coming in much lower than anticipated at $1.63. The street was expecting $2.57 on Q4 revenue guidance. They are guiding at $7.2 billion. The street was expecting $9 billion. So there's a huge discrepancy in there. In the actual earnings report, there is a quote saying that industry

demand has weakened and we are taking action to moderate our supply growth in fiscal 2023. So we could see much of the weakness. A lot of people are anticipating weakness in demand. It was, we could argue it was priced in the stock. But this guidance that we're getting for Q4 is coming in much lower than anticipated, even with all the earnings revisions that we've received over the last week or so from analysts. So that is part of the reason why you're seeing the share price fall about 6% right now. Yeah, Christina, that certainly is the reflex. Now this stock down already 40 percent or so from its high. So some of that was baked in, maybe not all.

Let's bring in CNBC contributors Stephanie Link, the chief investment strategist at Hightower, and Greg Branch, very tough financial managing partner, along with Eric to talk this out. Steph, first impressions of Micron. This is a classic story, deep cyclical, you know, complete bullwhip effect here when it gets to the end of a cycle. And you have a one point eight billion dollar revenue guidance shortfall relative to the consensus for the coming quarter. How does how does that play to you? Yeah, well, so, Mike, we knew that PCs and smartphones have been decelerating and have been weak since the last quarter. So that was expected. On the other hand, they have cloud, data center, auto, industrial. That was supposed to make up for the weakness and the shortfalls on the other side, on PCs and smartphones. Obviously,

a lot of things are starting to weaken. The environment is starting to weaken. The economy is starting to weaken. So I'm not too totally surprised. I actually have been very concerned about potential double ordering and triple ordering. I mean, look, if you go back and this is a totally different industry, but if Target and Walmart can double and triple order, well, so can the semiconductors. And they've been known to do that. And so I think as the supply chains start to get fixed, then they're going to be left with a lot of excess inventory. So I'm not surprised. The stock is cheap. Even after you cut the numbers, the stock is still going to be cheap. But what do you pay for something that you just don't have a lot of visibility going forward? Yeah, that's absolutely the question. And, yeah, it came in under six times forecast earnings.

Those forecasts are going to go down, but there's still a cushion to stock, even, you know, coming up off the lows in the last few minutes anyway. Greg, just as a general matter, as we get ready for, you know, the big rush of earnings right here, it is right at the front lines of the market debate, which is how much has the market already taken account of the fact that you might have more disappointing earnings than we've come used to in the last several quarters? I don't think that the market is taking into account nearly enough, quite frankly. At the end of the day, if you do believe that we're going into recession, you believe that we're going to have earnings contraction this year on the S&P 500. I'm at negative single digit for now, which gives me about 195. Applying a 17 times multiple on that gets me around 3,300 on the S&P.

And so we can't have this both ways. If you do believe that we're going into a recession, then you believe that there's going to be earnings contraction. And I don't believe that the market's reflecting that at this point. I do think that things will get more fierce in the near term. Analyst estimates are little changed from the beginning of the year. And so there's a lot of catch-up work that's going to need to be done. Almost 20 percent of the S&P 500 at this point has either pre-announced that they wouldn't meet their earnings or missed, as we've seen today and in the last few days. And I think it's going to be more of the same,

which is going to color sentiment. But how is that not potentially a net positive, Greg, if you've already had a fifth of the S&P pre-announce or disappoint? And, you know, the market's been doing what it's been doing, implying that it doesn't feel as if earnings are going to hold up. Also, 195 for this calendar year for the S&P 500, when one quarter is already in the books, I think that means about a 20 percent shortfall relative to the final three quarters estimates. That's the kind of air pocket and profits you think we're going to see? I do. And keep in mind, let's put that in context. Over the last five recessions, the average contraction has actually been about 30 percent. And so that would be in line in the back half of the year with

