Closing Bell - Closing Bell Overtime: Shift4 CEO On Consumer Trends; Retail Investor Mistakes With Janus Henderson Investments CEO 5/5/23

Episode Date: May 5, 2023

Markets surged to end the week, but it wasn’t enough for the Dow and S&P 500 to close positive week-to-date. The Nasdaq eked out a green week. Crossmark Global’s Victoria Fernandez and PIMCO’s Tony Crescenzi broke down the week that was and the week ahead while Renaissance Macro’s Neil Dutta talked the Fed impact. GTIS Partners CIO Tom Shapiro discussed the regional bank turmoil and why investors are worried about the commercial real estate market. Shift4 CEO Jared Isaacman discussed consumer spending and summer trends, plus reacted to a recent short seller report targeting his company. Janus Henderson Investments CEO Ali Dibadj on the retail investor and client flows amid recent market volatility. CNH Industrial CEO Scott Wine talked the global demand picture and how agriculture and construction sectors are holding up.

Our first positive day for the markets in a week. A big rally today, but that's the scorecard on Wall Street. The action's just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Port. Coming up this hour, we'll talk to Jared Isaacman, the billionaire astronaut and CEO of Shift4Payments, about the company's latest earnings report and his read on consumer spending.

Plus, it's Friday, and that means a lot of fun things, including we're awaiting the latest data on bank balance sheets from the Fed. Yes, which comes after another wild week for the regionals, which fell sharply but recovered some losses today. Let's begin with today's rally. Joining us now are Tony Crescenzi from PIMCO and joining us here on set is Victoria Fernandez from Crossmark Global Investments. Welcome to you both. Victoria, I'll start with you. Big pop, big pop higher in the major averages. You got the S&P up almost 2 percent, the Nasdaq finishing up more than 2 percent, the Dow as well up 1.6 percent.

You saw some big moves in treasuries. What do we attribute this to? Well, I think you have a combination of elements going on. Apple's earnings were good yesterday afternoon. That's supportive of the market. We had a labor report this morning that at initial site looked like it was going to be a hot report. Then you go back and you look at the revisions and say, wait a minute, that three-month average that we have there has gone now from a peak of almost 400,000 down to around 220,000. So maybe you're starting to see some weakness combined with what we're seeing on the JOLTS report bring that down. And then you had J.P. Morgan come out and actually upgrade some of the regional banks. So I think you combine those three things together,

it gives you a little bit of pop here in a market that's had a rough couple of days. Okay, then, Tony, let's talk about fixed income. I know, great day for equities if you're in those, but in fixed income, we also, it seems, are just about at the end of the hike cycle. What does that mean for closed-end funds? PIMCO's got some of those. What does that mean for how investors should be positioned there, especially if you had shied away from fixed income over the last several years. Hi, John, and thank you. You know, history isn't always the best guide in terms of what to do next, but looking at history, and we think this is a good

guide as to what to do next in fixed income, looking at core fixed income back to 1978, which is the time when most make references back to core funds, core fixed income back to 1978, which is the time when most make references back to core funds, core fixed income, their stable fixed income assets, including treasuries, corporate bonds, mortgages, for example. They've outpaced cash 90 percent of the time since then and over a three year period on a rolling return basis by about three percentage points. And so what an investor is supposed to do since core fixed income tends to do well toward the end of a cycle, specifically around four months before the end of the last hike on average, is start to shift from cash to core fixed income. This means your total return type funds, for example. Investors may have trouble

doing that because they have bad long memories from last year and the losses they had in those areas. But thinking ahead, it looks like now is the time to be shifting to these core fixed income products. Tony, I'm curious about the reaction we saw within fixed income, within the bond market, to the Fed and the fact that we actually saw a pull forward in expectations around cuts this year. Your thoughts on that, and given the fact there is so much uncertainty out there, and we can point to the regional banks as well, how to be positioned going into this time period? Well, again, and the answer is a little bit nuanced because the answer in part depends on where you are on the yield curve. So we would say that the shorter part of the yield

curve, let's say a two-year Treasury note trading at 3.9 percent today with the funds rate over 5 percent seems a little bit low to us. So we'd be underweight in that area. We'd also be underweight the long end of the curve which therefore means we'd like the belly of the curve this is a point in time when you'd think that perhaps the fed might want to consider waiting a bit before it contemplates a rate cut because think about it the inflation rate still well above it's targeted over five percent for the consumer price index now one final word is that the average time between the last hike and the first cut, previous cycles, is seven months. Historically,

