Closing Bell - Closing Bell Overtime: What Altman’s Return Means for OpenAI Investors & Employees; Gas Prices Hover Near Nov. 2020 Levels—And Could Keep Falling; One (More) Year of Bob Iger 11/22/23

Episode Date: November 22, 2023

Sam Altman is back in charge at OpenAI, this time with a new board that include Bret Taylor as chair. Wedbush’s Dan Ives and TechCrunch’s Connie Loizos break down what it means for employees, investors and the AI ecosystem. Plus, averages on pace for their fourth straight weekly gains as investors head into Thanksgiving. G Squared Private Wealth’s Victoria Greene and John Hancock Investment Management Co-CIO Matthew Mishkin break down the market action, including stock drops for Nvidia and Deere. Meanwhile oil slipped after OPEC+ postponed a key meeting; OPIS co-founder Tom Kloza on what it means for the US and prices at the pump. Former Kansas City Fed President Thomas Hoenig on jobless claims and the Treasury curve; CFRA’s Ken Leon on what Disney shareholders should think after one year after Bob Iger’s return. 

And we'll see Santoli again in just a bit. That's the scorecard on Wall Street. Winners stay late. Welcome to Closing Bell Overtime. I'm John Fort with Morgan Brennan. Well, ahead this hour, former Kansas City Fed President Thomas Honig joins us to talk about the two-month low for 10-year Treasury yields and how today's jobless claims print informs the Fed's next decision. Plus, another twist in the open AI saga. Sam Altman is back as CEO there with major changes to the board. We'll talk about what it all means for Microsoft shareholders and Silicon Valley VCs. Investors, meanwhile, have a lot to be thankful for with stocks gobbling more November gains ahead of the holiday.

Communication services, the leading S&P sector today, meta hitting its highest level since January 2022. Energy lagging as oil pulls back after OPEC delayed its next meeting. Joining us now is Victoria Green of G Squared Private Wealth and Matthew Miskin of John Hancock Investment Management. Guys, happy early Thanksgiving. Victoria, can we go higher? Must we go lower from here? Awfully close to 4,600. I think we're going to kind of rally around this area. 4,600, I see that as a ceiling. I don't see us pushing up to the 4,800s or new all-time highs before the end of the year. I think the CESA rally came a little bit early to us. I just see

yield not being able to back up another 50 basis points to support a larger year-end rally. So moderately positive. I see a lot more turn, though, up and down in volatility as we head into year-end because it was just kind of a mixed week. Today even was a mixed trading day. You know, I had a little bit of negative shock on the unemployment reports. And then suddenly everybody remembered it's just rally all the time. And we got a nice little little rally into market close, basically not on good data, not on good earnings, just because the market just sees its risk on. OK, so, Matthew, do investors just sit on their hands? Then now, I mean, it's going to be time for portfolio rebalancing before long? Yeah, we're looking to move into the higher quality parts

of the market. So, we're really screening on things like great balance sheets, high return on equity, good profit margins. That is placing us more into the technology space. We'd also consider healthcare going into next year. It's been a sector that's left behind, really struggled profit margins. That is placing us more into the technology space. We'd also consider health care going into next year. It's been a sector that's left behind, really struggled earnings-wise based on high comps. But we think that could be a comeback story into 2024. But we would shift portfolios more into quality, reduce smaller cap exposure after this nice little pop, and rotate into higher quality mid and large cap stocks. Victoria, is the soft landing narrative still in place here? I ask that with oil down,

yields down, jobless claims today, the latest data that's, we'll call it firm. Can we claim that yet? Yeah. So I think that today is just a little bit more of the narrative on the Fed. I feel like the Fed and yields have moved so much of this market recently. I do fear that the Fed is going to come out hawkish over the next couple of months to try to roll back this 100 basis points cuts priced in. Obviously, during the meeting minutes, they didn't talk about cuts. And so you have to look at this and think the Fed, the most dangerous periods of this market is where the Fed is trying to do one thing, but expectations are another. And so when those two things do not align, Fed action versus expectations, that's when we get those huge market dislocations. So I feel like the Fed over the next few months is just going to pound the table if we don't want to cut rates, we don't want to cut rates, we want to be higher for longer. And that may see yields

back up a little bit more as people brace in, is 100 basis points the right way that 2024 is going to go? I don't think they're going to hike again. I think they lose all credibility if they do. But I think they're going to try to hold firm for as long as possible. And that might be a little uncomfortable with some of the rhetoric to get us there. Matthew, you would argue that we've seen a pull forward of earnings growth from Q4 to Q3. I mean, look no further than Deere results this morning with that stock finishing lower as it as it released a forecast that that was below street expectations, despite beating on the top and bottom lines for last quarter.

