Closing Bell - Closing Bell Overtime: S&P nears record high, Tesla takes off & Re/Max CEO on home prices 12/27/23

Episode Date: December 27, 2023

Stocks close higher again as the S&P 500 inches closer to a record high and the major averages try to extend their 8-week winning streak. Tesla one of the top performers on Wall St. on a report it is revamping its Model Y at its Shanghai Factory. Roth Capital's Craig Irwin discusses whether the stock can keep rallying. eToro U.S. CEO Lule Demmissie weighs in on the state of retail investors and whether they can help fuel the next leg of the market rally. And Re/Max CEO Nick Bailey discusses whether existing home sales can rebound now that mortgage rates are on the decline.

Well, stocks eking out modest gains today as the S&P inches closer to a new record. It's just about 15 points, give or take, from its 2022 closing high now. That's the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. Stocks stuck in neutral, though, failing to hit record highs, as we just mentioned, although the major averages remain on pace to extend an eight-week winning streak. Coming up, the U.S. CEO of social investing company eToro on whether retail investors could fuel this next leg of the market rally and what clients are buying and selling right now. Plus, Tesla, one of the top performers in the S&P 500 today. On a report, the EV maker is revamping the Model Y at its factory in Shanghai.

We will discuss what that could mean for the stock. But let's get straight to our market panel. Barry Bannister, Steevil's chief equity strategist, and George C., co-founder and chairman of Annandale Capital, join me now. Gentlemen, welcome to you both. Barry, I will start with you because coming into this year, you were a little early with a call, but you basically said that the S&P was going to hit 4,300 by April. It happened in June. Then you said that the market would largely stay flat through the end of the year. Obviously, we're having this rally now. What is your expectation for 2024? Well, as you recall, in the third quarter, Morgan, we're having this rally now. What is your expectation for 2024?

Well, as you recall, in the third quarter, Morgan, we had a big drop. And then at the October lows, we said it would rally back. It overshot that mid-4,000s that we expected by a couple hundred points. But generally, it came back to being flat with July 30th when it was in the low 4,600 range. You know, I think it's closing the barn door after the horse has already bolted. We're just not that excited about S&P 500 upside. What we like is the shifting within the cap weighted index. And we like this, what we call cyclical value. We have an embedded option with no premium on better

economic growth because the cyclical value names, banks, financial services, energy, industrials, real estate, transports, none of them really reflect the kind of economic growth continuing that you would expect if the PMI manufacturing index, for example, goes back into the low 50s from this contractionary high 40s level. OK, George, I want to get your thoughts on what you like going into 2024, especially with the NDX, the Nasdaq 100 now on pace for its best year since 1999, which we know was a very telling year from a very different market cycle. Hey, Morgan. Well, I heard Jeremy Siegel on the program earlier saying that he thought stocks would go up 10 to 12 percent in 2024. If he could let me bank

that today, the old game show where you could bank your profits, I'd take that right now. I think that would be a great sequel to this year. And I think that basically people forget that we've come nowhere in two years. If we're just now hitting our highs again that were hit in early 2022, that's roughly two years where we've basically gone nowhere because we had such a bad 2022. So for next year, we're really focused on areas that should really catch up, especially with the Fed cutting and interest rates pulling back. And that would be regional banks and insurance companies and other more interest rate sensitive companies. We also think energy is due for a rebound from a bad 2023. So we're still holding on to our Googles and our Microsofts and our Amazons, but we're looking for areas of the market that basically have been left behind or might be

takeover bait as something to really focus on and pivot to slightly, not aggressively, but maybe five to 10 percent of movement. Interesting. I'm hearing some of the same sectors and groups from both of you. Barry, your investment thesis for 2024, how much of this hinges on a soft landing actually coming to fruition? You know, we've had a non-consensus view that the S&P 500 and the market and the economy itself had a pseudo recession along with my colleague thomas carroll our view has been that uh 1q 22 to 1q 23 within what national bureau of economic research watches income production sales employment and fixed investment they were all weaker and some most went negative however employment was at such a high level going into that, that you had

the best job availability relative to workers in the entire post-World War II, 75, 80-year period, that all we did was take away some of the availability of jobs. So if labor held up, no recession. As long as labor holds on, there is no recession. So that's been our view so far. Now, if I look out to the next year, I don't think the Fed should cut more than about three times to flatten those twos, tens in the curve. But if they do more, then they'll pay for it in late 24 and 25, because inflation will probably come back. George, I'm going to ask you the same question, especially since we know, and it was on full display this year, that the equity market takes so many of its cues from the bond market.