there usually is a gap. And when there's a reason to lengthen that gap, like the high inflation rate, you have to worry whether markets are a little ahead of themselves in thinking about the rate cuts. Well, Victoria, a problem with at least a little piece of the belly of that curve is debt ceiling. You know, if you're really short, then you're ahead of it. If you're really long, you're behind it. What should investors do, if anything, as we look at that debt ceiling uncertainty? Is it just a matter of strap in, close your eyes and ignore it because eventually things will work out? Or do you keep dry powder and try to take advantage of volatility? Yeah, so I'm from Texas. It's kind of like getting on that bull for eight seconds. Can you hang on

that long, right? And I think that's what we're looking at here. I think you do need to kind of dive in, put your seatbelt on and hold on. Do we really think we're going to default on the debt? Probably not. Does that mean we're not going to have a lot of volatility? Oh, there'll be volatility for sure. But if you're in a fixed income security, you can hold it to maturity. Does it mean maybe your principal gets paid a month later than usual? Maybe, but you're still going to get that full principal back. So we actually like having a little bit on the short end of the curve. Right now, that two to five year is the most expensive part of the yield curve. So we kind of like that barbell a little bit on the short side, lock in some of the higher rates we've been seeing on the longer end,

because we do think rates are going to come down as we head into a recession in the fourth quarter of this year. All right, Victoria, Tony, thank you both. Have a great weekend. Now, is the Fed really done raising rates? That is the question Wall Street is pondering after we got a quarter point hike this week. Another strong jobs report this morning with revisions. Earlier today, St. Louis Fed President James Bullard said he is ready to be data dependent with an open mind on whether to pause or hike at the June meeting. Joining us now is Neil Dutta from Renaissance Macro Research. Neil, you don't think there's a recession in 2023, but you still expect that there might be more hikes this year. Is that, how do you feel after this jobs report

and the revisions we got to previous months? Do you still feel that way? Yeah, sure. I mean, you know, ultimately, if you look at the three-month trend in employment, John, it's running over 200,000. And so, you know, that's more than enough to keep pushing the unemployment rate down over time. Certainly, it's wholly inconsistent with the idea that the unemployment rate is going to rise a full percentage point between now and the end of the year. You know, that's actually what's baked into the Fed's, the median Fed forecast. So, you know, what I see in the economy suggests,

you know, more room for improvement than not. I mean, you know, no one's really talking about the fact that new home sales are at a one year high. No one's talking about the fact that inventories have taken so much out of growth now, they're basically at a point where they're probably going to be adding to GDP. No one's talking about, sorry, go ahead. So what does that mean for stocks once investors figure out, if you're right, that there aren't going to be rate cuts coming because there won't be a recession and that things are actually kind of OK? Well, it's sort of, you know, damned if you do, damned if you don't. I mean, I think there's probably some room for upside in equities.

But I think ultimately it would be a trade you'd want to rent, not own, because, as you mentioned, I think the Fed will have to step back into this right now. I mean, there's no way the Fed can let go of its tightening bias with the unemployment rate as low as it is. And if I'm right about the economic outlook, you know, they could at best maybe skip meetings over the summer. But I do think by September we might be talking about hikes again. And I think the stock market would respond to that. It's somewhat ambiguous, obviously, because that would also imply that the consensus is somewhat underestimating earnings. When I hear you lay out that thesis, which is very contrarian to what we're seeing in the market right now,

how real is the possibility of stagflation here? I don't think that the—I mean, it's certainly possible. Obviously, inflation is a lot higher than any of us have really ever seen. And it's been that way for quite some time. But I think we have deflation. We don't have the stag right now. I don't I don't believe. I mean, as I mentioned, the risk was really a lot higher in my view last year when we were talking about the housing market going bust. Inventories were shedding. we had global growth concerns, food and energy supply shocks, fiscal squeeze.

A lot of those things have actually gone the other way. And so, you know, at the margin, that represents upside. And it's not really about the economy having to go gangbusters. It's really about what is the consensus pricing in and what you think the likely outcome is going to be. And remember, the consensus and the Fed, frankly, basically see no growth over the next several quarters. I'll take the other side of that. I think there's upside risk. Okay. Neil Dutta, thank you.

Thank you. After the break, we will get the latest read on bank balance sheets from the Fed as regionals see a rebound today. And we'll talk about the impact of the banking crisis on the commercial real estate market. Overtime's back in two. Welcome back to Overtime. Berkshire Hathaway annual shareholder meeting is kicking off this weekend. And senior markets commentator Mike Santoli joins us now from Omaha. Hi, Mike. Hi, Morgan. Presumably a big topic of conversation. Well, it's already a big topic of conversation here, but in the actual meeting and Q&A session tomorrow among shareholders and Warren Buffett and Charlie Munger,