what we normally see in a recession now how do we put this in the context of is it priced in we know it's not priced in because the analyst estimates aren't reflecting that and so I think it would be a little bit ambitious of us to expect that investors have priced it in if the analyst estimates aren't right yet and they need to come down. Yeah, although there is some work that outside of, you know, energy and commodities, you know, most numbers have come down at least somewhat. And Eric, I mean, how would you take into account the fact that we do clearly have some near term earnings. Stock's down already a lot, and you're presumably buying things for the next three and five years. So you're thinking about a longer growth trajectory than

just the next few months, but it's treacherous along the way, I would imagine. Well, yeah. I mean, I would say the micron news, I mean, what incentive does management have not to just kitchen sink these upcoming earnings calls and just announce terrible second halves? But I mean, the stock is down in the after hours, but it's not tremendously, it's not down 10% plus. So I think that speaks to that there are a lot of names. It's definitely in technology. There are a lot of work has been done by investors to sniff out, I think, what's coming with this slowdown and price it in very quickly. So, yeah, when you take a step back and you think the next three to five years, I mean, if you take all the SaaS names, for example, and there's different types of SaaS names, high growth, middle, low, low growth types. But we're basically back to the period of time of 2015 to 2019. I'll pre-poll it now in terms of the multiple. So if you think that we're going to go back to that kind of a normal environment in the next three to five years, these are cheap

right now. Yeah. Steph, it's become, I guess, a gathering consensus that the way to ride things out is to skew a little more toward financial stability in terms of corporate balance sheets and earnings predictability and things like that, free cash flow. I mean, baskets of high free cash flow yield stocks have done quite well relative to the market this year. Does that still make sense? That's an implied bet that things are going to stay kind of rough for a while. Yeah, I mean, like and dividend growth also has really been working as well. But you touched on a free cash flow balance sheets. Quality has been outperforming on a relative basis, still going down, but going down less. Look, I mean, I think that the Fed is in a quandary right there. They're aggressively tightening and they're going to continue to

aggressively tighten in the face of the slowing economy. So whether we're in a recession right now or a recession in six months, we are definitely seeing a major slowdown that the Fed is not really seeing for some reason. They're just they're really focused on the inflation situation. And I got to tell you, I think the core PCE was disappointing at 4.7 percent. Maybe it's down a touch from the last reading, but that's way higher than the Fed's 2% goal. So they're going to have to be pretty aggressive. And I also think today the RH news really spooked people, not so surprisingly because they were a beneficiary

at stay-at-home trends, right? But more so that this is the high-end consumer, and high-end consumers actually hung in there on a relative basis. And so that's a bit disappointing. And and so, yeah, I think that we are going to continue to kind of slog around here for the next couple of quarters. And in that case, you want to own a couple of different things. You want to own the quality like we talked about. You also want to own companies that are benefiting from higher commodity prices. And that is certainly energy and materials and also consumer staples. I mean, the General Mills quarter yesterday was really pretty impressive in the face of huge inflation. I think you want to own some of the discretionary names, too, that have just gotten beaten down silly in terms of like a Target or a Nike or a Starbucks. Some of the technology

names, Erica speaks to these all the time, but I would just say, you know, meta is at 11 times earnings, and I feel okay about those earnings. But, you know, Meta is at 11 times earnings and I feel OK about those earnings. But, you know, so there are places where you can pick and choose. I have Berkshire as a new position for me as well at one point two times. So I can find things, but I don't expect them to go up and not even in the next quarter. I'm going to have to be patient. And that's what we are. And but I think in the long term, it'll it'll work out. Yeah, it's interesting with RH. I mean, Greg, you know, if you wanted to define the area that might seem most vulnerable right now, it's probably like

stuff that people bought too much of during the pandemic that's linked to housing, which is interest rate sensitive, which is super expensive and you don't buy it all that often. So I don't know, maybe that's that's a bellwether for something. But it seems like, you know, you could see your way around that type of a miss and say maybe things in general won't be quite as bad elsewhere yeah and and i'm going to put a different spin on what staff said about rh it's not that it's about the high-end consumer we saw this warning with the lowmarts and the targets consumers of all socioeconomic brackets just shifted their spending from things that we could touch to things that we could feel and so that is what is driving a lot of the inflation right now is service inflation think tick think things like airline tickets uh things associated with travel vacation hotels

