Closing Bell - Closing Bell: Overtime: Synopsys CEO On $35B Deal For Ansys; Deere CTO On Groundbreaking Partnership With SpaceX 01/16/24

Episode Date: January 16, 2024

Another negative day for the major averages after bank earnings rolled on. Vital Knowledge’s Adam Crisafulli and Datatrek Research’s Nick Colas break down the market action. Interactive Brokers Chairman Thomas Peterffy reacts to his company’s latest quarterly results and how the trading environment could be impacted by the Fed’s next move. Synopsys is buying Ansys for $35B; Synopsys CEO Sassine Ghazi on the synergies behind the deal. Invitation Homes CEO Dallas Turner on the current housing market. Plus, Morgan talks with Deere CTO Jahmy Hindman on the company’s just-announced partnership with SpaceX.

Well, stocks starting the week with losses as treasury yields moved higher and tech the sole S&P sector to close today in the green. That is the scorecard on Wall Street, but the action's just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Ford. Yeah, and a lot of red across the board, although we are well off the lows of the session. Energy, materials, and utilities leading the market lower, while as Morgan mentioned, tech keeps outperforming. Speaking of tech, Synopsys, $35 billion purchase of Ansys, one of the largest tech deals in years if it goes through. Coming up, we're gonna speak exclusively

with the CEO of Synopsys about what this proposed acquisition means for his company's growth. And we are just moments away from Interactive Brokers Earnings Chairman Thomas Petterfie. We'll break down those numbers for us before he speaks with analysts on the conference call. But first, let's get more on today's sell-off. Mike Santoli joins us now from the New York Stock Exchange. Mike, it was really some of those big cap tech names and semi names, AMD in particular, that really outperformed the

market today. How much does this speak to the rotation back into what works, at least at the beginning of last year, again now as we start this new calendar year? Yeah, it seems as if, Morgan, the market does sort of want to find something as a defensive play. It does migrate back to those areas that have protected the indexes last year. I don't know if that's sort of the new trend, but it does show you that not everything falling apart at once. That said, it was more weak than the indexes last year. I don't know if that's sort of the new trend, but it does show you that not everything falling apart at once. That said, it was more weak than the indexes made you think. 85% of all volume on the New York Stock Exchange to the downside.

Small caps down 1.3% or so. Banks, transport. So you have this little bit of a rethink of just how strong is the economy, a little uptick in yields. Again, it's all happening within the range of relatively normal pullback type activity. The market was just harder to please coming into this year simply because everyone embraced the soft landing scenario coming into 2024. And, you know, yields were way down, massive rallies in stocks and bonds. And I think we're just still kind of fitfully digesting all that. Mike, I don't want to make too much of the whole horse race between Microsoft and Apple in market cap.

Microsoft is on top at the moment, but it is more interesting to me. Over the past three months, Microsoft is up 17 percent to Apple's three. What do you think it means? Yeah, exactly. I think Microsoft has this combination. First of all, it's the one that people feel most comfortable with, just the overall long-term story that the company is in the correct place in the way of all the long-term trends. They're a good shepherd of shareholder capital. All the reasons you would want to put a huge premium multiple on something, they're there. And then you have the AI kicker. So those days when we're getting excited about, you know, blue sky estimates of what AI is going to mean, it's right there as well. And Apple, you know, obviously comes in for these periods of doubt about China, about the durability of some of the top line growth down the road.

And so, again, I like you don't want to make too much of the market cap for its race. But what I find is a net positive, maybe a silver lining, is you're seeing divergence among the Magnificent Seven. So you're not seeing the move as this monolithic blob of market cap because people just can't think of anything better to do. You're seeing differentiation.

Chances are that's better than not. Okay. Mike Santoli, stay close. We're going to see you again in a few moments. Meantime, Interactive Brokers earnings are out. Kate Rooney has the numbers.

Kate. Hey, Morgan. So a mixed quarter here, Interactive Brokers earnings are out. Kate Rooney has the numbers. Kate. Hey, Morgan. So a mixed quarter here for Interactive Brokers. Start with EPS. That's $1.52 adjusted. Slight miss. Street was looking for $1.55 there. Revenue, this is also the adjusted number, $1.15 billion.