you have to imagine the fate of the banks is going to be a topic. You know, is Berkshire interested in making any capital infusions, investments in banks? Will we see any revealed when they report their earnings tomorrow? Warren Buffett was not expressing too much interest in the area a couple of weeks ago when he spoke to CNBC. But I do think it's worth remembering Berkshire Hathaway, right or wrong, is the biggest component of the S&P financial sector. It is categorized that way. And it's only become a larger slice because it has vastly outperformed the overall financial sector as well, of course, as the core banks area of the financials. It used to track very, very closely,

as you can see on a five-year chart. Then we've diverged more recently. It's now more than 13% of the XLF, even though really it's an operating conglomerate as well as a portfolio of stocks. If I'm guessing, I would say his current and perhaps prospective bank investments, Buffett's, are banks that have a large and defensible franchise. They have something distinctive about them. He has a big Bank of America position, owns some Bank of New York Mellon, as well as USB and Ally Financial. But it's not as if he's gone around saying just on a valuation basis, he would like to own banks, even though they're now all trading or many of them

below tangible book value. Yeah. So maybe that's the case. But I would be curious. I'm not trying to compare this to the great financial crisis by any means. But just this idea that if you see any more banks get into any more trouble or become more beleaguered or start to get seized by the FDIC, whether Berkshire becomes an option in terms of either picking up those assets outright or even just extending lifelines to some of these regionals if and when it needs to happen? I mean, the capacity is there. Presumably the opportunities will present themselves if we get there. It's unclear if there's the willingness necessarily. I would say, too, we're talking about many, many small institutions that are at the

sort of fringe of what are viewed by the market to be at risk, not necessarily the kind of thing where a one-off investment is going to be the thing. Although back in and after the financial crisis, there was a tremendous signaling effect when Berkshire Hathaway took those preferred share stakes in Goldman Sachs, Bank of America. So it could go that way, although I'm with you. I don't think we're in that same situation. And we can start to just believe what these banks look like on paper and say that there's no reason that we have to be worried about massive deposit outflows right now. And that can sort of take care of itself. I know today was only one day, but that seems to have been what happened. All right. Mike Santoli, thank you. You've had a busy start to the weekend, and we'll let our viewers know you can watch

Berkshire Hathaway's annual shareholder meeting live beginning tomorrow at 10 a.m. Eastern on CNBC and CNBC.com. All right. Yes. And now let's talk more about the bank, specifically the regionals, shares of PacWest, Western Alliance, Zions, bouncing back today. But this pop, not enough to erase the week's losses. As regionals continue to come under pressure, there are new questions about the impact on commercial real estate. Joining us now is Tom Shapiro, GTIS president and CIO. GTIS is a commercial real estate firm with holdings in major markets in the U.S. and Brazil. Tom, I mean, there are the questions about the impact on the banks, but I'm also just wondering, for investors out there, what do you do in this situation? Like,

if you own residential right now, are people improving it to get higher rents as supply chains and commodity costs are normalizing? What's the right mindset to have about where there's opportunity? I think for a lot of it, it's really playing defense. But frankly, business as usual, certainly in our if you start in our multifamily portfolio, we're doing what we're doing. We lose a tenant. We paint. We paint the apartment, we clean the carpet, we move the next tenant in. And the market, while it's softer on the occupancy side and on the rental side slightly, it's actually holding up very, very well. And I think residential in particular has held up really well. We have a huge home building portfolio. I think everyone is shocked how well home building has done the last

couple of quarters. I think people assumed we were going to go into a massive recessionary environment in home building. We just didn't do it. And I think a lot of it was, and I said this before, it was certainly demand has been off, but the supply is just non-existent. People are not selling their existing homes at this point, and they're sitting in them. So there's very, very little inventory out there. So I think, though it's a tale of two cities, of course, office is a completely different bill of fish. So what do you do with office? Is there opportunity? Where is there opportunity in the glut out there, especially as there's not as much demand for actually working in an office? What's the most likely scenario for what happens to that oversupply? Do prices come down? Do

investors need to wait for that? Yeah, I mean, it's crashing at this point. It is a flood of foreclosures. We're at the tip of the iceberg. It is going to get much worse over the next six months or so. I do think you have to classify real estate differently. The higher end office has actually held up really well in the major cities. The sort of B quality office, particularly in tertiary markets, are in very, very tough shape. And look, the banks are, you know, this, you know, we're talking about the regional banks before, you know, banks are really going to have a problem. 80% of bank lending was done by the regional banks, and a lot of it was to the office sector. But if you look at

a major market, it's about $300 a foot to replace a tenant. If you don't have substantial equity in your property, why would you spend $30 million putting $100,000 for tenant into your building if you're really just protecting the banks? And you can't just kick the can down the road, as we've done in past cycles, because you're going to end up with an office building that's completely empty. So there's going to have to be some sort of meeting of the minds between the lenders funding or taking back the properties. But office, I think it's just too early at this point. I think we're going to see a complete crash. You're already seeing some office buildings trade at 70 or 80 percent discounts, but that may not even be enough. Wow. And of course, that is one of those key areas and key arguments and key focuses when we do talk about regional banks and some of the