It's such an inverse, beautiful relationship, and they dance beautifully together when it works. And I would just say that the bond market's given us an unbelievable Santa Claus rally, actually beginning well before Thanksgiving this year. And I think we have pulled six to nine months of gains into this year. So if we had a double digit winning year next year, I'd be elated because I'm concerned we have pulled a lot forward. And I would also say that it's too cute by at least half a loaf when people say, well, if the Fed has to cut four or five, six times next year because the economy is not performing well, that's even better because then we have lower interest rates and markets can soar even further. I think the one wild card out

here that people aren't really focused on is if the economy gives us a Grinch-like lump of stocking full of coal and ashes and switches, and we have very low growth or even negative growth at some point next year, probably in the latter half of the year, I think that could be a really high hurdle for a highly priced market. I'm hoping that doesn't happen. I'm not betting that way, but I think there's a larger than small chance that that could be a possibility we're going to have to face down. Okay. The wall of worry. We continue to climb it as we look to another year with many of the same macro forces at play that we discussed this year as well, plus a few extras, including the fact that it's an election year. Barry Bannister and George C., thanks for joining me.

Thanks, Morgan. As I mentioned, the S&P 500, 4781. We're literally 15 points away from a new record closing high. So we'll continue to watch that throughout the week and beyond. But let's turn now to one of the names that helped power the gains we saw in the S&P today, Tesla. That stock leading the average up 2% today on a report that electric vehicle company is planning to revamp its Model Y version from a Shanghai plant starting in the middle of 2024. Let's bring in Roth Capital Senior Research Analyst Craig Irwin. Craig, it's great to have you on. You've been bearish on Tesla for like ever. I mean, I feel like it's been years that I've spoken to and you've been bearish on Tesla for like ever. I mean, I feel like it's been years that I've spoken to and you've been bearish on Tesla.

And yet the stock has performed really well despite whatever you want to say about the fundamentals. Why are you still bearish here? So I'm bearish because I see it as egregiously overvalued, right? We look at Toyota as a benchmark, right? Toyota is the world's largest auto producer, about 9 million cars a year. There's nothing Tesla has that Toyota does not. Why should it trade at a large multiple to Toyota? You know, if it's going to sell a fraction of the vehicles, you know, maybe the technology premium, the leadership in EVs, give it a similar valuation.

And that's really what we do with our $85 price target. So I'm not celebrated, though. I do need to clarify that. There are levers that they can pull, specifically the minicar in India. with our $85 price target. So I'm not celebrated, though. I do need to clarify that. There are levers that they can pull, specifically the minicar in India. We've been waiting for them on both of these really since 2019, back actually when we were last,

I believe, really bullish on the stock. But from here, you know, I see this one as a slow drip over the next couple of years. Okay. So I guess what do you make then of the reports then today about a revamp of its most popular model in one of its largest markets where, I guess, from which its factory sends out and exports the most EVs to different parts of the world? Yeah, no, the Shanghai facility is the most important facility for Tesla. So it's necessary. All of their models are long in the tooth.

People have been asking for updates of the S, the X, the 3 for years. And the Y is losing market share in China. It's no longer the leading EV in China. So I think it's overdue. Some of these other updates are many years overdue. Everybody was looking forward to a new Roadster. You know, everybody's looking forward to the Cybertruck. Finally, we've got a couple, right? You know, they're late.

They're late. And, you know, competition's real. Competition in China is overtaking them. And, you know, it's going to be a tough 2024 for Tesla. Okay. is overtaking them. And, you know, it's going to be a tough 2024 for Tesla. OK. I mean, expanding even beyond Tesla on a day where we are also having reports that a Chinese EV maker, BYD, may be poised as soon as this quarter to overtake Tesla as the top EV maker and seller globally. What are your expectations for the EV market in 2024 when you do have a player in China that is aggressively subsidizing and making

these new cars and exporting them to different parts of the world? And you do have Europe and the U.S. considering tariffs. And it sort of speaks to the geopolitical landscape as we talk about energy transformation. You nailed it. You absolutely nailed it. So, you know, Tesla's looking at a 4% growth rate for revenue for the fourth quarter. That's due to pricing pressure. How on earth are we going to see acceleration to 13% in the first quarter? EVs are real. They're here. They're inevitable. Thank you, Elon, right? I'm a big fan of EVs. Tesla's facing real competition during a period of economic weakness.

So they're going to have more price cuts and there are going to be more companies like BYD with super credible vehicles out there on the road. So EVs overall I see as inevitable. Yes, this is going to be a painful year as far as price cuts and maybe growth not as strong as people would like to see in the market. But they're inevitable. They're here for the long haul. And I think, you know, the price cuts that we see over the course of 2024 are going to be really what creates the market. When EVs are fundamentally cheaper than ICE vehicles, they're going to be really compelling for consumers and they're going to be a much larger mix of the overall sales mix. Okay. Craig Irwin, thanks for joining me.