and yes rent which we know lags home prices by about 18 months and so it wasn't so much that the high-end consumer might be at risk. It's that the consumer sentiment shifted. That said, I am worried about the consumer in the back half of the year, where I do see some light at the tunnel. I'm not continuously and always bearish. At the end of the day, we took out $83 billion of credit card debt in 2021

while money was free, but we added 41 billion in February and 52 billion in March. Balances at the end of the quarter were 840 some odd billion. We had a record household debt of 15 some odd trillion. billion in February and $52 billion in March. Balances at the end of the quarter were $840 some odd billion. We had a record household debt of $15 some odd trillion. We had a record $229 million credit card applications. All of that while it's becoming historically more expensive to have that leverage. And so I do worry about the health of the consumer balance sheet after

we get through this summer of spend. And so those stocks, those hotels, those travel companies outside of the cruise lines, obviously, as we saw, should show some strength. The credit cards will show, obviously, tremendous strength over the next few months. And yeah, I like a lot of things for three or four years. Don't get me wrong. I love companies that I can get at historically low multiples that are giving me 20% top line margin expansion and 20% earnings growth like Microsoft has done for basically all quarters. But at the same time, I'm not going to buy them ahead of another 75 basis points and with things like the strong dollar providing some pressure on the bottom and top lines.

Yeah, although countering that rebuild of consumer leverage was pretty good personal income numbers today. We'll see if that can continue. Eric, wanted to get to one of your ideas because we've been talking about beating down tech names as well as housing related open door. Just give a brief take on why that's a pick of yours now. Well, it's down from 25 in November to four bucks, five bucks right now. Basically, it's traded over the last couple of months in conjunction with the homebuilders, almost 100% correlation. Yet, I think it's misunderstood. First of all, it basically focuses on the iBuying sector, which is growing. It's the fastest growing part of real

estate. And they're the dominant player. Zillow is backed out. And it's something they've always done, unlike Zillow. And they focused on, obviously, pricing houses. And I think there's a perception that they're going to buy a lot of houses expensively. The prices will drop. They'll be stuck holding the bag. They only hold the houses for 60 to 90 days. And basically, they focus on making a 5% spread, whether it's a good market for real estate or it's a terrible market. And I think, and they've shown, you know, talk about free cashflow.

They've been free cashflow positive for the last couple of quarters. They probably will again this quarter. And so the, and that's going to continue. So I think when investors see that they can perform through a cycle like this for the next couple of quarters, they're going to

say this has to be dramatically re-rated. So that's why I own it. I like management. I like the models that they have to price houses. And I think people will start to take a look at it again very soon. Yeah. All right. Well, this will be a stiff test for sure of the business model. Five percent, two to three months return is good if you're compensated for that risk. We'll see how it goes. Eric, staff, Greg, thank you very much. Appreciate it. My pleasure. All right. Let's get to our Twitter question of the day. We want to know what's the best sector to bet on in the second half of the year? Staples, energy, tech or health care? Head to at CNBC Overtime on Twitter, cast your vote, and we'll bring you the results at the end of the show.

Coming up, a fire sale in the crypto world, the shocking price tag on a dramatic deal reportedly developing for one crypto lender. The exclusive details are straight ahead. And later, betting on a bounce. One market strategist is making the case for some big upside as we kick off the second half of the year. We'll discuss that when Overtime returns. We're following a developing story on a big deal brewing in the crypto space.

Let's get to Kate Rooney with the details. Hi, Kate. Hey, Mike. FTX is closing in on a deal to buy crypto lender BlockFi. This is according to three sources familiar with the details. Hi, Kate. Hey, Mike. FTX is closing in on a deal to buy crypto lender BlockFi. This is according to three sources familiar with that deal. We've been told from one source with firsthand knowledge that the price is around $25 million. If you look at BlockFi's last private valuation, that was closer to $4.8 billion. The term sheet is being finalized. I'm told it's almost over the finish line. Sources expect that to be signed by tomorrow.