That was a slight beat here. It looks like customer accounts were up 23% in the quarter. Commission revenue was up 5%. Net interest income increased 29%. We don't have any guidance here, guys. We'll keep looking through and let you know if we get that. But mixed quarter here for IBKR. Stocks down slightly here after hours. Back over to you. Okay. Great. Kate Rooney. Thanks. Interactive Brokers earnings call kicks off at the bottom of the hour. But coming up, Chairman Thomas Petterfee will break down those results with us before he speaks with analysts. Couldn't have said it better myself. Let's bring in our market panel. Joining us now, Vital today had to do with Waller and expectations about when that first rate cut might come?

I think that played a part. You saw a little bit of a hawkish move in Fed cut expectations for the year. You know, to me, the Waller language was actually quite dovish. And this is, you know, he made a huge speech back at the end of November that was very dovish, played a major role in the December rally. I thought the details of this speech were actually a little bit more dovish. I mean, the problem is the S&P is up over 200 points in that time. So the market's adjusted and has shifted its expectations on Fed easing. You know, there was a comment about how when the Fed does start easing, they're going to be going at a more at a slower pace and prior easing cycles. But in general, I think the big drivers of the market from Q4 of last year, disinflation,

Fed easing, and resilient earnings, those are all still on track. And I thought the Waller speech was really quite dovish. And so the Fed looks like I still think March will be the first cut. We have a lot of data between now and then, including a very important inflation revision date that Waller put on the calendar. February 9th is Friday. Well, there'll be the historic revisions to the CPI that he'll be watching closely. But, you know, I think today was just a pullback, a period of digestive consolidation. We've been seeing this year to date so far after the big move in Q4. But I think the broader trend

is still on track. Okay. And Nick, you're also, I believe, expecting the first rate cut in March. I don't know. I mean, things still seem overall pretty strong with the economy. I'm not sure why people who expect multiple cuts, you know, with no recession, why they expect that. What's your thinking behind that? And is the market correctly positioned based on what we're hearing from Waller and some others? Sure. I do agree that the first Fed rate cut is going to be in March because the Fed does want to get the process started. They told us at the end of last year with the new summary of economic projections that they were going to cut rates three times this year. I think they're going to

do it slowly and moderately and throughout the year. The economy is still pretty strong, but things are weakening at the margins. So it makes sense the way they posture themselves. The most important thing, though, is Fed Funds futures are thinking at six or seven rate cuts this year. And that's obviously too aggressive. We just did a survey of our customers. Over 500 people responded. And we found that 80 plus percent believe that there's only going to be zero to four rate cuts this year. So as much as the Fed funds futures market is way out over its skis in terms of thinking a lot of a rate cuts this year, equity markets, I think, have a much more realistic point of view. So it's not going to be a big threat to equities if we don't get those

really strong cadence of rate cuts as the year progresses. I think we're OK. Adam, I realize we're very, very early innings in terms of earnings season here. But so far, at least from an EPS standpoint, not nearly as bad as feared. How does that set us up not only for Q4, but for 2024, in which you do have Wall Street estimates that expect double digit percentage growth? Yeah, I think, you know, so far it's, you know, we're about the second day of earnings season, so it's really hard to extrapolate. But we have heard from a lot of banks, and they have, you know, a big macro footprint,

so they can give us a lot of color on what's happening on the ground. And I think, you know, you're seeing a distinction between revenue and earnings, where there's questions about top-line growth. A lot of the banks got in at interest income for 2024 was a little underwhelming for certain banks, but they're cutting costs or pulling other operational levers. So you're not seeing EPS estimates change a whole lot, but the earnings reports overall are not perfect. So Delta is a great example. The 2024 EPS consensus for Delta has barely moved and the stock has been hit very hard Friday and then again today.

So, you know, I think investors are looking at a lot of the details on margins and various businesses on top line. But EPS, at least, is coming through. And I think that bodes well for the for the full year S&P earnings estimate of about $240, $245, staying intact as we move throughout this reporting season. All right. Adam Christofoli, Nick Colas, thank you. Now, Goldman Sachs and Morgan Stanley wrapping up big bank earnings as the regionals begin reporting. Leslie Picker has details there. Leslie? Hey, John. Yeah, it was a pretty noisy quarter for the six largest banks, each with certain one-time items that muddled their earnings picture. But it's the questions about the

inflection point for a certain profit metric from loanmaking known as net interest income that drew more focus after the largest money center banks reported last week. And the same will be true for regionals as they report this week. NII is typically benefited by rising interest rates, but as the prospect of a Fed pivot worked its way into the market, NII declined for many of the large lenders in the fourth quarter. So now attention turns to the next inflection point. Firms like Wells Fargo, Bank of America, expecting a trough in the middle of this year or later.