Thank you. Shares of Tesla are up about 112% year to date. Tesla has been a top buy for eToro's clients recently as well. So up next, the company's U.S. CEO tells us what else her retail clients are buying and selling, and if she thinks the market has more room to rally. And later, the CEO of Remax on the outlook for home prices, which continue to skyrocket. Overtime is back in two. Welcome back to Overtime. It has been a strong year for stocks. The S&P 500 is up 24%

this year and the Nasdaq soaring 44%. So as we close out an impressive year, how are retail investors positioning themselves? Well, joining us now is Lule Demise, eToro US CEO. Lule, it's always great to have you on the show. And that's exactly where I'm going to start with you. And we talk so much about traditional 60-40 breakdown of portfolios. You have a lot of data at your fingertips in terms of the retail investors that are trading on your platform. What are you seeing in terms of that breakdown on average between stocks and bonds and crypto and cash, especially since eToro, like so many of these new fintech names and trading platforms, pays out a high interest rate on that. Yeah. First of all, pleasure to be with you. Happy holidays. Yeah, it's interesting, you know,

because of the customer base we have, which really tells you sort of the chronicle of sort of tomorrow's investors as well, because it's millennials or younger. What you see is really sort of the narrative of 60-40 is pretty much dead. That doesn't mean diversification is dead, right? So the way you see is that lots of people are holding cash because they're not stupid and interest rates are high still, so they're getting yield from that. But then you see them participating in single name stocks. About 80% of them say they're holding single name stocks, and they actively trim when the market gets rich and buy when the market gets a little affordable or less stretched, if you will. But you also see this expansion. We thought after COVID, risky assets would be sort of reduced, especially in a high interest rate environment. But that hasn't been the case.

About 10% of them say they own options or other types of high high risk instruments, including our top five sort of ETF holdings are in and outs in ETFs that give them that ability to have leverage as well. So it's a mixed bag, but it's not one where it's only chasing the red hot dot. It is interesting to hear that, too. And you got to wonder, and I don't know if the verdict is still out on this, but you have to wonder if more folks, especially young folks, because they were sitting at home, they did start taking on day trading. They have had access to newer platforms such as eToro, whether they have just become more sophisticated as retail investors, as traders versus maybe some of their older counterparts. Indeed, not only more sophisticated, I would say they're not necessarily like, you know,

the kind of skills that an asset manager might have, right? But definitely more nuanced in their understanding in the markets. They can have like three thoughts in their minds, right? Which is what an investor needs to be able to have. The other thing they have, which is really interesting over, I feel like some of their older counterparts is resiliency and investing. Like you didn't see them running away this time around, right? Like household investing didn't dip in the retail space this time around when we saw the bubble burst. So it's not just expertise that rose during because of practice and knowledge and communities like a tourist platforms, but it's also resiliency that increased. Okay. So since this most recent pullback in the market at the end of October, to that point, what have

folks been buying and selling? And at a time where, to use Bespoke's word today, everything is overbought. Is it more selling or more buying right now? So they do in different things. So when the rally first started, what you saw is our put-call ratios really sort of shot up. So a lot of more calls than puts. So you saw people sort of express their thesis and options early on. And then as they saw a little bit more comfort in that rally, you saw names that they thought were a little bit more left behind in the tech. Now, tech is rich as in general, but you have to remember our investors are very tech-heavy in the first place. But you saw Tesla participation increase a little bit more. You saw Google

participation increase a little bit more. So saw Google participation increase a little bit more. So where they felt that there was a slightly more relative value earlier on, before all of these stocks became a little bit more richer, you saw. But then what you saw is when we saw a little bit more rallying, you saw people trimming in similar names as well. Crypto, despite some of the regulatory overhangs, despite some of the controversies in a year where Sandbank Benfreed, for example, was convicted, we've seen Bitcoin rally more than 160 percent since the start of the year. It's been a similar move for Ether and some of these other cryptocurrencies, too. What are you seeing in terms of crypto appetite on the platform? Yeah, it's fascinating, right? Because you would think all this stuff that we went through would have sort of killed the asset

class. And quite the opposite has happened. So what we do see is a lot more holding and then opportunistic buying. So 60 plus percent of them still hold crypto of one sort or another. The top holdings are things like Bitcoin and ETH and Shiba. But when we sort of research the why, it's about the same things that a sophisticated investor would talk about, right? Eventual scarcity of a coin like Bitcoin, the halving that's coming around, the fact that they may end up being spot ETFs, and the fact that there's a trad-fied sort of path towards Bitcoin. So all these things are sort of adding up to people thinking that there's still a force multiplier in these in these