selling, for better or worse, fundamentally tied, at least at this point in time or not, around the regionals, which raises the question, what is then going to happen? Because I would imagine a lot of these banks are not going to take these properties back. And yeah, they might be opportunities for future investors who scoop them up for pennies on the dollars, but somebody is going to have to eat those losses and the cost associated with it. Well, I think at this point you are seeing lenders trying to work things out. If they have a good sponsor, they're trying to do it. But a lot of times sponsors are just giving, you know, crying uncle and just giving the buildings back. There's just no reason to put time and effort into a building that's that far underwater. It's just it's a huge drop. Operating and taxes are very high right now. There's very little marginal net profit on buildings. And the capex is extreme in order to keep these tenants. So you're going to end up seeing a lot of banks not wanting to take them back and starting to take them back. And again, given that 80 percent

of the bank lending was done for these regional banks, I mean, we talked about mark to market losses just on interest rates. How about the fact that their collateral is worth a fraction of what they thought it was worth? Tom Shapiro, thank you. It is good to get your insights on a day like today. Great. Thanks so much for having me. We've got breaking news from the Fed. Steve Leisman has the details. Hi, Steve. Hey, Morgan, the deposits at U.S. commercial banks declined by $12.5 billion,

but it looks like most of it was foreign because deposits at domestically chartered banks actually rose by $21 billion. So there is perhaps a sign of stability. Again, something the Fed was trying to say on Wednesday that the market wasn't buying much. If it deposits at large U.S. banks, we're up by $14.8 billion. Deposits at small banks, up by $6.4 billion. Overall, however, year over year, domestic deposits are down about 5% year to date. That's something that began to decline in November, and it's picked up steam. Actually, the outflow, Morgan, is bigger from large banks than it is from small banks. Maybe a sign that people in those large banks are going more to money market funds, less so than in the smaller banks, but that's the top 25. A sign of stability to end the weekend. We'll hope it continues. Yeah. So overall, Steve,

nothing in here reflects the crazy volatility that we saw in the regionals this week, right? No. And that was an argument, John, that I think is worth thinking about, which is there were some comments that were out there that the volatility and the downdraft in the stocks was divorced from fundamentals. And you did have Powell saying earlier this week, the Fed chair, that the situation had improved. And indeed, if things are not flowing out the way they had feared, then the situation has improved.

We want to be a little careful with the data. It's seasonally adjusted. This is a difficult time. Money came out of the banks to pay taxes and things like that. I think overall, though, this call of the money markets with their higher interest rates is something that is compelling to savers. And the question becomes how, if and when banks are going to match that call or those interest rates that are being offered to savers in the 4.5% or 5% range even now. We'll be watching for that. And we know you'll bring us those details as we get that data. Sure.

Steve Leisman, have a good weekend. You too. Shares of payment processing companies shift for payments down sharply this week on earnings. But as you can see right there, popping today up almost 6%. As the market rallied more broadly, we're going to talk to CEO Jared Isaacman about the quarter and his read on consumer spending when Overtime returns. Welcome back to Overtime. Time for a CNBC News update with Seema Modi. Seema? Jonathan Fort, here's the news update at this hour. Jenny Craig employees filing a class action lawsuit claiming the company violated the WARN Act, which requires companies to give a 60-day notice ahead of any mass layoffs or facility closures. The lawsuit

comes two days after the company said it would shut down and lay off hundreds of people. Some employees receiving a WARN Act notice about a week before the weight loss company announced its closure. The Defense Department signing a policy to help service members seeking mental health care today. The Brandon Act, named after a sailor who died by suicide, will allow service members to confidentially seek mental help. Brandon's parents said the measure fulfilled their son's dying wish to help others. And President Biden and Vice President Kamala Harris paying a surprise visit to a taqueria habanero, a local Mexican restaurant in Washington, D.C., to mark Cinco de Mayo today. The White House said Biden ordered a chicken quesadilla, churros, and an assortment of tacos for the White House staff. Morgan, that will be me in two hours.

Same menu. But not for the White House staff. That's true. Yeah. And maybe you'll have a margarita in hand. I mean, we're getting close here to the end of the workday, maybe. All right. Seema Modi, thank you. Shift4Payments getting a lift today. That's after yesterday's sharp drop following Q1 numbers as investors keyed in on the full year outlook. Joining us now is Jared Isaacman, Shift4Payments founder and CEO. Jared, great to have you back on the show. Hey, Morgan. Thanks for having me back.