And with regionals more levered to NII than their universal peers, you can see that some of the pressure we've already experienced in this area has weighed on the S&P regional banking ETF, down about 1.7% today and more than 5% so far year to date after a very significant surge in the latter two months of the year. We'll hear from a whole host of firms, including Citizens Financial and U.S. Bank Corp, Tomorrow and others like Truist, Key Corp, Regions, Fifth Third, and Comerica. That's just a sample size of the number of regional banks we'll hear from this week, guys. Yeah, to your point, Leslie, more than 40 percent of the KRE is going to report this week.

And we kind of kicked off the regional part of this equation today with PNC. What got my attention in that report was that more loans did start to go bad, particularly in the commercial real estate book. You saw net charge offs in that area rise to fifty four million dollars. So we're still talking about basically maybe a smaller chunk of change. But that's more than doubling from a year earlier. So is this going to put things like commercial real estate back in focus? Yeah, the net charge-offs will absolutely be a focus of the regional reports. Credit quality is a big concern among investors, especially as they're trying to get some sense as to whether

we've actually achieved that soft landing that's worked its way into the market. That's part of the reason why we saw such a big run-up in the fourth quarter for the regional names is because people said, okay, well, maybe credit quality will be able to withstand some of this historic rate increases that we've seen, some of the monetary policy that we've seen, and they'll be able to kind of work their way through without any major additional blow-ups compared to what we saw last spring. So that, of course, is top of mind for investors as they kind of look at what's being provisioned in the quarter, kind of the credit quality, the types of bad loans that are on the books here,

how it pertains to commercial real estate. I know that's been a big topic in Davos this week as well. So that's absolutely something that investors, analysts, and the media will be focused on throughout the remainder of the week as well. And we know you will be as well for us, Leslie Picker. Always a lot of nuance and a lot of context and a lot of noise when you get the bank earnings to go through. We appreciate it. Let's get more on the banks with Mike Santoli.

Mike. Yeah, Morgan, look at how the banks proper have performed against the broader S&P financial sector. It's a little bit of a sentiment gauge, essentially when investors are more optimistic about the economy and essentially pricing in better news about the cycle. Banks are going to outperform broader financials, which are a little more defensive. Berkshire Hathaway, I would point out, is 13 percent of the XLF, the financials ETF. Visa and MasterCard are now in there. They're another 15 percent. So what you've seen here is a nice comeback in banks relative to the XLF since the October low. And we're still barely holding that little relative uptrend, but still

coming from the depths. I mean, this is a two year chart. This, no surprise to anybody, is the Silicon Valley bank shock of last spring. So just barely clawing our way back from there. You might have some people say there's still a lot of comeback potential because we're coming off these lows. And certainly on a valuation basis, banks might look a little bit better, say that insurance, which has had an incredible run, but still remains to be seen whether we're going to get any real legs to this type of outperformance we've seen just in the last couple of months in the banks. You know, it's interesting because we had commentary from the NRF conference with the FedEx CEO, where he basically talked about this normalization that seems to be happening now after the pull forward in demand for e-commerce. There's a normalization now between services and goods

demand from consumers. I wonder if that's the way we should be thinking about it with the banks as well. This idea of post-pandemic normalization. Yes, it's taken a long time to realize, but especially when we start to talk about things like loans, like reserves, like charge-offs. Exactly. I mean, so far, the credit metrics, things like delinquencies, have mostly gone back to pre-pandemic norms. The problem is you don't know where the chart ends. So just because you've come back to where we were in 2019, it doesn't mean you have perfect confidence that it's not going to go any higher than that. There's also, I think, a separate sense out there of it's always something with the banks. If you've been somebody who said banks are cheap, they're better capitalized, they're going to be fine. You get things like FDIC levies, you know, things that always seem to mess things up.