selective coins. So your expectations for activity on the platform in 2024. And I ask that because we know tech had a really strong year. The Nasdaq 100 is up something like 50 percent this year. Obviously, a lot of tech trading, as you just mentioned, on the platform. Is that expected to continue in 2024? Do you expect to see some diversification into other sectors of the market? We already do see. So we see some pretty hardcore participation in health care and other areas. But I do think there is a technology bias that's pretty enduring in this generation, regardless of the cycle of the economy or the investing cycle. Lule Demise, thanks for joining me. Thank you. The New York Times suing Microsoft and OpenAI for copyright infringement, citing billions of dollars in

damages. Up next, we will discuss the potential fallout for other tech companies and check out shares of medical technology company Massimo. Under pressure today after a U.S. appeals court temporarily paused the Apple Watch import ban that was put in place by the International Trade Commission, shares ended the day down four and a half percent. Stay with us. Welcome back to Overtime. The New York Times filing a lawsuit against OpenAI and Microsoft claiming they are using the Times copyrighted work to train their chatbot. The New York Times saying in a statement today, quote, the Times recognizes the power and potential of Gen AI for the public and for journalism. These tools were built with and continue to use independent journalism and content that is only available

because we and our peers reported, edited, and fact-checked it at high cost and with considerable expertise. Settled copyright law protects our journalism and content. If Microsoft and OpenAI want to use our work for commercial purposes, the law requires that they first obtain our permission. They have not done so. Joining me now, Nilay Patel. He's the editor-in-chief at The Verge and a CNBC contributor. It's so good to have you on the show. Thanks for being here. Thanks for having me. This is interesting, right? I mean, it's very telling because in a year where Gen A.I. has exploded onto the scene and is now the talk publicly in not just Wall Street, but Main Street, you're actually starting to see this challenge to where the data is coming from and what the rules around that data look like.

Your expectations for how this plays out with The New York Times, especially since The New York Times is really the first major American media company to challenge OpenAI. Certainly the first to actually file a complaint. I think every media executive that I have talked to has talked about filing complaints. We just saw Axel Springer, the giant German publishing house that owns Business Insider and others. They struck a deal with OpenAI. The AP has struck a deal with OpenAI. Other companies have smaller deals with Google. All of the generative AI, every LLM is based on the belief that training these models constitutes fair use under copyright law. I spoke to Sachi Nadella 10 months ago on the Decoder podcast when they were launching the new Bing powered by ChatGPT. I asked him a question. He said, look, search is about fair use. And we have built

the entire industry on the assumption that the tech industry will get away with it again. The story of tech, especially information tech on the internet, is the story of permissive copyright infringement. Google is built on copyright infringement. YouTube is built on copyright infringement. You can go on and on and on and on. And this time it feels different. It feels like the publishers don't want to repeat the mistakes of the music industry, of Hollywood. Everyone understands that asking ChatGBT to just summarize the New York Times article feels different than finding South Park

on YouTube. There's something different there. And if the fair use cases go the wrong way, the margins of all these businesses start to change in dramatic ways because they will have to pay licensing costs. And in particular, the thing I'll warn everyone, if you're looking at this, you say, well, maybe then Times will lose or maybe they'll settle. If they settle and OpenAI pays the Times licensing fee, every other lawsuit is going to start looking to settle for a licensing fee. If the Times wins and it's not fair use, all those other lawsuits are going to immediately try to settle for a licensing fee. If the Times wins and it's not fair use, all those other lawsuits are going to immediately try to settle and get licensing fees. So the number of outcomes that ends with open AI and other generative AI makers

having to pay enormous licensing fees dramatically outnumbers the number of outcomes where they don't. Which is a very key point, and I want to get into that a little bit more. But first, to pick up on what you were saying initially, I mean, in the New York Times statement, it says settled copyright law protects our journalism and content. So it sounds like there's this legal statute, this legal precedent for the Times bringing this challenge against OpenAI and Microsoft. And it kind of raised the question, in a court of law, do they have a case if we also have precedent out there for other? You mentioned Google for other examples of where fair use, you know, has been taken into account.

Who's actually going to be in a strong position if this were to go through the legal process? Yeah. So before I was editor-in-chief of The Verge, I was not a very good copyright lawyer. So this is great fun for me, reliving my greatest hits. The thing I will warn everyone is that fair use cases are total coin flips. And I'll just give the audience here two examples. Robin Thicke and Pharrell made the song Blurred Lines. Big hit. Launched the career of Emily Ratajkowski. Marvin Gaye's estate sues Robin Thicke and Pharrell.

