Closing Bell - Closing Bell Overtime: Treasury Secretary Yellen On Debt Ceiling, Banking Crisis And Recession Risk 5/8/23

Episode Date: May 8, 2023

Secretary Yellen joined in a live interview, saying she can’t rule out a recession but doesn’t think it’s the most likely path for the US economy. She also said there are no good options if the debt ceiling isn’t raised. Markets ended the session little changed. Miller Tabak’s Matt Maley and Cantor Fitzgerald’s Eric Johnston break down the market action. Earnings from PayPal, Palantir, Lucid. Unlimited CEO Bob Elliot on the latest developments in the regional banking crisis. Our Julia Boorstin previews CNBC’s Disruptor 50. 

Well, you got your scorecard on Wall Street, but winners stay late. Welcome to Closing Bell Overtime. I am John Fort. Morgan is off today, and we got a can't-miss interview coming your way in just a moment. We're going to talk to Treasury Secretary Janet Yellen about the looming debt ceiling deadline, what will happen if a deal can't be reached on time. But we begin this hour with breaking news out of the Fed and the release of the biannual financial stability report.

Leslie Picker has the details. Leslie. Hey, John. Yes, inflation and bank stress top the list of risks to the U.S. financial stability. Based on that survey that the New York Fed conducts with outside experts, the Fed published these results in its biannual financial stability report released just moments ago. Inflation has topped the list since the fall of 2021, but following the bank failures in March, a large number of respondents highlighted the risk that more banks would come under stress. Many of them also mentioned the vulnerabilities in real estate markets with CRE exposures triggering further concerns. The Fed says in the report that CRE valuations remain elevated

and that a correction could be, quote, sizable. The report saying that the Fed and FDIC's, quote, decisive actions following the March bank failures stabilized markets and deposit flows, preventing broader spillovers in the banking system. However, the Fed notes that some banks experience deposit outflows, which continue to experience stress and may weigh on credit conditions going forward. This could result in a slowdown in economic activity. The Fed noted that the March events worsened Treasury market liquidity,

although many of those dissipated by early April. And the Fed says funding strains were noteworthy for some banks, but overall funding risks across the system were low, reiterating that poor risk management undermined some banks as the broader banking system remained, quote, sound and resilient. John. Leslie, tell me if I'm thinking of this wrong, but this seems like a bit of a home inspection report on the economy. And, you know, if there are maybe not some obvious, you know, red light issues, but some some structural challenges that might need to be addressed. Can we view that as we get ready to hear from the Treasury secretary as some things that could become bigger problems if something like a debt ceiling impasse stretches longer than a lot of people hope.

Absolutely, John. You know, the point of this financial stability report is essentially just taking a look at all the various aspects of the financial system and how they could weigh on the economy. Obviously, there's been a huge event since the last one of these was released back in November. And that, of course, is the banking crisis that we continue to watch very closely, even to this day. And so the result of this, basically, the Fed saying that they've ring-fenced the problem, you know, based on their decisive and quick actions. However, that's the Fed's point of view. When they survey those 25 market participants who are not affiliated with the Fed, they seem to think that the banking crisis is

number two in terms of their concerns related to the economy. So inflation, bank crisis, debt ceiling, I do not believe topped that list. The debt limit was on there, but it was number six in terms of their biggest concern here. So government, geopolitics, inflation, and then, of course, that banking crisis is the biggest concerns, the biggest potential risks in the next 12 to 18 months, at least according to those outside experts surveyed by the New York Fed. Yeah, we don't know what they thought the X date was when they gave those responses either. Leslie Picker, thank you. Let's bring in our panel now. Joining us now is Eric Johnston, Kendra Fitzgerald, head of equity derivatives and cross asset, and Matt Maley,

Miller Tabak, chief market strategist. Guys, welcome. Neither one of you super bullish in this environment. But Matt, let me start with you. What do you see as the main challenges for this market going forward that doesn't really seem to be digesting the potential bad news heading into the back half of the year? Well, something has changed in the last six weeks. I mean, everybody was already worried about a recession. And of course, every time we've had a recession in the last 70 years, earnings have gone down. That's not good for an expensive market. But I mean, we can look at forward-looking numbers and we look at some of the backward-looking numbers and see if we see a trend there. But the backward-looking numbers, when something significantly changes, you kind of have to throw them out. I mean, when the pandemic was coming on,

you cared about this is going to slow down the economy. When the Fed decided they were going to tighten and they were going to do QT instead of QE, that was a significant change. You had to look forward. Now we got a credit contraction about to hit us and we're already seeing, obviously, signs of that and more concerns about it. That's going to slow the economy. That's going to cause more problems. Now, Eric, I know that you more concerns about it. That's going to slow the economy. That's going to cause more problems. Now, Eric, I know that you have been negative on this market for a long time, and it hasn't gone down as you might have expected, given the challenges that we now face with banking. And we're about to hear from the Treasury Secretary.