And it seems as if that the world is oriented in a way not to have them maximize their returns on equity and not to have them maximize returns for shareholders. I'm not saying that's correct, but that's absolutely the impression you get after the last several years. All right. Mike Santoli, we see you again in just a little bit. And right now we've got a news alert on Netflix. Julia Boorstin has details. Julia. Hey, John. Well, Netflix continues to invest in sports content without actually bidding for live sports rights. Just now announcing that it is licensing the CWs inside the NFL. It will run Tuesdays on the CW, then will be added to Netflix each Wednesday at 3 p.m. Eastern, and new episodes will be added to Netflix through the week after

the Super Bowl. So focusing on the playoffs and the Super Bowl. Now, all of this comes after Netflix hosted a golf tournament, the Netflix Cup, featuring the athletes from its hit docuseries, one on Formula One, Drive to to survive, another on golf called Full Swing, with a tennis match, another live sporting event created by Netflix coming up in March. It also comes on the heels of just this weekend, Peacock's exclusive NFL wildcard game on Saturday, breaking records with 23 million viewers, showing the value of football to streaming, not just, of course, to live television. Back over to you. The dominance of sports, the value of sports continues to be playing out. All right. Julia

Boorstin, thank you. Up next, shares of interactive brokers are under pressure. Chairman Thomas Pederphy will break down his company's earnings before he speaks with analysts on the call. And later, the deal of the day. The CEO of Synopsys is going to discuss his massive $35 billion bid to acquire Ansys. An exclusive interview. Overtime's back in two. Welcome back to Overtime. Let's get another look at Interactive Brokers. Shares under pressure after missing earnings estimates. But joining us now is Thomas Pederphy, his founder and chairman of Interactive Brokers. It's great to have you on. I'm taking a look at this. Yes, shares are under pressure with the EPS miss, but commission revenue up 5%, net interest income of 29%, customer accounts increasing 23%. Walk me through the quarter and what you saw in terms of

activity on the platform. Well, we had an excellent year in 2023 for the first time in our 47-year history, our revenues had exceeded $4 billion and our pre-tax profits exceeded $3 billion. Our profit margin was 71%, which is the highest in our industry. In fact, few public companies in any industry have that kind of a profit margin. We saw this blistering rally, market rally, in the final quarter of the year. How much did that contribute to the activity on your platform? And given the fact that 2024 has started much softer, has that ebbed at all coming into the new year? Well, the second half of the year was certainly busier than the first half, but it was not exceptional. Option volumes have continued

to increase throughout the year, especially in the major indices and the top tech stocks. Many of our clients have huge unrealized gains in the Magnificent Seven stocks and do not want to realize their profits and pay taxes. So instead of trading those stocks, they rather trade options around those positions. They write options against them and hedge to generate extra income. If and when these options end up in the money, they rather repurchase them than having them exercised. And so this way they don't have to pay income tax. So options business is going extremely well. We are introducing a new facility around options this quarter that enables our customers to trade options at the mid-price of the quote,

which may mean between the bid and the offer. You cannot get a better execution price than that. And when you are trading a frequently traded option and putting a bid or an offer at the mid-price, you are very likely to get an execution within a few minutes. I got a question for you about the impact of interest rates here. If we are reasonably higher for longer, what does that do to margin trading? How does that affect your platform? Well, I don't think it does. So you you see, we extend margin at 1.5% to 1.5% over Fed funds, and we pay interest 0.5% under Fed funds. So, you know, we basically make 1% to 2% between margin lending and rebating interest to our

customers. So, we don't really care much about which way interest rates go and neither do the customers to tell you frankly, not that I have noticed. So ultimately the most we can do for our customers as a broker is to give them the best possible execution price. And this is often overlooked in the industry. And so a low transaction costs high interest on idle cash and low interest on margin loans. That's what sets interactive brokers apart from other banks and brokers. And let's just dig into that just a little bit more.

Are investors right to think that there could be headwinds from lower rates, assuming that the Fed actually does indeed begin to cut this year? Say it again, please. Are investors right to think that there could be headwinds to the company's net interest income if the Fed does, in fact, begin to cut rates this year? Yeah, certainly. So if interest rates were to go down by one percent, our income would decrease by 300 million over the year so it's it's not really a it's it's it's less than 10 percent of our uh net income all right so just a really thin breeze in the face more than a headwind thomas petterfi thank you thank you very much well shares of synopsis popping after announcing it's acquiring Ansys for $35 billion, an anticipated move.

