Closing Bell - Closing Bell: Overtime: Why RenMac’s Jeff deGraaf Is Turning Bullish; $100 Oil Still Possible? 10/4/23

Episode Date: October 4, 2023

Stocks recovered some of yesterday’s drop. Ariel Investments Vice Chairman Charlie Bobrinskoy and Crossmark Global’s Victoria Fernandez break down the market action. Renaissance Macro’s Jeff DeGraaf reveals why he is turning bullish. Google released its new Pixel phones and the Pixel Watch 2. The company’s SVP, Devices & Services Rick Osterloh joins to talk the chip powering the devices and its AI strategy. Our Kate Rooney on Sam Bankman-Fried’s trial, day 2. Plus, Mortgage Bankers Association CEO Bob Broeksmit on the unprecedented housing market and Pickering Energy Partners CIO Dan Pickering on where oil goes from here. 

Stocks finishing near session highs. Some green on your screen as we've seen some yield reprieve in the Treasury market. The action is just getting started, though. Welcome to Closing Bell Overtime. I'm Morgan Brennan. John Ford is off today. Coming up this hour, market watcher and technical analyst Jeff DeGraff is making a big call on the market's next move. He's going to join us to break that down. Plus, we'll talk to the head of the Mortgage Bankers Association as mortgage demand falls to its lowest level since the Clinton administration and as mortgage rates approach 8 percent. We begin with the market though as stocks gained some ground back following Tuesday's route. A pullback in yields and a drop in oil prices helping support sentiment today. But the S&P 500 is still tracking for its fifth negative week in a row.

Let's bring in senior markets commentator Mike Santoli. Mike, you know, ahead of trading today, I had seen a number of notes, a number of trader commentary about comparisons to, dare I say, 1987 in terms of what we've been seeing in the market as of late. Your take. Yes. I mean, the parallels are just this upward spiral in Treasury yields. That was a main feature and precursor of what happened in 1987. And then when it came to the stock market, it had been a massive up year into about August of that year. I think the S&P was up like 40 percent year to date to that point. It got very overbought in the summer. You had to pull back a downtrend, and the dollar turned into an uptrend. So a lot of those things that would feed together at least caused people to believe

that you could still have a little more of an accelerated sell-off, as you did in 87. Now, I am not a big fan of these direct analogies. I always joke one thing we didn't have in 1987 was people making analogies to a massive crash that had happened decades before, which is what we have right now. But I do think it shows you the stress that the cross asset relationships have been under recently. And, you know, look, I would almost say it is a net positive because you have people saying, you know, Jamie Dimon saying the Fed funds could go to seven. Other people are saying, hey, if five percent 10 year yields come, six is coming next. That type of psychology where you feel as if there's no end in sight shows you we're at an extreme. We are at something of a sentiment extreme, at least in the short term.

Today, we were able to feed off that in very modest fashion for a little bit of a relief rally. So the fact that to your point, the fact that we saw yields take a breather here, the 10-year, what, something like 4.72% right now, and the fact that we did see crude oil come off as much as it did today, is all of that a reflection of softer data, which we saw this morning with ADP or certain components of ISM services? Or is it just the fact that, for example, if you look at stocks, most oversold since last October with RSI down 28? All of it feeding in. And in

fact, bonds are perhaps even more oversold. Therefore, buying in bonds yields coming down a little bit. So, yeah, you had some extremes in the market. There was the recipe for some kind of reversion. We got a little bit of it today. There's still plenty for the stock market to prove. The bull case from here is super oversold market. It's like the second 7% or 8% pullback in the S&P this year down toward its 200-day moving average. We had one in the spring as well. That's not out of bounds for a bull market. The idea that earnings estimates are tilting higher, you've had some valuation risk come out of bounds for a bull market. The idea that earnings estimates are tilting higher. You've had some valuation risk come out of the market.

And if, in fact, yields are topping here, maybe we can make our peace with it. So a lot of things have to go right. But those would be the sequence of how people would get more comfortable with buying this pullback. OK, stay close. We're going to come back to you in just a few moments here. All the major averages did finish the day higher. The S&P 4263. And that really was led by consumer discretionary, consumer services and tech stocks. Basically, your mega cap tech names helping to lead the charge. Let's bring in our market panel. Joining us is Charlie

Bobrinskoy of Ariel Investments and Victoria Fernandez of Crossmark Global Investments. Good afternoon to both of you. Charlie, I'm going to start with you, because looking at your notes, you basically say that we're at a key moment here. We're at a tipping point in terms of the dynamic in the market and entering a new era, I would imagine, with higher rates for longer. Yeah, and this is a very long-term tipping point, so just not one day or one hour. But we've had 40 years of declining interest rates. We've had 40 years of declining interest rates. We've had 40 years of declining inflation or no inflation. And while going forward, we may not have 40 years of increasing rates, the 40 years of declining interest rates is over. And so what we have to do is to say what interest rate, what classes of assets have benefited from

this declining interest rates over 40 years? What was helped by declining inflation? And therefore, we've got to be careful going forward. And so my list would probably be that things that have been helped have been clearly bonds and growth stocks are helped a lot by declining interest rates. Leveraged buyouts, venture capital, very much helped by declining interest rates. And so now I think going forward, we're going to at least have a neutral wind and maybe a headwind of increasing rates. What will increasing rates and inflation help? Probably commodities and my old favorite value stocks who are earning money in the short term and shouldn't be as hurt by increasing rates. Okay. I want to get into those details a little bit more. But first, Victoria, your thoughts on this market here, whether we've seen capitulation, what it means for the rest of the year. Well, I think, Morgan, we've seen it in some areas. I mean, we saw what happened to utilities earlier this week, but I'm not sure we've seen a full