I'm also told the price tag could shift between now and Friday. Also told there have been multiple offers, and we had multiple offers on the table when it came to this deal. The CEO, though, pushing back on that $25 million number in a tweet calling it market rumors. BlockFi officially declined to comment. Same with FTX. The sale comes a week after FTX gave a $250 million emergency loan to BlockFi. Billionaire CEO of FTX, Sam Bankman-Fried,

has been really seen as a lender of last resort in the space. Also provided a $500 million loan to another crypto company, Voyager. This really was seen, though, as a possibility of some of those loans if these companies defaulted on that debt. The surprise here, though, does seem to be these outright sales that we're seeing. Back to you, Mike. Yeah, Kate, very kind of dramatic kind of jockeying in this area, who's going to be saved and who's not. And, you know, I guess maybe there's lots of ways you can couch

what a transaction value is going to be, whether it's the assumption of liabilities as part of it, I guess maybe there's lots of ways you can couch what a transaction value is going to be, whether it's the assumption of liabilities as part of it, and then maybe the price is going to be tweaked before finalized if a deal happens. But talk about a little bit what position BlockFi finds itself in and why, where it sort of sits in the industry, and I guess maybe what that would mean for FTX adding the capabilities. Yeah, absolutely.

There has been some hand-w over the details here. And this has been a long, drawn out situation for a lot of the crypto lenders in a similar position right now. And a lot of them are dealing with either cryptocurrencies failing, people failing to meet margin calls and some of the issues there with collateral on the back end. So that really is why the lending companies are in trouble here. Margin calls, they've had to deal with liquidity issues as well. Companies like FTX, the exchanges, don't have that on their balance sheet, so they've been able to avoid some of this risk. That is why they've been seen as a little bit immune from this and likely in a position to come in and potentially buy these companies. But it is common and we're likely to see more deals in this space,

more consolidation in M&A as if nothing else, prices and valuations come down, not necessarily a liquidity crisis, but we've seen what happened in public markets and it's still happening. I'm told at least in private markets, we're likely to see some of the same drop in valuation and opportunities on the M&A side. Yeah, interesting. I mean, asset liability, mismatched liquidity problems. It's very familiar, even if it's a new asset class. And I guess with no regulatory boundaries, exchanges can buy lenders and all the rest of it. We'll see really how it all sorts itself out. Kate, thank you very much. All right, up next, sunnier skies ahead. One market pro says forget all the doom and gloom.

How he's positioned for a big bounce in the second half of the year. And later, we're drilling down on oil. Why one top analyst says the commodity straight still has room to run. Overtime. We'll be right back. The S&P 500 handing in its worst start to the year in 50 years. But our next guest says that could be all about to change as we kick off the second half. Let's bring in Jim Paulson, Lutho Group chief investment strategist. Jim, great to talk to you. How are you doing? I'm doing good, Mike. Thanks for having me.

Great. I mean, I, you know, obviously we're going through this process, which in a lot of ways seems familiar. You know, this is what happens in the start of tightening cycles. You get valuations compressed, yields going up. But you've been focused, I guess, to some degree on how maybe we're sort of emerging out of an anomalous period for the economy, for markets, and almost getting back to something that feels more familiar. Talk about that a bit. Well, I do think that the new normal since the pandemic started, Mike, has been abnormality. I mean, we had more abnormal conditions across the spectrum than we've ever had in post-war, you know, starting with COVID, which was really out there. And now COVID is, we've kind of come

to the grips, it's going to be with us forever. And life's going on and we're learning how to deal with it. And we're seeing more normal activities as a result. We also had a blow up in negative yields across the globe. They started to emerge in 2015. That scared us. But when they blew to over 18 trillion after COVID, we thought something was really broken the economy. And then crude oil prices went negative for a while as well, scaring everyone. Well, they're back to normal. Negative bond yields are now down below two trillion, about as low as they were back in 2015 when they first started overall. We had massive economic volatility in the nine quarters since 2020 started, the standard deviation of real quarterly growth rates and real GDP is 17 percent.