It's one of the largest tech mergers in years. We're going to hear exclusively next from Synopsys CEO. Plus, farming by satellites. Coming up, Deere's chief technology officer discusses a new deal with Elon Musk's SpaceX to deliver high-speed broadband to automated farming equipment in rural areas. Space for Earth. We'll be right back. Welcome back to Overtime. Apple shares down about 1% today. Discounts across a range of products in China not helping the stock, including a roughly $70 sale on the newest iPhone 15s. That rare move could compound investor fears of plateauing demand

in its second biggest market. Meanwhile, the Supreme Court today refused to consider Apple's appeal for that App Store antitrust suit with Epic Games. With billions of dollars at stake, Apple must start letting developers tell users about cheaper payment options. Also, Mossimo shares. Those finished the day up more than 1%. That says Apple signaled in a filing it will remove the blood oxygen sensor from its Apple Watch. That was at the middle of a patent dispute between the two companies, a story we've followed closely here. And news crossing just a few moments ago, Massimo appointing former Disney CEO Bob Chapek to its board as well. What kind of amuses me about that is there's a history of closeness between Apple and Disney.

Of course, Steve Jobs is the largest individual shareholder. And Bob Iger coming in as CEO of Disney kind of made this relationship between Pixar and Disney better. And so now, you know, Massimo is kind of like this with Apple. And, you know, Chapek is not Bob like this with Apple, and, you know, JPEG is not Bob Iger. So anyway, that's interesting. Chip design software maker Synopsys announcing today it plans to buy Ansys. In a $35 billion stock and cash deal, Synopsys makes tools to design chips, while Ansys provides physics-based simulation software evaluating how products will perform under different environments. The deal would mark the biggest acquisition in the tech sector since Broadcom VMware,

in software anyway, last November. Joining us now exclusively, Synopsys CEO, Sassin Ghazi. Sassin, good to see you. You've already been partnering with Ansys for years, so lay out for us why, in the age of AI, a semiconductor design firm needs to own a simulation firm. If you believe in the thesis that every market is going to be going through a transformation where devices are going to be connected and smart with AI as a significant megatrend that's going to push that connectivity and smartness to achieve whatever demand for that specific market is, then the underpinning that drives that thesis is silicon everywhere. So Synopsys' vision is to take silicon to systems and optimize along that stack and provide solutions for our customers that they're trying to go and take advantage of the AI movement in order to deliver best

experience to their customers. Okay, let me also try to get it this way. We've seen a rise in custom chip design, not just from the hyperscalers, the likes of Microsoft, Amazon, but of course, Apple, et cetera. It used to be, you know, 15, 20 years ago, chip design software, only chip companies needed to buy that. But now it seems like a lot of different types of companies are designing chips. How does the customer overlap or non-overlap factor into this between your company and Ansys? So exactly. If you look back at Synopsys, say 15 years ago, our entire TAM was the semiconductor chip developers. Now with the Apple example, the hyperscaler examples, it expanded into system

companies. And the reason system companies are investing in their silicon is in order to achieve the best performance power possible for their applications where ANSYS has been is the simulation and analysis company for many of those system companies back in 2017 we created a partnership with ANSYS because we could see the world is heading in that direction. And they are the market leader in simulation in what is called multi-physics, meaning if you want to simulate for thermal, for heat, if you want to simulate for structural, for fluid dynamics, airflow. They're the leaders in these various market and simulations. And as these worlds converge, you need to design the chip in the context of

the system, exactly like the hyperscaler example you mentioned. Makes a lot of sense, Asim. And you and I first talked about four months ago after it was announced that you were going to be the next CEO. This is a big first move, first of all. What kinds of both cultural changes and maybe efficiencies might you have to drive inside Synopsys now, Synopsys plus Ansys, should this be approved and go through in order to make the end market result that you just talked about work? So we're not strangers to ANSYS, and ANSYS is not a stranger to us. As we said, we started the relationship in 2017. So it's been seven years where we have two vectors for this relationship,

an R&D to R&D relationship to develop products that our customers are looking for in order to solve their most critical problems. And the other type of relationship with Ansys that we established in 2019 is a go-to-market relationship. So when you have a company that you have both a go-to-market relationship and a product relationship, you know each other, you know what solution you can differentiate through that partnership and provide to your customer. That's how we articulated both the 400 million cost synergy as well as the 400 million in revenue synergy.