What's top of mind for you? So the fundamental outlook is quite negative. But one of the things that has offset that so far has been the flow of money. And it's been both monetary and fiscal. So if you look at our budget deficit, and this is very topical for Treasury Secretary Yellen, as you say, our current budget deficit is looking like it's going to be about $2 trillion. And when you think about a budget deficit, that is essentially a stimulus. We're spending $2 trillion more than we are taking in, and that's going to the private sector. So that has helped

to hold the economy up, and you have more money chasing the same number of assets, and that inflates valuations. Now, at the same time, you've had the global monetary flows, which despite the ECB and the Fed both undergoing QT right now, the balance sheets have actually expanded by about a trillion dollars since the October lows. And that trillion dollars of flows, which has been both from the Fed expanding their balance sheet and also from the Treasury pulling money from the Fed, has been highly stimulative and very positive for risk assets and has offset the very negative fundamental outlook. All right. Well, Eric, Matt, hold tight right there. It has been just over three weeks or it's

going to be three. We're three weeks away, I should say, from June 1st. That is the deadline that Treasury Secretary Janet Yellen has set for a potential breach of the debt limit. And as that deadline looms, President Joe Biden is going to be meeting with lawmakers tomorrow at 4 p.m. Eastern, right around this time, to discuss ways to avoid a default. Joining us now, Treasury Secretary Janet Yellen, along with CNBC's Sarah Eisen. Sarah, take it away. Thank you so much, John Ford. And thank you, Secretary Yellen, for making time to talk to us today.

Good to see you. Thank you. My pleasure. Thanks for having me. So you've been warning about this date, June 1st, that we need to raise the debt ceiling or else it could be a disaster, a financial catastrophe. Can you just walk us through what that looks like if it doesn't get done? Because so far, there's no deal on the table. So our projection is that in early June

and possibly even as early as June 1st, the Treasury will run out of cash and extraordinary measures that we're using to pay our bills while staying below the debt ceiling. And so, something we'll have to give, we just will not have. If Congress doesn't raise the debt ceiling, we just will not have enough money at that time to be able to pay all of the bills the government owes. And this would be really the first time since 1789 that such a thing would have occurred. And it's really essential that Congress raise the debt ceiling so that we're not in a position of defaulting on our bills. That's something that could produce financial chaos, would drastically reduce the amount

of spending, would mean that Social Security recipients and veterans and people counting on money from the government that they're owed, contractors, we just wouldn't have enough money to pay the bills. And I think it's widely agreed that this would be a huge hit to the economy and really an economic catastrophe. Just to game that out further, so where do bondholders fit in, in terms of the prioritization of who gets paid in a technical default? Do they get prioritized, or is it just about paying the bills as soon as the money comes in? Well, you know, I would say that if Congress doesn't raise the debt ceiling, the president will have

to make some decisions about what to do with the resources that we do have. And there are a variety of different options. But there are no good options. Every option is a bad option. And I really don't want to get into discussing them and ranking them, because as every Treasury secretary has known, the only option that really leaves our economy in good shape is, and our financial system, is raising the debt ceiling and making clear that Congress stands behind the basic principle that America pays its bills, we're not a deadbeat country.

And if that's compromised, even in the run-up to it, if it looks like we're going to go up against the ceiling and may not get it done, that will have tremendously adverse effects on financial markets and the economy. So there just is no good option other than raising the debt ceiling. AMY GOODMAN. I know you've been having nonstop conversations about this behind the scenes. Secretary Yellen reports that you've been talking to business leaders, CEOs about this. I'm sure you're talking to members on both sides on the Hill.