That's five times higher than any other nine quarter period in postwar history. That's back to normal now in the last four quarters overall. We had unbelievable weird economic policies, monetary growth being 27 percent a year ago, March fiscal to deficit to GDP being 18 and a half percent stuff we haven't seen in the entire postwar era. Both of those rates are now also back to where they were pre pandemic, for example, the rate structure. Yes, the Fed took the funds rate back to zero, but all the rest of the yield curve dropped almost to zero, fearful that it would head to negative category. The 10-year reached a half a percent lowest ever in U.S. history. Well, those rates are now back to the kind of same level we were in ever since

2010. Supply side activities are really messed up, but those are returning to normal. The labor force fell by the largest amount in post-war history after the pandemic. And now it's risen back up to its previous pre-pandemic high. Inventory GDP is coming back. I guess my point about this is, is that if we do get through this, Mike, and people start getting a little more optimistic, we're going to suddenly look around and a lot of things are working again overall. Right. Yeah, there's so many used to say so many long term charts were effectively broken starting in 2020. They just didn't have a lot of relevance to what had come before. Now, I guess bringing it back to what the markets are trying to digest right now,

you've had a significant reset in the first half of this year, whether it is valuations, economic expectations, sentiment, all the rest of it. What do you think that means for the risk reward in the market going through the rest of the year? Well, one thing to keep in mind is that the market, too, has been returned to normal. Bond yields right now from two years to 10 years in relation to their break-even rates, their respective inflation expectations, are back either equal to or above average since 2010. That is, most of the rate market is fully priced for what they expect from inflation right now. That hasn't been the case until recently. The stock market for the first time in this recovery on an S&P 500 basis is below average P multiple forward earnings or trail earnings

since 1990. So they're in better balance overall. But I think at this point, Mike, this stock market has got to get an inkling that the Fed tightening cycle is ending before it's really going to sustain a rally. But I think we're a lot closer to that than you think. If I look at the break-even rates in the bond market have been collapsing here of late. The one-year break-even rate is now down to 4.3%. It's fallen 2% in the last three months. If it does that again in the next three months, it'll be at 2.3%, well within the Fed's normal two percent area of expected inflation for one year forwards overall. You know, and you look at I kind of look at the Fed, you know, taking directors

from the boss. And right now the boss is the economy and the bond market. And both are telling it it's got to wind up its tightening program. Inflation is rolled over. Growth is slowing. Bond yields are coming down. There might not be a Fed put, but there's been a bond market put of 50 basis points now from the two-year to the 10-year recently. And I think the bond market and the economy is going to put more and more pressure on the Fed to stop tightening soon. So it may quit at two and a quarter or two and a half percent. And if the stock market picks up that we're getting close, we could have a nice rally at this year.

Yeah, you can feel the bond market getting itchy to try to look ahead to that moment. We'll see if we can wait it out and if the Fed comes along. Jim, great to speak with you. Thanks a lot. Thanks for having me. All right. We have more ideas on how you can position your portfolio as we head into the second half of the year right now on CNBC dot com slash pro.

Time for a CBC News update with Shepard Smith. Hi, Shep. Hi, Mike. Thanks from the news on CNBC. Here's what's happening. Starting tomorrow, the three major credit reporting companies will stop counting medical debt on credit reports and they'll give people a year to resolve unpaid debt before reporting it. Right now you get six months. The Consumer Financial Protection Bureau estimates nearly 60 percent of all debt on credit reports and in collection is from medical bills. Gabby Petito's family can sue Brian Laundrie's parents for emotional distress. That from a judge in Florida today. The Laundrie family wanted the lawsuit dismissed. Police say Brian Laundrie strangled Gabby Petito on their cross-country van trip. He later killed himself after returning home to Florida. And another

seismic shift in college sports could be on the way. According to the Associated Press, UCLA and USC are planning to leave the Pac-12 and join the Big Ten Conference. It comes almost a year after Oklahoma and Texas decided to bolt from the Big 12 and join the SEC. If this new move happens, more teams could make moves and change the college sports landscape. Tonight, Pete Williams on major Supreme Court decisions revealed today. Meg Terrell on the confusion doctors face post Roe v. Wade. And as you know, we'll talk markets with Mike on the news right after Jim Cramer, 7 Eastern CNBC. Mike, we'll see you then. Sure will. See you in a couple hours, Shep. Thank you.