Sassine, you're expecting to close this deal in the first half of 2025. I mean, that's a pretty long timeline. Why have you set that target? How does it speak to what it's going to take in terms of the hurdles that need to be jumped with regulators? Yes. So we would love to close it much sooner. But the reason we put the first half of 2025 is exactly the point you're making. We went through a very thorough assessment before we made the bid to buy ENSYS around regulatory approval. And based on all

the assessment and experts in that field that they were advising us, the range was anywhere between 12 to 18 months. So that's why we're expecting a closure in the first half of 2025. All right. Sassin Ghazi, CEO of Synopsys. Great to have you. Come on back to overtime. Good to see you. Take care. All right. Thank you. Bye. Well, it's time now for a CNBC News Update with Pippa Stevens. Pippa. Hey, Morgan. National Security Spokesman John Kirby said today the White House is in serious discussions with Qatari officials over another hostage release deal in Gaza. The update comes as Qatar also announced a deal today to deliver medications to the more than 100 Israeli hostages and send humanitarian aid to Palestinians in Gaza.

Russian President Vladimir Putin claimed today that Ukraine's statehood was at risk should the pattern of war continue. Putin also stood firm that Russia would not abandon the gains they made in controlling territory in Ukraine. The comments come after Switzerland agreed to host peace talks at Ukrainian President Volodymyr Zelensky's request. And Bobby may not have been the world's oldest dog after all. Guinness World Records suspended his title while they investigate his true age. Suspicions about the evidence were raised after Bobby died in October, supposedly at 31. His age was originally confirmed by the local vet service and the Portuguese government through their pet database when he was crowned last year.

Back to you. All right. Pippa Stevens, thank you. There's probably a dog years. I'm just wondering if he was still learning new tricks right before he died. All right. You won. A federal judge grounding the merger between Spirit Airlines and JetBlue.

Up next, we will look at what comes next for the carriers and any future airline deals. Huge stock moves today. Indeed. And a reminder here, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back. Shares of Spirit Airlines plunging after a federal judge blocked JetBlue's nearly $4 billion acquisition of the carrier. Finished the day down 47%. Bill LeBeau has the details. Phil.

Morgan, we'll talk about why Spirit has fallen so much since this decision was announced. Look, this is a big win for the DOJ. The judge, and we're not going to read the entire decision, but let me summarize it by saying what a lot of people thought the judge would say. Competition would be hurt if these two airlines merged and they are now assessing their next steps. Judge William Young said to those customers of Spirit, noting that Spirit has a small but very loyal customer base, he said for those customers of Spirit, this one's for you. Jet Blue, by the way, as you take a look at shares, and we're going back to July of 2022 when it announced this merger, proposed merger with Spirit, it owes a breakup fee of $70 million. As for Spirit, it has 5.1%

of the market share, according to the DOT in the U.S. But the reason the stock is down so much is many people are saying, wait a second, we've seen the balance sheet. Are these guys going to be able to remain a viable entity? Helene Becker from Cowan, airline analyst, highly respected airline analyst, with a note saying she wouldn't be surprised if they go to Chapter 11. And then quickly after that, Chapter 7, liquidation. So, John, that's the reason you see shares of Spirit down more than 47 percent. Ouch. And perhaps the reason Spirit, if I recall, was hesitant to do this deal in the first place. Meanwhile, Phil, Wells Fargo downgrading Boeing to equal weight from overweight, citing the risk of the FAA's audit of 737 MAX 9 production. That stock is down nearly 8 percent today.

Worst performer on the Dow down nearly 20 percent since that door plug blowout during the Alaska Airlines flight week and a half ago. And the main concern that's highlighted by Wells and it's all analysts have talked about this. Will Boeing have to push out its ability to ramp up 737 MAX production. Remember, they're at 38 a month right now, going up to 50 per month in 2025, 2026. There are 40 initial inspections that have been done or are close to being finished. We're waiting to find out what the FAA says about those inspections. Those are of grounded MAX 9s, by the way. The airlines, including Alaska, there was a report out of China. There was China Southern. They want to do airline quality. They want to do quality checks on

these planes before they take delivery. And then there is an independent advisor who has been added by Boeing, who will report directly to CEO Dave Calhoun. It's all part of Boeing doing quality audit checks, if you will, bringing in outside teams that are going to be looking at the process of how they make their aircraft. As you look at Alaska, remember, it has 65 MAX 9 aircraft. Those are all grounded right now. Some of those were part of the audit being done by the FAA, that initial 40-plane audit. Finally, take a look at United. They had 25 of those planes that were also inspected. We'll find out what comes out of these initial inspections, guys. If it's widespread,