What's your feeling? We're going into this big meeting between McCarthy and the president tomorrow, three-and-a-half weeks to go. Do you think there will be a deal done, or are you pessimistic? It sounds like you're worried. REP. NANCY PELOSI, Well, clearly, there's a very big gap between where the president is and where the Republicans are. The president set out a detailed budget. In that budget, he invests in America. He cuts wasteful and inefficient spending and lowers deficits over 10 years by $3 trillion. But his—and so he and I regard it as a fiscally responsible proposal. The Republicans

have very different ideas. They want to focus on cutting spending, and the proposals that they've set out would entail draconian cuts and really end the policies we've put in place to invest in our economy and clean energy. So they're far apart. But look, we need to have discussions and compromise over fiscal policy, spending totals and what spending goes for. That's a normal budget process, and the president hopes to establish a process for discussing and compromising on those issues.

But he's not willing to do it with a gun to not only his head, more importantly, it's a gun to the head of the American people and the American economy, because a a gun to the head of the American people in the American economy, because a failure to raise the debt ceiling is really saying if the president and the Democrats don't agree to these draconian cuts, we're going to do something to bring enormous harm to American households that rely on the government and need to have jobs. So Congress needs to raise the debt ceiling, and we also need to have a negotiation over spending. Right. They want to do that together, and you do not. So clearly there's a rift. We'll await any news.

Tomorrow, as you know, you mentioned the world is watching Secretary Yellen. There's been a lot of, I would say, politicization right now of the dollar and the fact that countries are making moves, countries like China and Russia, to use the dollar less and use, for instance, China's currency more in world trade. I know you have said that the dollar's reserve status is not at risk, but I do wonder if we make a mistake here on the debt ceiling, how that impacts the dollar's reserve status and the trajectory for that. Well, if we were to compromise the credit rating of the United States and even worse, to default on the debt, I think that would have an adverse impact on the dollar's use as a reserve currency. The dollar is regarded in Treasury securities as the bedrock safe asset in the entire global financial system.

It's trusted and it is the ultimate safe asset. And a failure to raise the debt ceiling, impairing the U.S. credit rating, would put that at risk. So that is a real concern. I want to also ask you about regional banks, because the drama has not completely died down, as you know. And I'm wondering how you assess the level of stress right now in the banking system. Well, we continue to see some downward pressure on the stock prices of some regional and community banks. Their earnings are under some pressure. And I think that's part of the reason. But, you know, I would say that we had a couple of bank failures, banks that had rather unique characteristics of enormous reliance on uninsured deposits and very substantial mark-to-market hits from higher interest rates that lowered the value of their assets. That situation threatened contagion. We intervened forcefully, I believe, both to reassure

deposit holders that their assets in banks across America are safe and to improve liquidity to banks. And the banks now have stable deposits. We're not seeing substantial deposit runoff. So there are some pressures on stock prices. But a banking system is well capitalized. It has assets. It has access to liquidity. And regulators stand ready to use the same tools we have in the past if there are further pressures that arise that could create contagion. You know, the regional banking and community banking system is very important in the United States. Regional and community banks add to competition and create opportunities for lending to consumers and to businesses that their needs are less well serviced by America's largest banks. So the diversity we have in our banking systems are real strength. But there is this nagging question, Secretary Yellen, about

whether all uninsured deposits across the U.S. banking system are indeed safe. I know there's been a somewhat implicit guarantee by you and by the actions we've seen. But are you working with Congress, pressing Congress to expand insurance on uninsured depositors? Because we still don't really have a good, clear answer here. So the FDIC recently issued a report suggesting pros and cons and alternatives. We're reviewing that. And we would stand ready to work with Congress to see if changes need to be made. But for the moment, we do have tools, other tools that we're using and can use again if we think that the troubles of any bank are creating a risk of contagion. Depositors need to feel comfortable that their

deposits in America's banks are safe and that's something we will use our tools to ensure. And I believe that there is adequate capital and liquidity in America's banking system for Americans to realistically have that confidence. You mentioned some of the stabilizing fundamentals, and yet the stock prices, as you say, continue to be under pressure. Saw that dramatically last week. And now there's blame on the short sellers. Would you support a temporary ban on short selling of banks? Well, this is a matter that's up to the SEC. And this is something that has rarely been used. And when it has been used, I believe it was used in 2008. It's not clear that