Blurred Line uses none of the music, none of the notes from the Marvin Gaye song in question. They lose. They lost. They got to pay the money. Later on, Marvin Gaye's estate sues Ed Sheeran for Shape of You, which is such a close approximation of Marvin Gaye's song. Ed Sheeran medleys the songs in concert. Ed Sheeran shows up in court. He's much more sympathetic than Robin Thicke. Ed Sheeran wins. This is a total coin flip. You cannot take the outcome of one case and apply it to another. So if you're betting,

if you're Microsoft, and you're betting on we have a strong case under fair use, or you're the Times, and you're betting we have a strong case on settled copyright law, you're really just putting forward an argument in the court of public opinion, because there's nothing about fair use, or you're the Times and you're betting we have a strong case on settled copyright law, you're really just putting forward an argument in the court of public opinion. Because there's nothing about fair use cases in particular where there's any precedent that works. It is always a coin flip. I think the thing that the Times is really betting on here is to make a fair use defense, you have to concede that you've made a copy. So copyright law is pretty dumb. It's just about making copies. OpenAI has absolutely copied a bunch of New York Times articles. They're in the database. They were not given permission to make those copies. So just from the first step, if you want to make the fairies argument, you have to concede.

We made a bunch of copies without permission and everything else kind of flows from there. And I think that's why the Times believes they're in a strong position. Nilay Patel, great to get your insights today. Appreciate it. Right back to law school. Here I am. Yeah, it also raises questions at a time where reportedly some of these companies like OpenAI are looking to do additional rounds of funding, whether the risk attached to all of this legal questioning is actually priced into those fundraising rounds or is going to need to be? Well, it's time now for a CNBC News update with Pippa Stevens. Pippa. Hey, Morgan. Secretary of State Antony Blinken and other senior U.S. officials arrived in Mexico this afternoon to meet with Mexico's president. The leaders are looking for solutions as an estimated 8,000 migrants from South and Central America head toward the border in what the State Department calls

unprecedented irregular migration in the Western Hemisphere. Mexico's president has said he is willing to help limit the influx, but added that he would like to see progress in the U.S. relationship with Cuba and Venezuela. The GOP-led House Oversight and Judiciary Committees requested to see progress in the U.S. relationship with Cuba and Venezuela. The GOP-led House Oversight and Judiciary Committees requested to see communications between the White House and lawyers for Hunter Biden. The two chairmen said the committees are trying to determine whether the president was involved in his son's refusal to cooperate with the congressional subpoena. Hunter Biden chose not to appear in a closed-door deposition before Congress

earlier this month and has instead offered to testify in a public hearing. And Tom Smothers, one half of the famous comedy and music duo the Smothers Brothers, died today at the age of 86. The Smothers Brothers are famous for their groundbreaking TV show, which led the way for shows like Saturday Night Live and gained attention in the 1960s for their fights with CBS censors and segments opposing the Vietnam War. Morgan, back to you. Pippa Stevens, thank you. Will falling mortgage rates spark a rebound in existing home sales? The CEO of real estate agency Remax joins us next. Welcome back to Overtime. October home prices posted their biggest gain of the year yesterday, rising 4.8 percent from a year ago. Existing homes,

that was according to Kay Schiller. Existing home sales also seeing an uptick. For more on what's next for the housing market, let's bring in REMAX CEO Nick Bailey. Nick, it's great to have you on the show. I want to start right there with the Case-Shiller Index that we did get yesterday. It's a lagging indicator. It represents October. Why do we care about it so greatly?

Well, because it also represented the month where mortgage rates hit not multi-year, but multi-decade highs, and we still saw prices increase. Why? Well, it's a great question. It all comes down to this. There is pent-up demand out there. We are still looking at an estimated four and a half to five million homes that we are short across this country. And with the rise in rates that we've seen over this past year, we've had a number of

buyers sitting on the sidelines. So just in the last few weeks, we're seeing mortgage applications up. We're seeing some great optimism coming into 2024, but we've still got record low inventory, and that's going to likely continue to drive prices. Okay, so buyers on the sidelines. How about sellers? We talk a lot about quote-unquote golden handcuffs, too, people that are locked into their mortgages at 2%, 3%, 4% rates who are looking at this market and saying, I don't need to sell right now. As you see those rates start to come down, do they begin to put more inventory into the market as well? They will. And we have seen last year, the spring market is generally when we see most of the move up buyers come to the market. And that didn't happen in 23 for that very reason. 90% of homeowners have a rate under 5% and of that 50% are less than three and a half.