Another check on shares of Micron, the stock lower on earnings. The conference call just kicking off. We'll bring you all the highlights. See the stock now down less than 3 percent. Plus, some big news breaking out of Las Vegas. Contessa Brewer standing by with more. Hi, Contessa. Oh, it's not only big news for Las Vegas. It's also big news for Elon Musk and the Boring Company. Why casinos are betting on the loop as the next big thing in Sin City when Overtime comes right back. We're back in Overtime with some big news out of Sin City. Let's get to Contessa Brewer with the details. Hey again, Contessa. Hi there, Mike. Yeah, Resorts World Las Vegas is now the

first casino to unveil its passenger stop for The Loop. This is the concept by Elon Musk and The Boring Company to have Teslas in underground tunnels moving people from place to place. Now, last summer, the Las Vegas Convention Center unveiled a three-station loop on its massive campus. Today, it's connected with Resorts World, which is only a year-station loop on its massive campus. Today it's connected with Resorts World, which is only a year-old casino property on the Strip. Wynn Resorts, the Westgate and Allegiant Stadium are now in the permitting process to get their own loop stations and the city just last week approved the system to connect downtown Las Vegas. That's like the Fremont Street

experience. So in all you would have 55 station stops planned for this Las Vegas. That's like the Fremont Street experience. So in all, you would have 55 station stops planned for this Las Vegas loop. This is Boring's first commercial project, though it is, of course, hoping that other cities will sign on and be sold by what they see in Las Vegas. And there's already speculation about a loop from, say, Los Angeles to Vegas, which would shorten what can be hours and hours of gridlock on that I-15. For now, though, it's a short trip. Riders who get on and off at resorts will travel for free, though down the road, these passengers will have to pay a fare. That's not happening quite yet, Mike. All right. So maybe one way around those cab lines that I remember on the strip. But Contessa, you know, it seems maybe people who are in Vegas would find it puzzling that all the talk is about consumer recession,

because we do have some new kind of numbers on on gaming revenue out of the city. I'm telling you, these Nevada and especially Las Vegas strip casinos are just killing it. We saw May revenues coming in, setting a record for the best May ever, the fourth best month ever. And if you look at the percentage growth here, this is 11.5% higher than what we saw come in May of last year. Part of this has to do with international travel coming back, the conferences coming back as well. Part of it is just there is still so much pent-up demand, and the occupancy levels are very, very good. For the whole state of Nevada, you're looking at levels that are 35%

higher for gaming revenue than May of 2019 before the pandemic. Really remarkable. Though we are starting to see, and we heard this in the earnings calls, Mike, cracks at the very lowest demographic. It's not a really profitable part of the business anyway, but that's where they're starting to see some pullback in spending because of inflation. All right. Yeah, I have to keep an eye, I guess, on the booking trends. Looking ahead, Kajessa, thanks a lot. Sure. Breaking news now out of Washington.

Ilan Moy has the story. Hi, Ilan. Well, Mike, the top Senate Republican, Mitch McConnell, is now saying that he would potentially block $52 billion in funding for the semiconductor industry in the latest revelation in this long-awaited funding. In a tweet, he said that he wants to be perfectly clear there will be no bipartisan USICA, that's the name of the broader package that includes the money for the chips industry, as long as Democrats are pursuing a partisan reconciliation bill.