it made things better. It may have made things worse. But market manipulation, if it were being found that there's market manipulation, that's something the SEC certainly could take action against. But short selling more broadly, the bar is pretty high to put controls on that. Yeah, it sounds like you're not there yet. What about the impact on the economy of all this? We've all been on watch for credit tightening. Just got a report this afternoon from the Fed that, indeed, credit standards are tightening. We expected that. And more interestingly, a big drop off in loan demand from banks. So I'm curious how you're assessing the economic impact of all this. Either way, it's not great for the outlook. Well, the Fed's been tightening monetary policy

and trying to tighten financial conditions. And the sluice that came out this afternoon has been showing for some time that there has been an ongoing tightening of lending conditions and that is part of the process by which monetary policy works. But I'm not going to comment on Fed policy, but clearly this is something Chair Powell has discussed. The Fed is aware that tightening of credit conditions is something that will tend to slow the economy somewhat. And I believe they are taking this into account in deciding on appropriate policy. So, you know, as I read it, the economy, look at the labor market report last Friday, remains really solid. In some ways, pressures are easing slightly in the labor market, but not through a process of high layoffs or rising unemployment. We have more people entering the labor force, the highest prime age worker labor force participation rate in many years. And job openings have diminished somewhat.

So some of the heat's coming out of the labor market, but in the context of a really strong, solid labor market that's doing very well. And you have pushed back against the recession narrative over the last year and a half and have been right. You know, it's like waiting for Godot on this recession. At the same time, there is a worry that we might have a perfect storm coming together toward the end of the year of the stimulus finally wearing off, all the lagged impact of Fed tightening and, of course, bank tightening coming at the same time as a result of these bank failures. So can we really avoid a recession in this economy? Well, I've said and I'll say again, I believe there is a path to bring inflation down in the context of a continued strong labor market.

I still think that path is there. But of course there are risks. The things you cited are all risks and can't rule out a recession, but I don't think that's the most likely path. And I'm hoping that we will be on the good path to a so-called soft landing, lower inflation, continued strength in the labor market. And I think that's possible. Treasury Secretary Janet Yellen, thank you very much for the time today. Thank you.

We appreciate it. Thanks, Sarah. We'll send it back to you, John. Soft landing remains her base case forecast, even with all those risks out there. Yeah. Wow. Great interview. And thank you, Sarah Eisen, covering lending conditions, the state of the conversation around insuring deposits, the risk to the dollar as global reserve currency,

and, of course, this debt ceiling battle in Washington. Let's bring back in Eric Johnson from Kennard Fitzgerald and Matt Maley from Miller Tabak. The Treasury Secretary, Matt, described this as a gun to the head of the American people and the American economy. That's how she described Republican insistence on making spending cuts a part of the debt ceiling process. How do you position yourself as an investor if it doesn't look like this is going to get worked out in time? Well, you know, it's it's and I'd love to say that our Congress isn't stupid enough to

to let it let this default. But, you know, they've done some things in the past that make you shake your head. So if they don't do it, it's a big problem because, like I said, we're already seeing a slowing economy before the banking crisis or regional banking crisis hit. And, you know, it doesn't have to be a repeat of 2008. And people say, Jesus, not a repeat of 2008. So don't really worry. Well, that's what they said at the beginning of 2022 when the tech stocks were saying they weren't as expensive as they were at the top of the tech bubble. Doesn't matter. They were still very expensive. They still went down a lot. And right now the banking sector is going to pull in their horns on lending. That's

still going to hurt the economy. If Congress doesn't act, they're just going to be throwing flame on a fire that's already been lit. Okay, so Eric, to you, what do you do here as an investor? Do you just plug your ears, close your eyes, and wait for us to get through the summer on this? Or, especially if you've got assets that you might need to access before fall comes, do you strategically change some positions? Are there some tactical moves that investors should make? Well, I think one of the things about this debt ceiling issue is that, you know, the markets are pricing in a very, very high likelihood of it getting done. But what's interesting is that once the debt ceiling does get raised, that's actually going to cause a flood of Treasury bill and Treasury bond issuance from the Treasury, which is actually going to be pulling money out of the

system and could put upward pressure on bond yields. So I think if we get the good news around the debt ceiling being raised, I think you'll see an initial positive pop in stocks on that. But I think that will be a sellable event for a whole host of reasons. But I think one of them is that there will be a flood of issuance that will come to the market, which will actually pull money out of the system. And of course, there's the possibility that they figure out a way to kick the can down the road and extend the uncertainty. Eric, Matt, thank you. While we are just getting started on overtime coming up, we're going to bring you earnings results from PayPal, Palantir, Lucid Motors and more. Overtime's back in two minutes. Welcome back to Overtime.