So let's face it, some homeowners are in love with their rates and until something like life events that drive housing ultimately happen, that's what's going to bring some of those sellers back into the market. That's things like job change, marriage, divorce, children, those type of things are what get people to push past what their current rate is and maybe think about a different one. REMAX operates all over the country. Where are you seeing the most demand, the most strength in terms of housing? Where is it the weakest? Well, we have seen it kind of interesting this year because those areas with the highest prices, so some of your coastlines, areas in California, those have had the most pressure on pricing. We've seen them come down in some areas. But then we've seen areas like

Texas and Florida that have continued to boom and in some price ranges have continued to see multiple offers where buyers are competing against one with one another. I would tell buyers don't be surprised in the spring market of 2024, especially for first-time home buyers. As rates get more favorable, it's going to help drive some level of home affordability, and we could see buyers competing against each other again. Are first-time home buyers able to crack into this market or some of these markets? Do you expect that that's going to ease and the affordability dynamics that have kept the bar high for them is going to start to change or reverse in some way? What will it take?

Well, with the rise in prices over the last couple of years, it has become a little more difficult for first-time homebuyers. But we're seeing programs once again that are more favorable for first-home buyers, which these are low down payment, 1%, 2%, 3% type of down rates that are helping first-time homewriters get into the market. And it's estimated right now, there are 45 to 46 million millennials that are part of this pent-up demand

for household formation in the years ahead. And so there's a big population that's striving for housing. There's something else though that I also don't think people talk about enough is we're going through one of the biggest wealth transfers, $87 trillion over the next 20 years from generation to generation that may help some of those buyers. Now, it may not help in the next week or month, depending on your situation, but it is going to contribute to homeownership rates for some. Interesting.

Okay, we're going to continue to keep an eye on that then. Nick Bailey, thanks for joining me. Thanks, Morgan. Gold significantly underperforming the S&P 500 this year. Up next, we will discuss whether gold will keep losing its luster as stocks hover around record highs. We should note gold also hit a record high this year. And take a look at shares of Regeneron, one of the top performers in the S&P 500 today, following a mixed ruling in its patent infringement

claim against Vietris, the company formerly known as Mylan. Those shares hitting fresh 52-week highs. Stay with us. Welcome back. Gold is up 14% year to date, on pace for its first positive year in three years. Here to discuss what factors could impact the price of gold moving forward is World Gold Council Chief Market Strategist Joe Cavitone. Joe, it's good to have you on. The first place I want to start is with this rally we have seen in the metal. What has contributed to it this year? So there's two things that have been contributing pretty much to the price range that we've been holding and this rally into the fourth quarter of the year. The first thing that's kept us floor bound and held us up at very strong levels throughout the course of the year have been central banks around the world, mainly the emerging market central banks buying and continuing to step in on price dips in the gold market. That plus some retail buying that's gone along with systemic and geopolitical event risks. So those two factors have kept us floor bound. And what's actually lifting the price cap on gold

is clarity around where monetary policy is likely to go into 2024. It's been our biggest headwind all year long. We know that we've been competing with the rate movement up. We've been competing with risk assets throughout the course of the year. You talked about the S&P outperforming gold. Look, it's been a strong year for gold, even with those headwinds. And now that people can get some clarity over where the Fed's going to likely head with the rate market, we're actually going to start seeing that headwind turn to a tailwind potentially into 2024 so that's what's really driving that upward tick the geopolitical risks are still there and they keep continuing to support us yeah um i do want to get into the retail piece of this but

first the fact that central banks have been buying and buying at a pretty remarkable pace this year i mean how much that is a reflection of the geopolitical landscape. How much of that, though, is also a reflection of questions around maybe longer term, the hegemony of the dollar on the global stage, sanctions, some of these other dynamics that maybe have propelled some central banks to buy gold rather than, say, buy treasuries? You're right. Look, there's a couple of factors at play here. First, 2022 was a record-setting year for central bank purchases with just over 1,000 tons. Third quarter of 2023, 800 tons. And we're on pace to see that again, another potential record in 2023. Factors that come up in our annual survey continue to be the need for liquidity, the

diversification in reserve portfolios against inflation risks, and performance that they need to have certainty around. So those are fundamentals that are actually driving central banks to the market. But you're right. Factors around de-dollarization, that's a long-term move. They've indicated in the survey that over five years, they'll likely move away from not only the dollar, but the euro. And then the geopolitical risk, the risk of sanctions, the creeping net that that could actually play in. It's got to be weighing on the minds of the central bankers in their reserve portfolios. But ultimately, the fundamentals are that diversification benefits that they get in their reserve portfolio and lots more headroom for these emerging market banks to continue to buy. So we expect to see that continuing to be a factor in 2024.