So again, McConnell's saying he's willing to block the money for the semiconductor industry if Democrats move forward with a broader spending package. I'm told that Democrats in the Senate are looking at reviving some of those talks around a bill that would include Medicare drug pricing as well as potentially some clean energy tax credits and additional corporate and individual tax measures. Those discussions have become more serious in recent days, but McConnell now throwing cold water on it and saying he's willing to hold up bipartisan legislation that's critical to the semiconductor industry if Democrats move forward.

Mike. Ilan, thank you very much. It seems like it just becomes a little bit of a pawn in a larger game. Ilan Moy there. Up next, we are breaking down the top commodity plays for the second half, where you can find opportunity in that space. And later, the bull case for one key software name. That's going to be in our two-minute drill. Don't go anywhere. Overtime will be right back. Energy had a great first half of the year with the XLE up nearly 29 percent year to date. But take a look in the last month, dropping over 19 percent. So how do you play the rollover going into the second half? Joining me now is Francisco Blanche, Bank of America Securities head of global commodity and derivatives research. Francisco, great to have you here. I guess the big question,

you know, just several weeks ago, I would say that the dominant talk around commodities was structural supply, demand and balances. It seemed like there was a lot of momentum, obviously a clear part of the inflation story. Now, a sharp reset lower. Has that overall narrative changed as far as you can tell? Hey, Mike, thank you for having me. It's, you know, it's definitely a turning point in some ways, but I think it is particularly so for U.S. energy. The rest of the world remains in a pretty bad place. For example, today, U.S. natural gas prices dropped 16, 17 percent on better than expected inventory numbers. But European gas has zoomed up and is now trading

at $44 per mm BTU. So the gap between the U.S. and Europe has just widened because, again, there is less gas flowing from Russia into Germany. So I think it depends where you look at. Thermal coal prices, for instance, are also close to all-time records, about $100 a barrel of oil equivalent. So, you know, it really depends. I think there is a turning point. The economy is getting worse, no doubt, but the supply scarcity is still winning the game in some regions. Yeah, I mean, obviously, things like copper and weed have had very high momentum moves and they've sharply corrected. So I guess clearly the macro concerns are going to exert some gravity there. But what would be the, I guess, investment plays on something like that?

If you say, you know, parts of the world still seem very tight and it seems like there's more to run in the energy story. Right. That's right. I mean, I think probably in the next few months we're going to see a continued deceleration in economic activity. I think that much is said. And and probably that means the industrial metals could suffer a little more into the second half of the year. I think also we could see a pullback in, obviously, US Natural Gas had a big move down now that the Freeport LNG facility is not exporting as much gas as before because of the shutdown, right? But on the whole, I still think the second half of the year for energy is going to be

very tight. Remember, Russia keeps playing games there, and we could see global energy staying very tight. If Europe faces, let's say, a reduced energy supply situation, they could go out and start buying heating oil and diesel for backup fire generation or heating homes if there's no gas availability. So I still think second half of the year for energy could be pretty tight. Yeah. So that's the actual real world usage and supply story in terms of commodity as an asset class there has been a revival of the idea that maybe it's going to be favored more by institutional investors stocks and bonds have

had a rough time coming into this year are we back into saying that there's going to be an institutional push into this area and playing some sort of idea of a super cycle perhaps um i mean i i think there is definitely a growing idea. And we had our commodities conference last week where we had a really great set of panelists. And I think there's consensus the next two, three years are going to be pretty good space to be in the commodity markets. Even if we have, let's say, a shallow recession where demand pulls back, ultimately it's a supply story. We don't have the BTUs. We don't have the barrels. We don't have the tons of copper, the tons of coal, because we haven't

really invested that much in the last few years. So even as we withdraw our monetary liquidity and inflation pressures fade in other parts of the economy, I think the commodity sector is going to stay quite tight for the foreseeable future. So, I mean, you can call it a super cycle. In commodity land, we say, well, we don't have the volume, we don't have the units, so we have to rein in demand. And one way to do it is higher prices. So I do think that we're going to see that for quite a while here. And commodity returns are going to be quite attractive if indeed curves stay inverted. So we have spot prices above forward in what's called backwardation, which is also quite a favorable shape of the market for commodity returns.