So I want to start with a line in your shareholder letter. Considering we were anticipating a more challenging economic climate, it's hard not to be cautiously optimistic. I mean, on a day where the markets are rallying very strongly on a solid jobs report and this sense that maybe, just maybe maybe we could see a soft landing. What are you seeing at shift four? Yeah, I think the story is really the same that we're hearing from from really everyone right now, which is the first, you know, we went into 2023 all thinking, you know, this is going to be the year that consumers are going to start to slow down.

And they have plenty of reasons to do so. Right. Rising interest rates, inflation still, you know, out of hand. And, you know, pleased after the first quarter to say we didn't really observe that at all. January and February were rocking. March, you saw a slight tick down, which Visa and MasterCard also confirmed. And that could be attributed to the banking crisis at the time, could be attributed to lower tax refunds this year. April stabilized. And from everything we can see within travel and hospitality, it's going to be a strong summer. Have you and I realize we're in May now, so you have another month under your belt. But you mentioned that tick down in March. Has it has it rebounded since then? Yeah. So just as a reminder, I mean,

we touch about a third of the restaurants in the country, about 40 percent of the hotels, a lot of stadiums. So we have a lot of good data. April is going to be like a normal month. Like this isn't where you're expecting to see things go crazy. So from our perspective, looking back on April, it was exactly as expected. The real tests are coming into May and June. I mean, you have Mother's Day and then you have Memorial Day weekend. And those are going to set the tone for the rest of the summer. And like I said, based on the data we're seeing right now, we're pretty optimistic, certainly a lot more than when the year began. Yeah. And you've been expanding internationally as well. How is that process going and what are you seeing in terms of some of the early efforts there if we expand this out on a more global scale?

Yeah, it's pretty exciting. So, I mean, started the business 23 years ago. For 23 years, we've derived all of our revenue and all of our volume from processing here in the United States, which is probably the most competitive payments market in the world. You know, just about six months ago, we closed on our first international acquisition. We have another one that's due to close in a couple of months, subject to regulatory approval. So if you think about it, growing revenue year over year for 23 consecutive years in a pretty challenging climate, you can imagine the potential when you expand the TAM or the addressable market from just the United States to the entire world. So it's a pretty exciting journey that we're on right now to bring our capabilities and extend our reach into new markets. Yeah. Last month, a short seller, Blue Orca Capital, released a report about shift for payments. And they basically said that they think that in reality, it's a roll up of low tech POS systems and payment processors, which is substantially less profitable, generates

far less cash and is materially more levered than investors are led to believe. It goes on for about three dozen pages. I want to get your response. Yeah, I guess that's like kind of welcome to the club. I think every payments company, especially I think almost every public company, especially if you're outperforming. I mean, we outperformed the Nasdaq and New York Stock Exchange last year. I think we were the highest performing fintech. You're bound to attract the attention at some point or another. I actually didn't even like really react too much to this one, not to say we were dismissive, but it was pretty weak. I mean, we're only trading even now, not that far down from the price we were out at the time the report

came out. And they really missed the mark. I mean, you know, we grew payment volume 66% year over year in the quarter. We grew EBITDA over 100% year over year. We expanded free cash flow margins. We raised our free cash flow margins. We raised our free cash flow guide. I mean, free cash flow does the talking. And by the way, for 23 years of year over year revenue growth without missing a beat in every downturn, I mean, it's kind of hard to say low tech in that. Like, businesses aren't choosing to go to a low tech provider. If you're growing volume as fast as we are, I mean, we said we're going to grow payment volume at the low end, 45% this year, over $104 billion in volume.

And we said that's the mild recession case. Pretty hard to get businesses to flock to your services if your technology is not one of the best in the market. And of course, I'm going to ask you a space question because you've got Polaris Dawn that you're training for. It's going to include the first ever commercial spacewalk. We did just see that first attempted Starship flight from SpaceX as well. You're going to do Polaris Dawn with SpaceX. It'll be your second trip to space. You're still targeting summer. How's it going?

Yeah, I think like late summer, maybe early fall. It turns out the launch pad is very busy right now. A lot of exciting scientific missions coming up. So, you know, as you know, it's a big year in spaceflight. It's hard to get the time to get off the pad. But pretty pumped. And what an awesome, you know, launch it was for Starship. I mean, some people might just remember how it ended.

But you're talking about a privately funded city in Starbase and a privately funded fully reusable launch vehicle that could be like the DC-3 for human spaceflight and really open it up from the few to the many. So I was really excited to see the launch. We're going in a great direction. Yeah. Space traffic jam is what we seem to have going on right now. Jared Isaacman, great to speak with you. Thanks for joining us. Thanks for the time, Morgan. For much more on the future of the space industry, check out my podcast, Manifest Space. In this week's episode, I talk about the economics of human spaceflight, speaking up with the former president of Jeff Bezos' Blue Origin. You can follow and listen wherever you get your podcasts. Ah, the economics.