Back to the retail investor. How much should an investor be putting of gold into their portfolio and what's the best way to hold it? Is it bullion? Is it futures? Is it ETFs? What makes the most sense? So it all depends on the risk profile of the portfolio. We see average allocations between 5% to 10%. Look, we're telling people to maintain a position in gold because when you have issues like we saw in March of this year with bank failures, markets take a significant downward move. Gold's going to hold its value. You also see in the tail end of the year, the Hamas-Israeli conflict, which has actually done another moment in the market where risk is played out. So we have that range of 5% to 10%.

And ultimately, it looks at balancing out the risks that come along with your portfolio and adding the positive returns, because gold does correlate with risk assets in certain scenarios. I think as for how to go about getting it, you can buy it in bullion form. Bars and coins are very popular. You know, we've heard a lot about even Costco offering the gold through their channels. But you can also get easy access through the ETF market. Really simple ways to get access to the pure bullion. Easy to do. And that 5 to 10 percent is a reasonable allocation for people to consider. OK, I'm going to ask you what might seem like a crazy question, but maybe not because it is being called digital gold.

But at a time where we've also seen Bitcoin rally pretty dramatically, and at least the enthusiasts in this cryptocurrency pointing to some of the same topics affecting trading patterns there that we see affecting gold, and at a time where there's an expectation

that regulators are going to green light a Bitcoin spot ETF, does that take any investor flows away from gold? Could that potentially be a headwind for gold next year, or really you don't see them as related? Actually, it's a great question. And actually, it's more of a reason for why we would say allocate a higher percentage of your portfolio to gold. Bitcoin, cryptocurrencies, these are risk assets. What's really moving the price of those assets right now is the speculation around a new product, an ETF being brought to the market, and regulation being cleared up after years of saying they didn't want regulation.

That's driving that price. So I think ultimately, if you're going to look at a risk asset like Bitcoin, increase your allocation to gold. And what I'd add around digitalization of gold, you should check out what we're doing in the world of digital assets and blockchain. We're working on gold 247, which is modernizing gold to actually use blockchain technology to track and trace gold, but also to actually bring gold in digital forms with the bullion bankers that are actually out there setting record prices. Again, like today, we've seen 2069 be on the LBMA print this afternoon. That's another record price for gold in the fix. And ultimately, this is a space where we're going to see digitalization and technology help gold become

more nimble, more transparent and traceable and trackable. OK. Another story for us to watch as we look to 2024. Joe Cavatoni, thanks for joining me. Thanks for having me. Up next, why so-called virtual power plants could come to the rescue of the nation's struggling electric grid. Stay with us. Welcome back to Overtime. We have a news alert on the story we just brought you about the New York Times suing OpenAI and Microsoft over copyright infringement. An OpenAI spokesperson just giving us the following statement, quote, We respect the rights of content creators and owners and are committed to working with them

to ensure they benefit from AI technology and new revenue models. Our ongoing conversations with the New York Times have been productive and moving forward constructively. So we are surprised and disappointed with this development. We are hopeful that we will find a mutually beneficial way to work together as we are doing with many other publishers. Well, EVs, smart appliances, and other devices are straining the nation's electric grid, but so-called virtual power plants

could help meet soaring demand for electricity. Pippa Stevens is here to explain. Virtual power plants, what are we talking about? Yes, so the first thing here, Morgan, is that virtual power plants are not new. But as electricity demand grows and as the grid becomes more decentralized, they can help balance supply and demand. At the simplest, a virtual power plant is a collection of thousands of smart devices. Think home batteries, thermostats, EVs, that when grouped together and operating as one unit

can significantly impact grid dynamics. Let's say it's really hot and everybody's cranking up their air conditioner and stressing the grid. Well, the utility can adjust home thermostats by a degree or two, and in the process, lower demand and avoid the need to crank up a gas peaker plant. Now, it's important to note the utility is not going to do this independently. Consumers opt into these programs and are rewarded for participation via credits or, in some cases, direct payment. And for the utility, it can mean they don't have to spend significant capex to build a new power plant that might not be used all that often,

while also reducing their carbon footprint. As Mark Dyson from Rocky Mountain Institute put it, the bottom line is that shifting the time of electricity demand is cheaper than actually investing in that new physical infrastructure. Which of course raises the question, which are the companies that are actually developing this type of capability? So there's a host of players here. So it's everyone from the Resi installers that we've talked about, like the Sunrun, the Synovas, the Enphase, that are actually installing batteries in consumers' households. Then there's the companies that create the specialized software that help utilities manage all this new supply and demand. That's a name like an Itron or a STEM. And then finally, the utilities themselves. We're