that means a greater delay in these planes being approved and back in service. If it's not, it could be a case where the FAA says, okay, we're going to be a little bit more comfortable with coming up with a solution to make sure all these planes are OK and then get them back into service. But at this point, nobody's making an estimate in terms of how long that will take. Yeah, we'll see if trust goes back up as quickly as the planes do. Philip Bo, thank you. Up next, Mike Santoli looks at a new Wall Street study that suggests there could be a tailwind for stocks building. Plus, the CEO of Invitation Homes on the outlook for housing prices and what Citi says could be, quote, the year of the renter. Stay with us. Welcome back to Overtime. Mike Santoli is back with his second dashboard looking at what investors want companies to do with their cash. Mike? Yeah, John, the answer is hang on to it,

at least by this survey, Bank of America Global Fund Manager survey. They ask this question every month. Would they prefer companies either return cash to shareholders? Almost nobody's saying that. Improve their balance sheets or increase capex. Now, improve their balance sheets is still by far the most popular response. That usually means that investors are concerned about the economy, maybe think it could be a dicey environment. They feel like companies should probably be careful, although they've gotten a little bit less concerned over the last couple of months. And you see more folks saying invest more in CapEx. All that being said, even though investors are not explicitly asking for return of capital, they may get more. Deutsche

Bank, in a totally separate study, showed that earnings have really outpaced the volume of stock buybacks over the last little while, basically the last year. You see, it was a pretty tight relationship for a while. And now earnings have taken off. Buybacks have backed off, probably because companies were bracing for some kind of an economic downturn last year. Their point is you're probably going to see a catch up move, a rush of repurchase activity, which may certainly help support stocks in general, though there's no magic to more buybacks equal higher stock prices. But it is sort of interesting that companies have dialed it back in anticipation of tougher times that Morgan seemingly has not come yet. Yeah. It also seems like it's a lever that could always be

pulled to help eke out more gains, too. So it's one to watch. All right, Mike Santoli, thank you. Citigroup says 2024 could be the year of the renter. Find out what that means for housing stocks when we're joined exclusively by the CEO of one of those housing stocks, Invitation Homes. That's coming up next. The year of the renter. That's how Citigroup sees 2024 as their research is forecasting a solid demand backdrop for single family rentals. Here to share what he's seeing in the rental and market and the housing sector overall is Dallas Tanner, CEO of Invitation Homes, which operates over 100,000 single-family homes. It's great to have you on. You know, you announced last week that you're going to be providing

professional management services to portfolio owners. What struck me about this is the fact that we know inventory is incredibly tight in the housing market in this country right now. How does that speak to broader housing market dynamics and what you're expecting in 2024? Well, the broader housing dynamics are interesting because supply is still continues to be the villain in U.S. housing. Well, there are definitely professional operators in the space, one of which we announced the transaction with Starwood this week. We can certainly leverage our expertise and the size of our platform to drive a better customer experience for those professional owners that are out there in the marketplace. I think the dynamics going into 2024

candidly feel pretty out of balance. We need more supply in the U.S. from a housing perspective. We certainly need smart operators in the space that can continue to drive both affordability and flexibility for the customer. Because at the end of the day, it's all about choice. And I think customers out there want choice. They want flexibility and they want to maximize whatever they can pay, whether it be a mortgage or for rent, to get the highest and greatest value out of that payment. What are your expectations for rent prices this year? I mean, investors and even some Fed officials have basically said and baked in expectations that we're going to see a resetting in rent prices and those are going to be under pressure.

Do you see it the same way? Well, it's certainly come down from the historic highs like in October of, say, 22. What we are seeing is that the propensity to renew with our customer is far stronger than what we'd seen in the past. And again, we haven't reported our fourth quarter, but what we saw going into summer is that there was definitely a desire to renew and to renew a pricing that was pretty favorable from our perspective. I think you will definitely see it come back to more what we would call norms going into 24 and probably 25. But the single family resident is very sticky. Our customers today are staying with us in some markets well into their fourth and fifth year. So we're doing something right

as an organization and as a company. But it's our goal to continue to make that experience so sticky that it's often much more favorable to lease than it would be to own. And then you have the factor of just cost and mortgage costs today. Our customers on average are spending about $1,000 less a month than they would be if they owned. And so those dynamics you talked about earlier, Morgan, are very real. And I think people are shopping and they're trying to make sure they get the most value out of their spend. Dallas, you mentioned the lack of supply out there as a problem, but isn't that helping you? I mean, it would seem to be part of what's taken your

average length of stay up to three years if people can't find a place to buy. Yes, supply is certainly the problem. And there's no doubt. And look, we're using our balance sheet to build more product today. We're actually competing against ourselves. We delivered just under 700 homes last year. We have over about close to 2,000 homes

in our pipeline today of new homes that we're building. And we're continually looking for these opportunities. I think what you have to balance out though is the fact that mortgage origination has been so expensive. And then that lock-in effect is also creating less flexibility and transaction volume, which ultimately has sort of an impact on what people do and the types of decisions they make, whether to stay or not. I think the biggest issue all around is affordability. It's just very expensive to move, and there aren't a lot of options right now. To that point, you sold 397 homes late last year, turned around and bought 387 in Q3. Does that mean the rents on those later homes are higher, and that's why it's good for you?