I'll have to talk to you about that and listen to the podcast. There you go. After the break, we will talk to the CEO of Janus Henderson Investors. His firm has nearly a third of a trillion dollars in assets under management about where he's looking for opportunities in this market. We'll be right back. Welcome back. Markets getting a boost today, although the Dow and S&P still ending the week negative. The Nasdaq able to notch back-to-back weekly gains. Let's bring in Ali Dabaj, Janice Henderson Investors CEO.

Ali, great to have you here on set with us. And you've got such a comprehensive view of what investors are doing and maybe should be doing. That's where I want to start. What are a couple of the mistakes that retail investors in a market like this might be making, are making, especially when it comes to equities and fixed income and maybe diversification within equities? Yeah, absolutely. Look, I think the telltale sign always of what a retail investor sometimes does wrong is take money out at the bottom, right? Always stay invested, always stay diversified, exactly as you described it.

Now, we're clearly seeing movements in terms of a preference for short-term type vehicles. Think of money markets. We have a bunch of vehicles that kind of deliver the short-term needs of some of the investors. Think of JAAA, which is a AAA CLO ETF that we have. We have a lot of kind of shorter-term, short-duration bonds like VNLAA is vanilla, which is an ETF as well. So you're seeing investors go there to try to stay invested. That's probably a smart thing to do for now. But there's going to be continued volatility. And really, the retail investor has to live through that volatility with a diversified portfolio. What should the investor who has some room to move either between different asset classes or has some

cash on the sidelines, what do you do now that we've had this rapid rate hike cycle, unprecedented, and everybody seems to agree that we're just about at the end of it, except on the margin. How do you take, if you've got a 10 or 20 year time horizon, say, how do you take advantage of this moment? Yeah, look, I think this is a really key question. It's what we spend a lot of our time doing with both our retail investors as well as institutional investors and their clients. The reality is the next 10 or 15 years isn't going to be the same as the past 10 or 15 years. So money was free for the past 10 or 15 years. So if you were picking a good company or a bad

company, it didn't really matter as an investor. Money is free. You keep going back to the well. You keep surviving. The next 10 or 15 years is going to be a whole ton different. You're actually going to have to select between the good companies and the bad companies. The haves and have-nots, as we call it at Janus Henderson.

And look, honestly, that's where I really think us and others who can do that well are going to thrive. We really know at Janus Anderson how to pick good and bad companies. Look at our track record in some of our areas like U.S. equities. I'll pull up our track record in U.S. equities in terms of picking who's a good company, who's a bad company all day long against anybody else. Our fixed income platform, our hedge fund platform, where we can actually short the bad companies. That's going to make a whole lot of difference. Historically, you'd sit money away in passive and stay invested in that manner. You'd be okay. Not all tides will rise

now. You actually have to differentiate much more. That's going to be the challenge for the next few years. You've been at the helm for just under a year. Janice Henderson itself is a little bit of a turnaround story right now. The fact that we're seeing inflows, it was outflows every quarter since 2017. I guess just walk me through the dynamics and how they've shifted, how much of it is firm-specific and the products you're offering, and how much of it is a result of all this regional bank angst we've seen and all the deposits coming out of that sector? Yeah, it's a great question. It's definitely not industry trends, I would say. When there's this type of volatility and this type of concern, generally speaking, that's not how we benefit in the short term. Certainly in the long term,

as I was saying a moment ago, a lot of it is because the great work of the teams at Janus Henderson, the teams who have been able to, for a very long time, deliver for our clients and our clients' clients great performance, as I was mentioning a second ago, and really the trust that investors put in us. And the good news is, you know, candidly, we now have a story to tell clients. We now have a story to tell investors about what we do and what we do is invest again in the haves and the have-nots. Tell me finally about the vision, the outlook part of that story. You say that you expect one of the most important trends going forward is going to be the democratization of alternative investments. There have been some things be the democratization of alternative investments.

There have been some things that people think of as alternative investments, you know, cannabis, et cetera, that haven't gone so well. Granted, it's companies in the public markets that haven't done well, but what are you thinking of that's going to be both more accessible and important for people with some money to shift their funds into over the next decade? Yeah, look, I think that is going to be a major trend as democratization alternatives. And in particular for us, it's going to be the thought process around credit. You know, again, for the past few years, fixed income didn't really get you return. It wasn't worth going to fixed income. It wasn't worth going to credit. You really didn't get a return. Going forward, you will. And allowing that from a private markets perspective,

private credit, and bringing that democratized manner to the retail base, to folks to benefit from, I think is going to be a very exciting trend over the next several years. Ali, thanks for joining us here on set. Thanks very much. Have a good weekend. You too. Well, up next, the CEO of heavy machinery maker CNH Industrial, breaking down the company's earnings and how recession fears and high inflation are impacting that business. Stay with us. Welcome back.