When you talk about a pull forward, just how do we know just how acute that's been? And how does that set us up from an earnings perspective going into not only the end of the year, but 2024? Yeah, I think as Victoria highlighted, you know, Santa came a bit early. And I think that is kind of the story. I know for us personally, in our household, we've done a lot of the shopping beforehand. Black Friday was a lot of the sales, a lot of the incentives to go shopping have actually been brought forward. I think we bought, we got some of that in Q3. Analysts were way underneath where earnings ended up coming in. So earnings growth came in at about 4% in Q3. It's been an amazing quarter, only three, three sectors are negative on earnings, the rest are positive. I mean, some are blowing out earnings by over 10%. The thing is, though, is that the analyst community, when they look at

these results, they're saying, that's great, but it's going to be hard for you to do that into Q4. And they've basically chopped down Q4 earnings estimates from 8% to 2%. So while we've got a great Q3, what they're saying is it's going to be hard to keep this momentum into the next quarter. Slow growth is okay, actually, for this market. We want not blowout growth. I think that's actually a decent thing. But if the pendulum shifts a little bit too far the other way from tighter monetary policy, some cracks in the labor market, we could be into weaker earnings into 2024. To us, again, focusing on that quality factor is key to mitigate the margin pressure we're likely to see into next year. So, Victoria, our attention now turns to consumers consuming first turkey,

then other stuff with credit card swipes. What happens if there isn't much when it comes to legs to consumer spending? The people need lots of discounting to get out there and spend throughout the season beyond this first holiday big sales week. Does that affect the markets at all? It does. And if you listen to the last two weeks, we've had so much retail data. And you have seen almost everybody warn about concerns on consumer weaknesses,

from Lowe's and Home Depot saying home improvement spending is going down, even Nordstrom warning. And that's what got Walmart in trouble. Walmart had a great Q3. It was the warning on, hey, our consumer is under pressure. But Nordstrom pointing out the 100, hey, our consumer is under pressure. But Nordstrom pointing out the 100,000 plus consumer also slowing down a little bit means it's not just the lower end of the market that's really struggling. What I look for then is, yes, let's look for value. I've always loved Costco in this sector because I think it's a strong value

for shoppers there. Walmart is one we still like and we like with the dip buying. And then getting away from kind of some of the more high price, Ross came in and they did quite well and they're predicting a pretty decent Q4. So looking for value in the marketplace for shoppers, like you said, maybe looking for a little bit more discounting. Do you have to warn, we don't have the inventory problem we had coming into last year. So I think you're going to see less discounting to move inventory and more to just try to keep sales in line. And so I don't think you're going to see some of those discounts we had when that inventory backlog was a huge problem for retailers earlier this year. Okay. Victoria and Matthew, thank you for joining us and have a happy Thanksgiving with all the major averages finishing the day higher, despite the fact that

NVIDIA actually finished the day lower. Something else that finished lower, energy. That sector lagging today after oil pulled back sharply on news that OPEC is delaying a key meeting that was supposed to take place this weekend, though crude settled well off its lows. Brian Sullivan. What's my name? Sullivan. Never low energy, though. You're going to break it down.

That's how we pronounce it about 6 p.m. on Thanksgiving night. Brian Sullivan is here. It's good to have you here on set. There's no one else working. You've got OPEC Plus kicking the can a couple of days in terms of this meeting, expectations around production cuts, but then you also had very bearish data in terms of inventory builds here in the U.S. too today. I got to correct you. Oil comes in barrels, not cans. They're kicking the barrel down the road. Okay. Sorry, that's for the Sullivan's. Anyway, what more drama, John? Open AI or OPEC? At this point, I think they might have a little. It's not close. Not yet. Not yet. Wake up this morning, all booked on my flight, by the way, Friday to go to Vienna for the meetings. A lot of drama because there's three things that could

happen. And I see the way you're looking at me from the side. All right, here's three things that could happen at the meeting. Number one, they could extend their cuts. Remember, you got OPEC plus all cutting. And then you've got the Saudis and Russia doing their own unilateral cuts of 1.3 million barrels a day. So going into this meeting, which we presume will still occur next Thursday, just not Sunday. Number one, extend the cuts. Number two, extend and enhance them. In other words, make them longer and then also add more barrels to the cuts. That would be very bullish for the price of oil.