So in the resale market, for the last several years, we've actually been a net seller. To your point, John, we continually sell homes back into the marketplace, and then we're investing in building and creating new product. We see that as a continued opportunity for our business. We'll continue to look for ways to sell homes back into the end-user market while we recycle our capital really into newer construction product that we're building. I think the market itself needs more of that resale supply to come in. You know, most people haven't paid attention to this

number, but, you know, resale supply was actually up a little bit in the last quarter, somewhere around three and a half months. Most three and a half months of supply, most economists would probably tell you we need somewhere between four and a half and five months to have a normal resale supply market. Okay. Dallas Tanner of Invitation Homes, thanks for joining us. Thanks, Morgan. Appreciate you having me. And, of course, this coming in a week where we do get a lot of housing data, including housing starts and existing home sales.

Well, John Deere teaming up with Elon Musk. We've got the details on how SpaceX is helping Deere's digital farming push. Next. Deere is going to space, and it's tapped Elon Musk's SpaceX to do it. The maker of tractors and combines announcing today will use the Starlink network to provide satellite communications service to farmers that use deer machinery to, quote, fully leverage precision agriculture technologies, even in the most rural of areas. Terms of the deal undisclosed, but the partnership is an industry first.

More than a year in the making, spearheaded by Deere's chief technology officer, Jamie Heineman, who I spoke exclusively with just this afternoon. We narrowed down that list of, you know, 40 or so companies down into just a handful that we carried through what I'll call maybe a beta testing phase that happened over the last eight to 10 months. And we deployed their hardware and their Constellation capabilities into real customer applications over the last eight to 10 months and evaluated the capabilities sort of in the field, so to speak, no pun intended. And SpaceX just topped in terms of capability. Also, that capability in terms of what the customer experience was like

and what value was being created for growers in both the U.S. and Brazilian markets. The labor shortage in rural locations across the globe is problematic, and we view autonomy as a way to help resolve that. Autonomy depends upon a high degree of connectivity. And we just, we think the Starlink solution is really a bedrock solution for us to be able to build an autonomy stack as well. So this comes as Deere looks to build out a software services business that's less cyclical than simply making and selling machinery.

It wants services to be 10% of overall revenue by 2030, but the business model around today's deal, that's still yet to be determined. We'll start with that field population first and then eventually move it into the new machines that are coming out of the factory. In terms of business model, we're still in the midst of trying to determine what that looks like. That'll be the effort over the next six to eight to 12 months as we experiment with customers in this pilot phase, really to determine what the value is that they're seeing in their operations and how we can best create a business model that helps them digest both the hardware

and the connection, the data fees associated with the connection in their operations. Now for SpaceX, it's another win, as Starlink touts more than 5,000 satellites, millions of users, and a growing list of business customers and partners, including, for example, Hawaiian Airlines, Carnival, T-Mobile, and now, as of today, Deere. Over the weekend, Elon Musk at a SpaceX all-hands meeting reiterating that Starlink is, quote, supplemental to the traditional terrestrial broadband and internet service providers, and that really the value will be most realized in these types of rural areas. Now, for the full discussion with Deere's CTO, check out Manifest Space.

That episode, if it's not already online, it'll be up shortly. Nice. Morgan, I think of this potential from Deere as being like on star for tractors. I think GM's already got something like 20 million plus connected vehicles with that. Is that kind of what this is? I would say similar, maybe even the next step and next iteration. Deere has been working with space companies, GPS, for example, for 25 years plus. So this now enables even more connectivity and even harder to reach places, connected machines, but also precision agriculture, more logistics around where machines are being

kept on large farms, et cetera, as well. Maybe if you've got a flat tire or crash your tractor, somebody will show up. I know that's not what it does, but all right. All right. Anyway, stocks finishing the day lower. That's going to do it for us here at Overtime.