Let's get to today's after-hours earnings movers with our reporters. Christina Parts-Nevelis is covering PayPal. Frank Holland has the numbers from Palantir. Phil LeBeau has Lucid's results. Christina, start us off with PayPal, which is heading down about 4% after hours. Yeah, heading down. Top and bottom line beat, though, for the payment processor. Revenues came in just above $7 billion with adjusted EPS of $1.17. So that was a 7 cent beat. And like you said, the stock, though, is down about 4%. So let's go through the metrics.

A key metric that we often look at is total payment volume. That grew 12% year over year. It beat the fact set estimates, the success coming from branded checkouts, which is important given Apple Pay continues to encroach on PayPal's turf. So that's a big point. Competition that we're hoping to hear on the analyst call. And then as well, Venmo, too, and just how they're going to leverage that brand. But given the strength in e-commerce and improvement in operating margins, which was attributable to cost-cutting, PayPal is raising its full-year EPS guidance to $4.95 adjusted versus the prior 487 forecast.

Perhaps some of this sell-off, too, could be because there's no succession plan still in place for the CEO. That's been a major overhang with the company. The CEO is actually going to be calling me within the next few minutes or so, so we can possibly chat about that. But in regards to the results, it was a beat, and they increased their guidance for their EPS full year. Christina, if I'm reading this right, it does look like the EPS guide for Q2, $1.15 to $1.17. That's the adjusted EPS guide. The midpoint is $1.16, which is slightly less than the $1.17 the street was looking for.

So maybe, you know, backloading a little bit, you know, the raise there. Do you really think a two cent difference possibly? Like, because you're giving me a range of, it's $1.15 to $1.17. That was the range and the estimate was $1.17. So there's a two cent difference there to your point. Could be that reason. It's a very small difference, but yes. It's a small difference. It's an initial move. Of course, there is a lot of after hours action to go. Christina, thank you. Palantir earnings, meanwhile, also out. Frank Holland, how do they look? Hey there, John. Palantir shares moving 28 percent higher after a beat on revenue and a beat on EPS. Palantir turned profitable last quarter in somewhat of a surprise surprise now guiding profitability for each quarter this

fiscal year. So Palantir also raised guidance for the full year in large part to its strong first quarter performance. Top end of that forecast above estimates. However, revenue guidance for the current quarter is below estimates. I also spoke with CEO Alex Karp, who says there's really been an explosion in commercial demand for Palantir's AI platform, especially for insurance, manufacturing, and supply chain. We had a long conversation. He told me in part, our product allows you to wield large language models, meaning the results you get are reliable.

On the commercial side, you can change the margins of your business very quickly. You can launch our software with a verbal or written prompt. You don't need to be technical. So Karp also said he's aware of the potential dangers of AI. I really spoke at length about this. Here's what he said in part. There's real reason for concern about this AI journey. Our business is built on the moral imperative that comes from government regulation and human oversight. He really emphasized the human

oversight part of all that. So again, shares of Palantir, 28% higher after a beat on revenue and a beat on EPS. John, back over to you. Yeah, Frank, thanks. As you mentioned, 27.5, 28% higher, at least initially, reaching those highs so far of the year, getting really close after hours. Meanwhile, EV maker Lucid's results also out. Phil LeBeau has the numbers. Phil. John, take a look at shares of Lucid under pressure after the company missed on both the top and the bottom line, reporting a wider than expected loss of 43 cents a share. The street was expecting a loss of 41 cents with revenue coming in at $149 million, well below the expectation on the street of $210 million in revenue.

They had a drop in deliveries and production from the first quarter compared to the fourth quarter. Production, 2,314 vehicles in Q1 versus 3,493 in Q4. Deliveries, just over 1,400 last quarter versus just over 1,900 in the fourth quarter. I had a chance to talk with CEO Peter Rawlinson just a few minutes ago, and I said, what happened? He said, look, we had slower deliveries in January and we had a lack of the EV tax credit. Remember, once that went into effect, Lucid's could no longer have a $7,500 tax credit applied. He said those two factors hurt their deliveries in the first quarter. Production guidance, slight change here. They are still saying that on the low end, they expected to build at least 10,000 vehicles, but they're not saying what they said