And then, and this is highly unlikely, they can't make any deals. They can't get the quotas done. Then you kind of go into a market share war where it's sort of every nation for itself. And we see the price of oil drop considerably. That is highly unlikely. Rystad Energy coming out with some great work, by the way, saying under the various scenarios, if there is no extension, sort of the most bearish scenario, price of Brent crude,

a couple bucks above what we see here, low 80s, rapid unwind, gradual unwind. But if we extend those cuts and maybe enhance them, Rystad thinks Brent crude could go back to 95, which would put us about 90 here. My sources tell me the meeting on Thursday will be virtual, not in person. Okay. Now you take that, you also, as I mentioned, you pair it with the fact that we've seen this build

in inventories here in the U.S. I mean, what are the fundamentals telling us here in terms of supply-demand dynamics? I'm glad you brought up the inventory bill because it was huge. I mean, the amount of oil that's just sitting around, that's on the market right now, is massive. And OPEC had been controlling the market for a long time. In many ways, they still do. They're about a third of global oil supplies. But let's not forget, United States of America, put that eagle on your shoulder, John, is at 13 million barrels a day. Brazil continues to surge. Brazil is kind of the quiet giant in

this story. Guiana with that Exxon Hess slash now Chevron fine. So the non-OPEC producers like the U.S., like Brazil, are coming up. And there's a lot of inventory. And we wonder if OPEC is going to be able to make these deals with all their nations. 23 OPEC plus countries get them to agree to one thing because they can't do anything under the OPEC charter unless it is unanimous. Everybody at the table, Morgan, has to want the same side. So one, is the U.S. going to fill the reserve now? Good prices. Two, what if we get... demand at the same time that these producers are trying to lower supply? Like how much limbo can they play here? And if they say, OK, we've kind of cut supply as much as we're prepared to, does that end up really being bad for the price of oil? Yes. I think limbo is appropriate because if you get the sort of toxic combo, I think the question is how low can

you go, right? And I think that's probably where the oil scenario could go. I think, listen, OPEC has done a great job, whatever you think of them, managing, getting the groups all to agree. There's 13 OPEC nations, 10 including Russia on the OPEC Plus. They've all been able to agree. They've held this together. You've got a couple of nations like Nigeria that are looking for more oil production. They want a little more revenue. So they're going to probably be able to hash this out. The question then becomes, let's say they get this little short-term family squabble done. Can they, we go back to that original graphic, enhance cuts, extend and enhance those cuts, and actually keep that floor under the price of oil.

But you asked about the SPR, the Strategic Petroleum Reserve. Obviously, it's at 40-year lows. Some people say it doesn't matter as much as it used to because we do 13 million barrels a day in America. I could see that being the case. We're not at that 68 to 72 barrel mark that the U.S. government has said we want to be at to fill it yet. But I think when you see these drops, probably wouldn't be the worst idea to throw a little, throw a couple cans in the SPR. Barrels, you said. Brian Sullivan reporting. Brian Sullivan. Hey, Brian Sullivan. Tonight's last call.

You know we're going to talk about it. Halima Croft, Bob McNally, two of the smartest voices out there. Not quite the open AI drama yet, but a little OPEC drama. That's what I like about them. They keep you on your toes. All right. Thanks for joining us. Happy Thanksgiving. You sure?

Happy Thanksgiving to you both. All right. Thanks for joining us. Happy Thanksgiving. Happy Thanksgiving to you. Happy Thanksgiving. Well, yields on the 10-year note touched their lowest level in two months today. Let's bring in senior markets commentator Mike Santoli with a snapshot of this recent rally in both bonds and stocks. Mike. Yeah, Morgan, obviously accommodating this move higher in stocks. And take a look at where we've been this year relative to the longer term trend. And yields are a big part of this story. The S&P 500 today got almost back within about 1 percent of the late July high. So we're four months in. And we also are a similar degree above the 50 day average right now as we were in June. That's when we were first kind of lifting off,

eventually trending higher into those July highs. And what happened right here? Well, yields started to fly. We got into the tougher seasonal part of the year for stocks in general. We had the third quarter downward earnings revisions and all the rest of it that happened. So we have come out of this correction pretty nicely. Short term stretched, I would say, to the upside. So getting a little bit overbought, it doesn't mean the market has to go down hard. The question is, in the next pullback, what would be just an acceptable kind of easy one and what would be worse? That's what we'll have to determine going into perhaps next week. Here you see different sectors of the market trading along with the TLT. That's long term treasury yields.