talking about Edison International, National Grid. They're really at the forefront of this because they recognize the benefits to them as well. Nobody wants the power to go out, and they can really tap into VPPs to better understand what's available, what they could potentially bring online when necessary. All right, Pippa Stevens, thanks for joining me. It's a fascinating story. Thanks. Well, before we go to break, we do have an exciting announcement about the newest

member of our overtime team, baby Sophie. She's perfect. Daughter of our supervising producer, Mike Newberg, and his wife, Vildana. Sophie is seven pounds, nine ounces. She was born yesterday at 3.32 p.m., just in time to watch closingvertime. On behalf of our entire team, a huge congratulations to the new parents, Mike and Vildana. And we cannot meet, cannot wait to meet little Sophie. We're wishing you all well. May you find sleep when you can. Congratulations. Well, coming up, IPO uh-oh.

We will discuss whether an awful trading year for newly listed companies will carry over into 2024 or if an IPO market comeback is, in fact, in the cards. Welcome back to Overtime. It has been a dismal year for the IPO market. Renaissance Capital says there have been a little more than 100 IPOs, raising $19.4 billion, which is below the 10-year average. Some of the high-profile names include Kenview, Instagart, Klaviyo. They're among the largest to go public this year. They are all trading below their IPO price. But names like Arm and Kava are both trading above their IPO price. Arm is up 45 percent. Kava, it's up 102 percent since

its IPO. Next year, there are a number of names expected to go public. Shein, Panera Bread, Reddit and many more, as you can see right there on your screen. Let's bring in Renaissance Capital Director of Research Nick Einhorn. Nick, it's great to have you on. We had two dismal years for the IPO market. What we've seen in the last couple of months is maybe the thawing of that freeze in companies going public. Expectation, just looking at all of these companies that are either filing for IPOs or expected to file for IPOs, is what? That 2024 is a return to normal? Yeah, I think we're definitely on the way there. I mean, you call 2023 a dismal year,

but it's actually better than 2022 in a lot of ways, both for numbers of deals and also, I think, performance was stronger. Like you said, some of the big names haven't done well this year, but most of the institutional-sized IPOs have traded quite well. And the Renaissance IPO index, which is the underlying index for our ETF, is up about 50 percent this year, about double the S&P 500. So there is definitely more interest in the riskier stories that IPOs tend to represent. And that's a good sign heading into 2024. OK. And so the fact that you have seen the major averages rally double digit percentages, including some of those names that are within your your IPO basket. Is that one of those key indicators for whether companies are going to feel more comfortable going public next year or is it going to be something else?

Yeah, for sure. Companies want to come public when sentiment is good towards equities in general, but certainly towards recent IPOs as well. And a lot of that has to do with general risk tolerance, which we've seen a little bit with more confidence that interest rates have peaked, that a soft landing is possible. I think that's all encouraging for companies that are considering IPOs. There's been a lot of focus on the handful of names that we have seen go public. They've been names that are considered more quality in terms of some of the startups that were out there waiting in the wings. Is the expectation that that's going to continue to be a focus next year, or is profitability and

cash flow not going to necessarily matter as much? I think those will still definitely be important for investors. I think the days of kind of burning tons of cash to grow as fast as possible are not what the public market is looking for now. You know, I think even the kind of higher growth tech names we've seen this past year, like Klaviyo, Instacart, they are or they were, you know, profitable or on the verge of profitability. They weren't losing a ton of cash or anything like that. So I think investors are going to continue to be discerning. They're going to want to make sure that they're getting companies that are showing signs of maturity that have a clearly proven business model, and they're going to want

to pay reasonable prices for those companies. What are going to be the biggest names to watch in terms of an indicator for the health of the IPO market and how these companies are doing in terms of their debuts? Yeah, we've seen a few names file in recent months that have kind of kicked back IPOs till 2024. So we'll see if some of those come out. Waystar, the healthcare management software, is a big one. UL Solutions, which does safety testing, is another recent filer. We have names like Churro that filed at this point, I think a year and a half ago, but it's still been updating their filing, looking probably for an opportunity to go public. And then beyond that, some of these names you highlight, Reddit, Rubrik, Databricks, they're certainly names that we've been talking

about as IPO candidates for a while. We think a lot of them are still probably eyeing a 2024 IPO at this point. Okay. Nick Einhorn, thanks for joining me. Thank you. Santa Claus rally continues with all the major averages except for the Dow Transports finishing the day higher. We are on record close watch for the S&P. Not quite there yet, but that's going to do it for us here at Overtime. Fast money begins right now.