in the fourth quarter, which was production of 10,000 to 14,000 vehicles, simply saying to build at least 10,000 this year. Liquidity stands at $4.1 billion, down from 4.9 at the end of Q4. And John, they say they have enough cash, enough liquidity to make it into the second quarter of next year. But there you see shares now down, what, a decent percentage, more than 6% following a miss on the top and the bottom line. John, back to you. Phil, the second quarter of next year is not that far away. I mean, that's about 12 months away. And they seem to have a demand problem, correct? And they're on the luxury high end of the EV market. Any sense of whether their latest

marketing efforts, even as they try to conserve cash, are seeing success in helping them move product? You're talking about the commercials that we've seen on TV, primarily with some large sporting events. I asked them where the reservations stand. Remember, when they reported their fourth quarter results, John, they said we've got at least 28,000 vehicles reserved. People have put down money and said we want to buy a Lucid. I asked if there's a reservation total today. They said we're not giving that out anymore. So this is not one of those reports that you come away saying I've got a lot of confidence where these guys are headed.

They do say that if they need to raise more money, they will do that. And it's a capital intensive business, John. But as of right now, they say they have enough money, liquidity to make it into the second quarter of next year. Yeah. All right. Challenging environment for capital to fill the boat. Thank you. Now, let's get a CNBC News update with Contessa Brewer. Contessa. John, here's what we have now. The Sudanese army and a rival paramilitary force are in Saudi Arabia for face-to-face negotiations as fighting in Sudan continues. Both parties have agreed to discuss a humanitarian truce, but not an end to the conflict. There's been no update on the progress of the talks, which were scheduled to start Saturday. North Dakota's Republican Governor Doug Burgum signed a bill that allows public school teachers to ignore the pronouns transgender students use.

This new law requires teachers to tell a parent or legal guardian if the student identifies as transgender. Critics have said the new law violates the constitutional rights of students and teachers. And Brian Slayton resigned from the Texas House of Representatives today ahead of an expulsion vote over alleged sexual misconduct with a 19-year-old aide. It comes after a House committee unanimously recommended he be expelled on Saturday. The chair of Texas's Republican Party said Slayton's actions, quote, betrayed the trust of his constituents. John? Contessa, thank you. Now, after the break, is it courage or fear driving the market right now? Mike Santoli is going to look at the latest indications of market sentiment next. Welcome back to Overtime. CNBC senior markets commentator

Mike Santoli joins us now from the New York Stock Exchange with a look at the balance between courage and fear in the market. Mike. Hey, John. Yeah, Luthor Group has maintained this index for some time. They call it the Investor Courage Fear Index, and it's a real money index, which means that the courage indicators are actually indexes, like cyclical stocks, emerging markets, commodities, things like that. The fear asset classes are things like low volatility stocks, treasury bonds and gold in the U.S. dollar, things like that. So this is the ratio between the two. So when it's going up, investors are seen to be more brave and risk seeking. When it's going down, they're more

fearful and running away from risk. What I find interesting about it, it goes back 35 years, is this is an unusually kind of tight range within which to gyrate like this, as it's been doing for the past two or three years. Typically, you have these crescendos up and down, and maybe it's analogous to here in the mid-90s. But what I find fascinating about it is it really does reflect the perceived push-pull in the market between, you know, relatively strong economic activity, consumers okay, really strong job market. On the other hand, most aggressive Fed we had in a long time, what seemed like peak earnings that maybe are starting to flatten out after a decline. So it shows you that we're somewhat stuck. I think there's also a possibility that when you consider Treasury bonds in the fear part of this index, that would mean that when Treasury bonds are going up in price and down in yield,

it's considered to be kind of a risk-averse activity, whereas last year people were selling Treasuries like mad, but it's not because they were confident. It's because the Fed was jacking interest rates up so much. So maybe there's some noise in this indicator, but it shows you sort of the stalemate action that we've had for quite a while, John. Mike, let me ask you, the numbers are really small for me on the screen, but a little past, like if you walk a little past the midpoint, there's this one point that I see where you're dipping into fear and then it sort of bounces along there for a little while. You mean here?