And regional banks have stuck with it. Higher bond yields, bad for regional banks. The market still believes that to be the case. We rally further in bonds. Most likely very good for bank balance sheets. However, what got liberated from the pull of yields? Well, tech and homebuilders. So obviously, secular things going on that are enabling analysts and investors to believe that earnings are going to be much stronger in the future because of tight supply, because of just earnings visibility. And so you see that, you know, bonds matter in general, but they matter more for different parts of the market

at different times. It's always a good reminder. I do want to go back, though, Mike, to the fact that we have seen we saw this voracious move higher in yields and now we're seeing this voracious move lower. I guess I'll say consolidation right now. Why? Why have they fallen? You know, it's a great question. I mean, I do think, for one thing, we got caught up a little bit in the excess supply fixation, this idea that there just were not enough buyers for it. Now, we also did get a very friendly CPI report in there as well that gave confidence that at least the inflation trend is going lower, and people felt as if there was value being built on the longer end of the yield curve. They were just afraid to step in because yields

were just rocketing higher at every at every possibility. So I do think that all those things have happened at once. The Fed also, it's pretty much done. And that's another thing that I think is solidified in market psychology. All those things together have been good so far for what? 60 basis points of downside on the 10-year note yield. Wow. Yeah. And here I was, Morgan, thinking that the KRE had recovered because it was above 44. But that chart, Mike, is a good reminder. Not so much. Mike Santoli, see you again in a bit. Microsoft notching another record high today as the drama surrounding OpenAI.

And Sam Altman appears to be paused, at least for now. We're going to talk about Altman's return, what it means for Microsoft's big investment in that company when Overtime comes right back. I'm committed to OpenAI and Sam, and that's with respect to what configuration, you know, obviously we want Sam and Greg to have a fantastic home if they're not going to be in OpenAI and all the colleagues at Microsoft. But, you know, I am exactly where I was on Friday morning. Sam Altman is back where he was Friday morning as well. That was Satya Nadella on a crazy Monday as this news continued to unfold. Sam Altman back as CEO at OpenAI, this time with a new board, one that includes Brett Taylor as chair. Larry Summers there also. So what now?

Joining us, Wedbush Equity Research Managing Director Dan Ives and TechCrunch Editor-in-Chief Connie Loizos. Great to have you both here with us. Connie, so now we're on a pause now in this drama, at least. Is OpenAI worth more because Microsoft likely has more control now or less because customers need to diversify? What's the buzz out there? I think the buzz is that it is worth more because there are sort of fewer encumbrances in place. And boy, John, I mean, this is a great, it's a great day for Microsoft. I mean, just to have this settled, Microsoft was going to win here either way, whether OpenAI went, you know, Sam and Greg

went into Microsoft or whether they went back to OpenAI. But it's a very good day for investors outside of Microsoft and its employees, because it's sort of like that movie It's a Wonderful Life, where the protagonist gets a glimpse into what life would be like if he didn't exist. I think investors and employees got a glimpse into what life would be like at OpenAI if Sam left. And it meant that their equity would probably have been worth zero. So those are the biggest beneficiaries of this move. And so, Dan, this is an interesting setup to next week when AWS, the biggest name in cloud, has re-invent and is going to want to prove that they've got the AI chops as well. Alphabet's had a big run based on saying, hey, don't count us out in AI this year.

What's the most important thing to you that happened this week? Look, the golden child, Altman, is ultimately really in Microsoft's hands. And I think the way they played this was a poker move for the ages for Nadella. And I think as it plays out, you had the little kids playing checkers at the kids' table in terms of this, the open AI board.

And then the master, chess master, came in here. And I think right now it's Microsoft just that much more of a flex to muscles on AI. What you want to see from Jassy and AWS. Okay, what do you bring in? Show us the technology. How could I have confidence from a share perspective that you're not going to be potentially the third player behind Microsoft, behind Google? This is an arms race playing out. And right now, Microsoft, and they're popping champagne in Redmond

because of the way Nadella played this out. Yeah, and now you see it in the stock. It's trading at all-time highs again this week. Connie, I'm curious, though. I mean, this has been framed, at least within the media, as sort of a profits versus caution story that's been unfolding at OpenAI where this new capability and these new applications are concerned. You've got this weird hybrid nonprofit for-profit structure at OpenAI as well. Is that going to change now? It sounds like the nonprofit board

is going to change. I mean, obviously, the board members are changing as we speak. There's three that have been installed. This is an ongoing process. You know, I think a really interesting piece of this equation that hasn't been covered, and I've reached out to Sam today, I've reached out to OpenAI investors to find out, is a capped profit structure that Sam instituted in 2019. The idea here was to cap investors' profits at 100 times their original investment, because he suggested that if open AI could get to so-called artificial generalized intelligence, which is this sort of more sophisticated AI that we seem to be moving toward quickly, that it could be so powerful and so lucrative that he wanted these investors not