Check out shares of CNH Industrial, the agriculture and construction equipment maker, getting a lift after reporting first quarter earnings and revenue that topped Wall Street estimates, saying in its outlook that pricing remains resilient and the order backlog is solid and well above pre-pandemic levels. So you can see the stock end of the day up 4%. Joining us now, CNH industrial CEO Scott Wine. Scott, thanks for being on the show. Great to have you. Thanks, Morgan. Good to be on and certainly proud of the results the team delivered today. Yeah. And you did raise your outlook for the year. The pricing piece of the puzzle, walk me through that and why you believe it will continue to remain resilient. Well, we are in an industry that is fairly tight,

and I will tell you that the team's done a really good job of keeping price over cost for nine quarters in a row now, so really proud of that. What we do expect, and what we talked about on the call this morning is pricing is going to moderate throughout the year. And what we expect is get back to what we call normal pricing, which is in that two to three percent annualized rate. And, you know, as we do that, we're able to offset that lower price with reducing costs. So we're going to stay in a positive price-cost ratio. So we expect, you know, our ability to deliver margins. You know, we had 26.2 percent gross margins,

a record for our ag business. And as we go throughout the year, we think we can build on that. So very encouraged by what we see right now. Yeah. And of course, you've made two acquisitions as well that are focused on precision farming. You compete directly against Deere, which we know has been making a lot of investments and really talking a lot about this. Walk me through your strategy and what this does to agriculture and to farming. Well, certainly what we've seen over the years is precision on automation and autonomy has become so much more important to farmers because really it's about giving them the opportunity to get productivity and yield. And, you know, when we acquired Raven almost two years ago now, it really boosted our

capability, but it left a gap of things that we still need to do. You know, we've hired over 500 software engineers, so we're going fast to do it organically. But there are times, and I think Augmenta and Hemisphere are two examples where we can use our capital to acquire things to move yet faster and give us really the opportunity to integrate these solutions better for our customers. And, you know, with Augmenta, they've got CNSS, that allows us to innovate and bring our customers a solution faster than we could otherwise do. Yeah. I want to get your take on the global macroeconomic picture since you do sell into so many markets and we are talking about big, expensive, heavy machines. You know, I've actually been very surprised by the resiliency of more of the ag market, but even construction. Construction here in North America, housing has been a little bit stronger than we expected. And with the infrastructure bill, I think it was unnecessary

government spending, but it does provide a boost to our construction business. So and we're seeing, you know, strong demand from our dealers. We've got a lot of new products in construction, and that business is a little more at risk to the economic cycle. On the ag side, you know, as long as soft commodity prices remain elevated and farmer incomes can remain positive, the age of equipment in our industry is up quite a bit. So, you know, we've got an opportunity to really have longer legs for the ag cycle than we would for the overall economy. Interesting. The financing part of all of this is we've seen all of this angst play out with the banking sector. How are you navigating that? And what does it mean in terms of lending standards and credit tightening for some of these big machines? Well, the turmoil

in banking has certainly been something for all of us to watch and be careful. And I'm extremely proud of the fact that Adonis, he's our CFO now, but he used to run our capital markets. And, you know, he and his team worked through the financial crisis in 2008. They understand how to manage a portfolio. We finance finance somewhere between 20 and 40 percent, depending on markets in North America. We're sometimes up to 60 percent of the large ag equipment. And we've got really low losses. And with the finance arm, we financed $2.2 billion of retail we financed in the first quarter. Our losses are, you know, not losses, but our past dues are at 1.4 percent. Our margins are good. We made 78 million dollars in net income in the

quarter from financial services and really are proud of what that team's doing and how it helps our customers and dealers. All right. Scott Wine, thanks for being with us. Morgan, thank you. Have a nice weekend. You too. CEO of CNH Industrial. And up next, a look at how companies are seeing opportunities in AI, even as the White House discusses potential dangers it poses for society when we come back. Welcome back to Overtime. The White House hosting AI leaders this week to talk about the potential risks posed by artificial intelligence to jobs and society at large. The CEO of OpenAI, the company behind ChatGPT, was part of that meeting and joined SquawkBox for a rare interview this morning.