Yeah, maybe, yeah, right after that mark. Yes, there. What is that? Because it seems a little unusual that that's happened. That's the 2010s. So that's after the global financial crisis. That was the real panic. And then after that, if you remember, there really was kind of this back and forth. People thought we were going to go into a double-dip recession. The Fed the real panic. And then after that, if you remember, there really was kind of

this back and forth. People thought we were going to go into a double dip recession. The Fed was very easy, but growth was really disappointing. And you had this huge, long overhang effect from the global financial crisis. But even there, I would argue, it's a much wider range that we sat in than we've been in more recently. We had those 2011 panics around the debt ceiling. So there was a lot more going on, at least within the range, even though the economy was kind of just muddling along. So you're telling me, you know, history rhymes. It rhymes. And the trick is to figure out exactly where the notes are different.

Hopefully we're not the butt of the limerick this time around. Mike, thanks. Treasury Secretary Janet Yellen telling us moments ago that the government is ready to use its tools if it feels pressure on the banks could lead to contagion. We're going to discuss with Unlimited Funds CEO Bob Elliott when overtime comes right back. Our banking system is well capitalized. It has assets. It has access to liquidity. And regulators stand ready to use the same tools we have in the past if there are further pressures that arise that could create contagion. That was Treasury Secretary Janet Yellen speaking earlier with our Sarah Eisen right here on Closing Bell Overtime. And joining us now, Unlimited Funds CEO and CIO Bob Elliott. Bob, the banks might have the money, but they want to lend out less

of it, at least according to this senior loan officer opinion survey results we got today. What does all that mean for the market? Well, I think the senior loan officer survey mostly confirmed the picture that actually existed even ahead of SVB, which is the combination of rising interest rates has slowed the demand for credit and caused banks to pull back on their credit extension. I think the big question with the senior loan officer survey was whether there was going to be a more acute tightening of credit standards than people expected. And if anything, it surprised to the upside. The change on credit standards from the first quarter to the second quarter certainly was pretty modest, all things considered. So, I mean, we're caught, as Mike Santoli was just telling us, as a market in between fear and greed or fear and courage, I guess we call it now.

Where would you lean now based on where the valuations are in the market, the risks that you see ahead as an investor? Should you lean into the caution of fear or, you know, the courage? The push-pull, I think, captures it well, because you basically have two big offsetting forces in the economy right now, with the macro economy being quite strong. You know, unemployment rate continues to fall. It's at secular lows. And at the same time, some of these concerns or risks from the regional banking sector. I think when you add it all up, it certainly looks like the economy is able to weather some of these challenges in the regional banking system and that it keeps plugging along despite the fact that certain banks are running in and have run into some trouble. So my guess is the better bet is on a continued strength and persistence

and durability of the macroeconomy. And that shows up in different places across assets. You'd probably, you know, the bond market is really very much pricing in a relatively rapid deceleration of inflation and growth. And that's probably the place that that looks most inconsistent with the courage that one could expect from the overall macro economy. At the same time, Bob, if you had to write a screenplay scenario for a debt default and you'd probably have to write it yourself because the writers are on strike right now. It seems like this is the kind of situation where you've got McCarthy, you've got Biden. Both of their jobs are at stake, arguably, if they get this wrong and each thinks they can blame the other party at the same time. Why is the market not concerned about the debt ceiling right now when, you know, Yellen continues to tell us the X date is about three weeks away.

Well, there's still there's certainly some concern amongst money fund managers or money managers that are concerned about holding T-bills that are beyond the prospective X date. Concerned that there might be some risk in holding those securities. Well, yeah, but I mean, nobody is going to feel moved on Congress to action because of money fund managers concerns, right? Yeah, I think the basic idea that most people have is we've been down this path before a few times, and there's a lot of a lot of people are, you know, beat their chests and say, I want this, I want that. And in the end, we all know that the government has to raise the debt ceiling. And so the question is, you know, are they going to are they going to not do what they're they're meant to do? What their responsibility is, is to get that legislation passed. And I think most people are betting that at some point they will be able to do that and they'll get it done before there's a meaningful

hit on the economy. Yeah, let's hope they do it more quickly than they elected a speaker in the first place, because they had to do that, too, but didn't exactly do it on deadline. So we've got CPI, the latest inflation reading coming later this week. Do you think that matters for the Fed's likelihood of being in a pause right now? Yeah, I think from the Fed's perspective, we've actually gotten a really good sense as to what their reaction function is over the course of the last couple of meetings. While there's been stress in the banking system, they've turned their attention to the overall macroeconomic strength and continue to tighten interest rates

despite those banking stresses. And so I think the Fed is very data-driven at this point. They're really looking, they're squinting at each one of these incremental pieces of information. And I have to tell you, the combination of an employment report that was relatively strong and a secularly low and falling unemployment rate with a CPI report, which will probably come in a bit hot relative to what it has been the last couple of months as oil prices flow through, the rise in oil prices flow through. I think it's going to tilt them towards considering that extra 25 as they come to the meeting in six weeks or so. Well, people on the market don't want to hear that.