to sort of hold all the value in the world. In fact, he spoke at one of my events for Strictly VC, which is now a subsidiary of TechCrunch. And he said that if OpenAI manages to crack this particular nut, it could, quote, maybe capture the light cone of all future value in the universe. And that for sure is not okay for one group of investors to have. So I'm curious to know now if that has changed. I mean, I sort of hope not, but so much is getting dismantled in real time right now. It's unclear. I think it's really important. Dan, we'd love to get your thoughts on that, but also some of the commentary we heard from NVIDIA's CEO, Jensen Huang, last night, where he basically said that you have this rapidly

evolving AI industry and that this is a world in which companies are going to build their own custom proprietary AI rather than, quote-unquote, outsourcing it to someone else. I mean, coming off of this wild weekend for OpenAI, those comments and the context around those comments certainly cannot be denied. Yeah, and when the godfather of AI speaks with Jensen, I mean, it really speaks to not just Microsoft but others in, because they're going to look to build their own chips. I think Altman now, that's going to be the next initiative in terms of going further after what NVIDIA has. They're the only game in town.

And I think if you look at Apple's model in terms of what they did with Silicon, it's them really owning more of the ecosystem. And we're talking about a trillion dollar opportunity over the next decade. In my opinion, it's the biggest tech transformation we've seen in 30 years. And that's why I think Jensen understands two steps ahead what's going to happen here from a chip perspective. Another important new character here, at least in this dynamic with OpenAI, is Brett Taylor. His leadership, his perspective is going to be important. Here he is a couple of years ago when he joined me for a Fort Knox one-on-one talking about what inspires his leadership approach. My mom is my role model, my hero. Essentially, I'm definitely a product of both my parents. My father's an engineer. My mom was an executive, I think one of the most senior female executives at

Chevron for a long time. And it was interesting. One of the things that had a deep influence on me is just, you know, watching both my parents invest in their careers, invest in each other, and seeing my father support my mom through her career progression. And I think it really, she's my go-to person when actually I'm encountering kind of issues in my own career, because as you said, she experienced it at a company of, a Bay Area company of incredible scale. And so I definitely learned a lot from her and she continues to be kind of my go-to advisor. Connie, empathetic leadership style. He's been at Google, Meta, Salesforce, now OpenAI.

How does he influence the way this structure and governance conversation continues? I think he's probably the least sort of inflammatory of the board members who's been chosen. To your point, Brett Taylor is widely revered. I've interviewed him, too, and he was sort of a co-CEO of Salesforce. He's just very well liked, very well regarded, very sort of logical, straight shooter, you know, nothing not to like about him. And whereas Larry Summers, I think has detractors at Adam D'Angelo, you know, people have been saying has his own agenda in all of this because Quora also is trying to build its own sort of AI and maybe is, you know, in some ways trying to compete with OpenAI. So I think Brett is a really smart choice. I'm very

curious to see who else they add to the roster. Maybe Elon Musk could find something not to like about him after how he played chess when it comes to Twitter as well. Connie, Dan, thank you. Thank you. Thank you, John. When we come back, we could see the lowest prices at the pump for Thanksgiving since 2020. Up next, oil and gas expert Tom Kloza on why he says drivers could see even more relief well into next year. Stay with us. Welcome back to Overtime. Oil lower for the day and the week on pace for its fifth straight weekly decline. That would be the longest losing streak since December 2021. And drivers are seeing some relief at the pump with what could be the cheapest prices for gasoline for Thanksgiving since 2020. Joining us now is Tom Close, a global head of energy analysis and co-founder of Oil Price Information Service. Tom, it's great to have you on the show.

I do want to start with what we've seen in gasoline, because look no further than the CPI print last week to know that gas prices and energy prices have been coming off and that that has in turn been leading to lower inflation numbers, at least on the top line. Does it continue? Yeah, it does continue. As a matter of fact, I could make a strong case for a gasoline glut in the next 60 to 90 days. We would have had it last year, except for a winter storm, Elliot, that came through at Christmas. And right now, gasoline isn't really fetching much of a profit for refiners. They're making more gasoline than they'd like to make because they need to make profitable diesel and jet fuel. And they're

running a very, very light, sweet blend of crude oil. So it's going to continue for a while. And even though the numbers were lower, let's say when the year started, about 320, there are a lot more people who have the capability of buying gas for less than $3 now than there were in January of 2023. Tom, how are you gaming out winter fuels, given what we're seeing happening in Europe right now with Russia, Ukraine, and what the weather forecasts look like? Well, they're in better shape this year than they were last year with winter fuels. And, you know, they're not as susceptible to some of the problems that could come with Russia would cut off natural gas. But make no mistake about it.