So you have those factors flowing in. And then there is gold, which has not had a great year, but it's been a lot better than equities and bonds. So I think as we see people crawling back into long duration assets and of course, there's been a big rally in the 10 year in the past and 10 year U.S. Treasury bond in the last in the last few sessions, I think we'll start coming back into gold as well in the second half. Yeah. See how that goes along with with the real yields. Picking up Francisco. Thank you very much. Appreciate it. Thank you. Coming up, we are all over the after hours action in shares of Micron, the stock well off its lows with the company's earnings call underway. We'll bring you all the highlights

after the break. Shares of Micron lower just marginally now after reporting results. The conference call is now underway. Christina Partsenevelos is here with some highlights. Hi, Christina. This is a story about a weaker outlook for semiconductors. The call is still going on right now, but the CEO mentioned they faced cost challenges stemming from supply chain and inflation and that COVID controls in China did hurt their outsourcing and assembly business, which impacted some of the fiscal Q3 results that we received. The company is forecasting PC units will drop 10% year over year and actually projects smartphone unit volume to be down mid-single digits in 2022. We already know that mobile revenue has been down year over year.

They did point out, though, data centers. This is a priority for them. So data center SSD sales doubled year over year, and this point out though data centers. This is a priority for them. So data center SSD sales doubled year over year and this quarter posted a new record. They also acknowledged and this is the big problem bloated inventory. So they predict that customers will start adjusting their inventory levels in the second half of this year. And the second point too we've been talking about this all day with Micron, is the DRAM pricing. They're starting to show signs of weakness. Lastly, they are still seeing resilience in cloud and auto as well as enterprise.

So the stock reversing course on all of this news. But it seems like they're not really telling us anything new in this call right now, right? Bloated inventories, DRAM pricing coming down, auto much stronger, and cloud stronger. Yeah, something for both sides, Christina. Those that say earnings numbers have to come down and the others who say it's already kind of priced in and expected. We'll see how it goes through the rest of the crawl. Appreciate it. We are tracking some other big movers in OT. Steve Kovac is here with those. Hey there, Mike. Yeah, I got three big movers for you here in the OT today. First up, health services company Accolade shares on the move following its first quarter earnings report. The company giving lower than expected guidance for Q2, but beating analyst expectations

in Q1 with $85.5 million in revenue. The company also raising its four-year guidance $355 million to $365 million. And a late-breaking story on General Motors tonight. Wall Street Journal reporting GM ramping up production of the electric Hummer, but the company has only been making about a dozen per day. Meanwhile, there are 77,000 people on the waiting list, shares slightly negative right now. And finally, we're watching shares of GoGo after the FCC granted SpaceX approval to provide satellite internet to what they call, quote, in motion customers. That means airplanes and trains. Also a blow to other telecom companies like AT&T and Dish that were hoping to provide in-flight Internet rivaling GoGo. That's what we're watching today. Mike, back to you.

All right, Steve, thanks very much. Up next, a reopening double play, two top picks for your portfolio. That's next. We are back in overtime, joined now by Nicole Webb, Wealth Enhancement Group Senior Vice President and Financial Advisor. Nicole, great to have you. You've been looking at some kind of favorite blue chips, rather, falling on hard times. What's the like about Disney here, 50% off the highs? Yeah, absolutely. This is my growth at a reasonable price pick of the day. Simply put, at 18 times relatively distressed earnings and a share price that's off 50%, it's a great buy. But let's also think about it is a brand powerhouse.

It is the best evergreen IP in media. And it has been able to attract people to its parks with penetration pricing that outweighs inflation over the decades. Yeah. What would you think might be a proper price for it at this point, I mean, I would be able I would be anywhere in the neighborhood of a discount of 30 percent off of that high that we saw last year would be a reasonable price for me as a point of entry right now. It just feels like a long term investor's absolute buy in. Yeah, it's paid over the years to buy it in deep drawdowns. Thank you very much, Nicole. We have to run, unfortunately. And that now does it for overtime. Fast money begins right now.