Our mission is to figure out how to build these advanced AI systems and deploy them into society for maximum benefit. And that requires partnership with government and regulation. The companies can do a lot. And we talked about this yesterday to get that started. But long term, we will need governments, our government, governments around the world to act and to put regulation in place and standards in place that make sure that we get as much of the good as possible from these technologies and minimize the downsides. So the meeting was about that. I think it was a great start. Lots more to do. And, of course, earlier this week, we saw one of those downside results of AA, at least for one company, when ed tech firm Chegg warned its user growth was slowing due to student interest in chat GPT, sending that stock sharply lower.

But many other companies are touting the benefits. John, you talked to a couple executives about that today. Yeah, Morgan, I did. I talked to the CEO of Vera Mobility. It's up 6% today after earnings. This is a company that does red light cameras, speed enforcement, digital tolling on roads. So they have all kinds of imaging data on cars, speed, license plates. They're also moving into fleet management. I asked him how AI might lower his costs and maybe even

create some opportunities for new types of products. The future is going to have much more powerful, what we call at the edge technology. So this is sensors or cameras that are at the edge that are observing and understanding intersections and key roadways. They're going to draw back all kinds of information, not just enforcement. So we're really excited about what that future holds, and we're leaning into that with our investment strategy today. So he's talking about the edge. Then there's the data center, the network. I spoke with the CEO of Equinix, which is a really big, you know, REIT that does that, about just how regulation on where data gets placed, which is a big part of the AI story, how that's helping their business. Because you can't just have one data center in one region serving the whole world. I asked him if granularly that sort of regulation is helping his business. I think that's increasing, John, in terms of this AI phenomenon, which is people really are

thinking hard about where they want to place the data. And I think for control reasons, for economic reasons, you know, for a variety of compliance reasons, like we just talked about. I think where the data is going to go is going to be really important. Yeah, where the data is going to go. And of course, all the energy that when you're talking about AI computing, what that generates in terms of energy usage as well, which I don't think we've even talked about that much yet in terms of the broader ramifications. But I just I want to go back to this idea of not just enforcement when you're talking about, say, red light cameras, but like

other applications, like what kind of applications? Parking, for one. So they do digital parking in universities. So that's the question for I think a lot of investors has to be, are there barriers to entry that these companies have that are going to keep AI from allowing competitors in? Speaking of which, next week, we're going to talk a lot more about AI strengths and weaknesses when we're joined exclusively by IBM CEO Arvind Krishna from the IBM Think Conference. Remember, they just said there are thousands of people they're not going to hire because AI is going to be able to do that job. So we'll talk about what else. Yeah, it's such a key interview. Well, up next, we're going to discuss what results from Paramount Global and Warner Brothers Discovery could mean for Disney's earnings next week. And don't miss Sarah Eisen's interview with Treasury Secretary Janet Yellen. That is Monday here at 4 p.m.

Welcome back to Overtime. Warner Brothers Discovery reporting earnings today saying its U.S. streaming business turned a profit for the first time, although it did miss overall on both revenue and EPS. Paramount also missed top and bottom line estimates this week. The company slashed its quarterly dividend to five cents a share. The stock fell 28 percent after those numbers. And now next week, we're going to get Disney earnings. That stock closing higher today. Let's bring in CNBC.com's Alex Sherman with a look at what to expect from Disney. Alex, are they going to want to hear about DeSantis or are they going to want to hear that the costs in Disney Plus are under control? There you go. Yeah, you got the latter. The reason that Warner Brothers Discovery went up today,

despite, as you said, reporting a slight miss on revenue and a fairly big EPS loss, is that it announced its U.S. streaming service had actually turned a profit for the first time ever. And also that this year will be profitable for what will be called max its new streaming service that is a full year ahead of guidance so the street likes to hear that and disney is going through the same process right now trying to escalate the timeline if it can to make disney plus and its other streaming services hulu and espn plus profitable and quickly as the traditional TV business declines. Yeah. I mean, there's all these question marks about the macro environment as well and the state of the consumer. I mean, is anybody really going to be paying attention to things like parks,

or is it really just about streaming and how fast they can get to profitability? You know, that's a great question. Like, every one of these media companies is a little different, like Comcast reported and they had a great quarter for parks. Also, it has like a cable wireless business. So I think investors sort of reacted to that. And the streaming results weren't great. They continue to lose money there. Paramount doesn't have a parks business, so they're fully exposed. So the reason that stock went down 28% is you just look at all the results and you're like, I don't really see what's to like here. The traditional TV is in decline. The streaming business is at peak losses. Like,

what am I investing in at this moment in time? At least Disney has that buffer, that cash machine buffer of the theme parks. Yeah. And of course, they're getting rid of Yellowstone, too. Yeah. All right. Well, that's going to do it. Inflation in focus next week. Also, we get that senior loan officer opinion survey next week, too. A lot of AI news. That'll do it for overtime. Fast money begins right now.