It's cold winter, a normal winter, colder than normal. You could see parabolic moves for heating oil, kerosene, and even diesel fuel in the United States. So you have to have your fingers crossed for the next 30 or 40 days. When it gets really cold between Thanksgiving and, let's say, Valentine's Day, you can get curtailments of natural gas, and then the diesel just flies off the shelves for utilities and commercial customers that have to burn oil instead of use natural gas. Of course, we talk about refined products. There are a number of factors that funnel into the price. One of the biggest is the price of oil itself, the price of crude.

The fact that we've seen it fall off as dramatically as we have. You have OPEC Plus postponing its next meeting around production cut debates reportedly by a couple of days. Obviously, we've had this big inventory built up here in the U.S. Your take on the trajectory for crude? Well, I think OPEC really needs to come up with something on Thursday when they meet again. And the Saudis are probably not happy because they've had the unilateral million barrel a day cut. The one thing that will work in OPEC's favor is the fact that a lot of refining is coming back from fall maintenance. And that means demand is going to surge by about 2 million barrels a day. But I think if the Saudis don't

continue to cut, you know, you might see a price decline like we saw nine years ago. Nine years ago, we were about $74 on the eve of Thanksgiving, and then we dropped to $44.50 by mid-January because of discord and rancor within the OPEC cartel. All right. Tom, thank you. Tom, close up. Thanks, John. Time for a CNBC News update with Contessa Brewer. Contessa. John, the FBI is investigating a car explosion at the Rainbow Bridge border crossing in Niagara Falls. In this video exclusively obtained by WNBC, you can see a car speeding toward the U.S. border with Canada.

Then it goes airborne before exploding. Senior law enforcement officials say two people in the car were killed. Authorities are still trying to figure out whether the crash was intentional. All Western New York bridge crossings into the U.S. were also closed following the incident. International arrivals and departures were halted at Buffalo, Niagara Airport, and Amtrak suspended service between New York and Canada. And today marks 60 years since President John F. Kennedy was assassinated in Dallas. His presidential museum in Boston debuted a special exhibit in memory of the 35th president. It includes rarely seen items ranging from condolence letters sent after his death to a shell casing from the last round fired during the military salute at his burial.

John, back to you. Contessa, thank you. Still ahead, we will talk new inflation data and the Fed's path forward when we're joined by former Kansas City Fed President Thomas Honig. Overtime, we'll be right back. Welcome back to Overtime. Mike Santoli is back with us for dashboard number two. Mike, how are consumers really feeling about inflation heading into this big spending weekend? You know, John, they're feeling cranky about it. And for understandable reasons, and that University of Michigan consumer sentiment data today showed they think inflation is going to remain high. However, things are turning for the better. Wall Street Journal had a good package

of consumer related charts today. This one shows that average hourly earnings you see at the end there have finally now again started to outpace on an annual basis consumer prices. So here you see during the heart of the pandemic, massive stimulus, income gains were huge before inflation picked up. And that cushion had remained for a while. But then inflation running hotter than incomes clearly has consumers in a bad mood about just the absolute price level. We understand that things might be getting better, especially with energy prices easing back. Wages still running at around a 4 percent average annual earnings clip. Now, if you look at how the market's reading it, consumer discretionary stocks on an equal weighted basis. So we get rid of the Amazons and the Tesla effects in there still outpacing the average stock this year. So hanging in there, this idea that the consumer does not quite have any quit in it with unemployment rates

still under 4 percent, John. Interesting. And of course, we know seasonally this tends to be a strong time of year for those very types of stocks. Yeah. Mike Santoli, thank you. All right. Thanks. The 10-year Treasury yield hitting its lowest level today since late September. Up next, former Kansas City Fed President Thomas Honig discusses how that could impact the Fed and the economy. Welcome back to Overtime. Initial jobless claims came in lower than Wall Street expected today, a signal that we could reach a soft landing, potentially. This comes as yields on the 10-year Treasury hit a two-month low before recovering. Joining us now is former Kansas City Fed President Thomas Tonig. It's great to have you back on the show. And that is where I want to start this conversation. The fact that we've seen yields come off, we've seen oil come off, we see more broadly signs that inflation is

continuing to fall here. And yet, as evidenced this morning by jobless claims, the labor market continues to hang in there. Is the soft landing still achievable here or still too soon to tell? Well, no one knows for certain, but I think the markets are becoming more confident. And I've seen more economists talking about it as well, that you could achieve a slow growth forward, enough that it brings inflation down below the three percent on both total and core and if that occurs i think people will feel more confident that inflation is uh in in check and that will move the markets uh up even further and uh give people a sense of optimism of course the other uh actions possible are that we're still, you know,

in the third quarter, we saw banking non-performings going up. We saw some weaknesses in some sectors. So if we were to encounter a recession, the Fed would not only leave rates as they are, they would probably then tighten, even if inflation was a little high. That brings us into some real unknown outcomes and risk for the economy going forward. So everyone's hoping for the first, but we're hardly there yet. And we still have, as you say, high, still reasonably high inflation expectations. And that will, I think, play a role in the Fed's actions forward. But they're done moving for now.