Bob Elliott, thank you. Thanks for having me. Up next, a check on all the after-hours earnings movers that need to be on your radar. We'll be right back. Welcome back to Overtime. Let's get you caught up on today's after-hours movers. Palantir shares are the big winner, surging more than 20% after earnings and revenue topped

estimates. The company reporting its second straight quarter of positive net income, saying it expects to remain profitable each quarter through the end of the year. PayPal also beating on the top and bottom lines, saying it sees current quarter revenues up 6.5 to 7 percent versus estimates of a 6.7 percent rise. But the midpoint of the EPS guide slightly below consensus. The stock so far initially down. Now, let's see, about three and a half, four percent. Then Lucid missing on revenues and reporting a loss of 43 cents per share. First quarter deliveries fell versus Q4 of last year. Western Digital beating on both lines. The guidance was light and Skyworks was in line on EPS and revenue.

You can see Western Digital, the other one in the green in that group, the others in the red. Up next, we will discuss whether VC-backed disruptors will be able to rebound from a dismal showing last year ahead of tomorrow's reveal of CNBC's annual Disruptor 50 list. The Disruptor 50, CNBC's annual list of fast-growing innovative startups, is back for its 11th year, which means it was born right around the time of another debt ceiling crisis. Julia Borsten is unveiling the newest list tomorrow morning on Squawk Box and joins us here now for a look at what's next for VC-backed disruptors after a very challenging year. Julia. A challenging year for the tech sector, John, and Disruptor 50

graduates. Those that have gone public did have a muted year after years of surging stock growth, but it is worth pointing out that they have outperformed. Since last year's Disruptor 50 list was revealed, the Disruptor 50 index of graduates is up about 12 percent, outperforming the 5 percent gains of the Nasdaq. Now, year to date, as the tech sector has rebounded the Disruptor 50 index, it's up about 38%, more than 20 percentage points more than the Nasdaq. But the story for still private disruptors is tougher. There hasn't been a single IPO from a Disruptor 50 company in well over a year. And in the first quarter of this year, the number of IPOs globally fell 8% year over year, according to Ernst & Young this year, the number of IPOs globally fell 8% year

over year, according to Ernst & Young. Now, it's harder than ever to secure funding for private companies. The number of early stage deals fell by nearly half in the first quarter of the year, and the number of deals and total amount invested declined sequentially every single quarter of last year, while total U.S. venture funding plunged 55 percent to $37 billion in the first quarter, according to PitchBook. But there is plenty of optimism around key areas such as artificial intelligence. PitchBook projects that venture investment in generative AI companies this year will be several times last year's $4.5 billion invested. We'll have much more on the key areas and companies to watch tomorrow morning on Squawk Box when we unveil the 11th annual Disruptor 50 list.

John? All right, we'll see if that IPO drought ends. A whole class of disruptors redshirted. So we'll see if that turns around. Julia, thank you. Now, it has been a big week, and it's going to be another big week for artificial intelligence news here on Overtime. IBM has got its Think event in Orlando. That starts tomorrow.

Google has its Google I.O. event in San Francisco Wednesday. And we'll bring you can't miss insights from both. Today, I spoke with OpenTex CEO Mark Barenche about the impact AI and large language models are having right now on enterprise software. OpenTex reported earnings Thursday that beat expectations, raised guidance, sending a stop up 13% on Friday. I asked for an example of how companies are using the technology to help the bottom line. We're working with a large manufacturing company that has over millions of contracts going back over a decade. They're on our content management platform and they're taking all that legal tech data, contracts, unstructured data, making sure it's all digitized, putting it into a large language model and applying algorithms to look for risk in those contracts. All right. Exclusively here on Overtime tomorrow, IBM CEO Arvind Krishna. And that's not the only big name tomorrow on Overtime. The CEO of Global Foundries is going to break down the chipmaker's earnings in an exclusive interview here as well. You don't want to miss it. And

meanwhile, that's going to do it for overtime. See you with all of that news and those interviews tomorrow. Fast Money begins right now.