And now it's all about when they cut. And that's what everyone is expecting sooner rather than later, depending on these events. Yeah, I mean, looking at the Fed minutes, I mean, they're not talking about cuts. And we've had recent Fed officials who have basically said they're not even talking about talking about cuts yet. But as we do see, to your point, inflation come down, just holding steady is doing something, even though it's technically doing nothing, because it keeps the rate not only restrictive, but more restrictive. When do you think cuts actually happen? What do you think the Fed needs to see for them to actually consider cuts here? Two possibilities. One is if inflation continues to come down, both total and core,

that is without food and energy, well below 3%, I think they would cut because, as you say, the real rates would be going up. They would feel comfortable lowering that, expecting then inflation to continue on down as they go forward with real higher rates. And that would cause them to cut rates. The second is if, for whatever reason, banking problems as the nonperformings begin to grow or the economy slows more than expected into a recession, then they would be very tempted to cut rates at that point. And I would remind you of one thing. In some ways, we're still reasonably early in the cycle, because around the great financial crisis, it was more than two years after the Fed stopped raising rates that we had

our first major banking problems, like Bear Stearns, like the Fannie and Freddie failures, like Lehman Brothers, well over two years after. So they have to be cautious. And they are being. They're talking, we're going to make sure inflation doesn't reignite. But I think everyone knows that if we got into trouble, they would begin to ease sooner rather than later under those conditions. So, yeah, Thomas, a year ago, the Fed had a lot of critics, people saying, oh, they're hiking too fast. They're going to break the economy. They're going to drive us into recession. That didn't happen. So taking a look at how they've handled this so far,

do they still have enough tools in the toolbox, levers to pull to get us through some of those scenarios, particularly in commercial real estate that you mentioned? Well, commercial real estate is going to go through its cycle. The question is, will it be confined to that? And if it's just commercial real estate, then the Fed will come out of this, I think, in pretty good shape. But what I'm worried about is you're seeing this in the early stages spreading beyond commercial real estate to commercial industrial loans. There's a lot of repricing going on in the market right now. The Fed knows that. So they're talking, they're saying we're going to stay firm until inflation is down, but they have a lot of risk that still await them in terms of whether

or not they will be able to lower rates or have to lower rates later. So they have a long ways to go yet before we're through this, I think. Okay. Good reminder. Thomas Honig, thank you. You betcha. Good to talk to you. Investors now making a wish that Disney's recent box office misery might end this holiday weekend. An analyst tells us what's at stake right now for Disney when Overtime comes right back. Welcome back to Overtime. Disney stock having a strong month so far, but there are concerns at the box office after the latest Marvel movie flopped. The next test comes today when Disney's animated film Wish takes the screen. Joining us now is CFRA Director of Equity Research, Ken Leon. Ken,

I'm old enough to remember 20 years ago, the Eisner slump with Lilo and Stitch and a bunch of other movies that nobody really wants to remember. Treasure Planet pre-Pixar. How long before this becomes an Iger slump? You know, Happy Thanksgiving and Thanksgiving to Christmas. You know, it's the movie season. And, you know, I think what Bob Iger said all about this is we just need to better curate, get better quality instead of quantity. You know, on a quiet afternoon today, they did release their 10K report, 120 pages, which I read. You're not going to find specific numbers on film revenue. It is important because it crosses the whole brand and other businesses. But what you really need to hone in is in two years, they're going from $33 billion down to $25 billion in content and programming,

which is film, John, as you've noted, but also for linear networks and also for streaming. Yeah, Kerry, it's the key word there, I think, Ken. And it speaks to, you just touched on it a little bit, but more broadly, what the content spend is going to look like for Disney and how that's going to parse out in terms of distribution, whether it's in big box office films or whether it is to the streaming products, which we know products, I should say, which we know they're really pushing to get to profitability on. 100 percent. And it's going to be very noisy into 2024 on entertainment for some of the reasons that you've mentioned. But in terms of contribution for operating profit, it's low. It's really low. So they have upside opportunity that they can really better manage their costs. The engine for Disney, maybe just for 24, but over the next 10 years, is experience of the parks, where Iger wants to spend $60 billion on improving or expanding parks.

And also, it's a significant percentage of their operating profit. And then the new segment is sports. Bring it back to today's story on film and entertainment. It's still what Disney is known for. They just have to do a better job. Well, Ken, is this really a quantity problem or is it a quality problem? I mean, Pixar used to be it. They used to bat a thousand.

What's the last must-see Pixar movie? You know, again, I said I looked at the 10K and there's over a thousand different films. The film libraries are enormous. Kids today can stay home and look at streaming and, of course, many movies. And some of Disney's competitors have actually done better. Super Mario Brothers, that was a billion dollar win. Those are the ones you want to try to find. I think if the recipe is always going back and going to the franchise and doing sequels, you begin to see a tired audience, whether it's for adults or in animated films. So they can't do that. They really need to come up with something that's going to be awesome and families want to go to the movies.

Ken Leon, thanks for joining us. Thank you. With a buy rating on the stock $105 price target. Well, consumer sentiment falling for a fourth straight month, but up next, we will discuss whether concerns about consumer spending are being overblown as the holiday shopping season kicks off. Stay with us. Welcome back to Overtime. The University of Michigan's Consumer Sentiment Index topped estimates but marked a Stay with us. that even though the average order size has gone up, quote, traffic has been soft. Joining us now is Taryn Jones-Laban. She is a retail expert and the founder and president of IRL Ventures, an early stage advisory and investment firm. She's held C-suite roles at SoulCycle, Casper, and Kate Spade.

And it's great to have you here on set with us. Thanks for having me. The commentary we just laid out is just a small snippet of some of the cautious words we've heard uttered on earnings calls these last few weeks. Does it line up with what you're seeing? Sure. I think this is a critical next six weeks for the consumer and DTC sector. We've seen folks get promotional earlier. Lowe's published a Black Friday sale already on October 26th. Amazon and Best Buy went already last week. And so I think folks are pulling out all the stops to make sure that they can realize their

plans for this next critical period. Why are DTC brands in such rough shape while Meta's back at January 2022 levels? What changed? Well, the public comps and DTC speak for themselves. Allbirds is trading at 6% of the market cap that it evidenced right after its IPO, and I think rent-to-runway around 8%. In the private sector, which comprises much of the DTC market, equity funding has really essentially dried up. In 2021, $5 billion of capital went into privately held DTC and consumer businesses. Year-to-date in 2023, that number is $130 million. It's a 97% decline. And so you see that in how brands are able to spend and invest in both growth and inventory,

and that'll further jeopardize their ability to perform well this quarter. I mean, it's a stark correction with the numbers you just laid out. It raises the question, though, what brands, whether they're private or public, are doing well in this environment? You know, it's a mixed bag. And I think what we're seeing is brands with great affinity and loyal customer bases that can rely on repeat purchases are the ones that are winning. Those are less expensive customers because they're already acquired and I think brands will be highly reliant on those businesses, on those consumers during this time. So how are you deciding who to give money to? It's a great question. We like strong brands that have loyalty, loyal consumers, and some level of innovation or trying to come at a sector differently.

And we think there are still great innovative brands out there that deserve investment. If this is a quiet death of DTC, does that mean that a different distribution network makes sense here? Or is it just that consumers are tired of buying goods and they're continuing to put the money that they do have to work in services, which is, of course, the conversation we've been having all year? Sure. Great question. I think it's both. The consumer wants to spread their wallet share around. Services and experiences are more important than ever. But for DTC, the businesses that will survive most effectively are the ones who can move multi-channel and not just rely on their own websites and online sales to propel their growth in the future. Is it DTC anymore then? Well, we'll have to see what plays out in the first half of 24, but I think what you'll see

is businesses that survive and thrive are the ones that are able to be nimble and grow through multi-channel distribution. Okay. Taryn Jones-Leban, thanks for joining us. Thanks for having me. Happy Thanksgiving to you. Happy Thanksgiving. Peak season kicking off, not only shopping season, but shipping season too. So some of the freight names are going to be ones like UPS and FedEx to watch as well here through the end of the year. Absolutely. Well, the market closes early on Friday, so make sure to tune into a special Black Friday edition of Closing Bell Overtime. That's going to start at 1 p.m. Eastern. Yes, and Shopify is an interesting name to watch throughout this season, I think.

We were just talking about direct-to-consumer. That's been a big part of their engine. They fell along with Meta back in 2022, and there are a lot of concerns about the consumer and how those levers were working. They've risen back up. We'll see if they have farther to go. Yeah, it's also gonna be interesting to see,

just so the conversation we were having, if you see this pull forward in terms of sales activity with earlier promotions. But that's gonna do it for us here today. Happy Thanksgiving.