capitulation in the market as of yet. I know there was a lot of concern with yields moving up to the highs that we have seen. I think it's what, highest in 16 years or so. We did get that little reprieve today that you talked about, but I don't think we're done yet. I mean, you look historically and the 10-year treasury yield is typically 200 basis points over your inflation rate. So from where we sit currently, that means we still have a ways to go. If the Fed thinks they can get inflation back down to 2%, then, OK, we're sitting around a 4% 10-year. But I think that's a long ways off. I think the market and some of the reason we've seen the volatility we've seen is the market coming to terms with the fact that we are going to have rates that are higher, north of 5% on the short end of the curve, close to five percent along the 10-year and maybe a little bit over on the 30 year

so starting to see that re steepening that everyone's been talking about in the yield curve but I think it's the market coming to terms with that in realizing that our debt servicing cost is now surpassed fourteen percent of revenue and listen to Dan Clifton at Strategas. He talks about this and how that is a critical threshold point where the economy really turns to austerity. So I think we've got more volatility for the rest of this year coming. Yeah. Dan Clifton was on the show talking about that yesterday. As a matter of fact, Victoria, does that mean and we've seen yields

moving higher for a number of weeks, a number of months now, and I realize it's been a particularly big spike here just recently, but have stocks fully caught up? Are the valuations between these two asset classes, is it fair yet? I wouldn't say that we're fair yet. If you look at where inflation is, we should see P. E. S. Around sixteen times. Now we've come down from twenty one where we were previously, but we're still at around eighteen times and we're looking at earnings expectations of around twelve percent for next year. That seems really high to me. I don't think we will probably live up to that. So I think there's going to be some more rewriting that we're going to need to do on stocks we're going to have to see some of those valuations come back down and that is going

to be part of the capitulation process that we're waiting for I just don't think we're there yet that could be the thorn in our side though of calling for a larger pullback if earnings continue to surprise to the upside that's just going to be more support for this economy. And I think we'll push the pullback or push the recession further into 2024. Charlie, you mentioned value. There's a difference between value and quality, right? And every time value starts to make its way out of the gate, it tends to fall back and you tend to see some of those those bigger, for example, mega cap names reemerge and lead the charge. We've seen it again this year. So what do you think constitutes value? And I guess just as importantly, what's

a value right now that has quality attached to it? Yeah, that's a good distinction. There's deep value that's trading at, let's call it a discount to its book value, sometimes for very good reasons, because it has a lot of leverage. You might have a busted business model, an old economy stock. So that's absolutely a different kind of investing. Think of that as Ben Graham, deep value investing. And that worked for a long time and it hasn't worked recently. Quality value, which we try to emphasize at Ariel, is all about buying companies that have some kind of economic moat, that earn a superior return on equity, that are out of favor because of a short-term headwind. The market is very efficient, but what it does is it overemphasizes the short-term and doesn't pay enough attention to the long run.

So right now, there are a lot of quality names. You and I, if I say to you Goldman Sachs, you're not going to argue with me that that's a high quality company. It is today trading at less than book value, right on top of tangible book value. Bank of America trading at eight times earnings at 80 percent of book. I can keep going on with very high quality companies. Chevron trading at 11 and a half times forward earnings. Those are quality value companies. But you're making a good distinction not to fall into the trap of buying lower quality names that look cheap. OK, Charlie Babrinskoy and Victoria Fernandez, thanks for kicking off the hour with me. Thanks for having us. We told them to stay close and we meant it. We're bringing back Mike Santoli for his take on crude's big slide today. Mike. Yeah, in fact, the relationship, Morgan, with gasoline futures as well. So you take

a look at this. They don't always go in lockstep, as you can see, but eventually more come back into line than not. So you see here, this is the Arbob gasoline wholesale price had been falling for a while, actually, even as crude oil was pushing toward the upper end of its range, just below $100 a barrel. And it's now started that slide. We got the inventory numbers today, a bigger build than expected in gasoline stocks. So that did cause a little bit of a drag on crude oil as well. Seems like it should insulate the consumer just a little bit from the effect of the recent boost in crude oil if it does continue for now. So that's reassuring.

That also certainly helped longer-term bond yields maybe settle down just a little bit. On the subject of bond yields, the volatility in fixed income has been pretty extreme again, as we know. Last year it was as well. Last year also was essentially the big driver, in my view, of a lot of the defensiveness and that tailspin in equity markets. This is the move index. It's basically the VIX of the Treasury market based off of Treasury options. And you see it's a shot to the upper end of the range, at least what mostly prevailed last year. Now, that huge spike is the March Silicon Valley bank failure when you basically had Treasury yields just crash

all at once. The two year yield really fell, fell apart. So this is happening at the longer end of the curve. Today was a calmer day in yields, but still a little bit jumpy moves. So we'll see if this can calm down. It's probably a precursor to the stock market getting anything sustainable going on the upside, Morgan. Yeah, I got two thoughts based off of what you just said. The first is we had Dan Niles on last week and he talked about the fact that you need to watch oil. And to your point, there's this relationship afoot right now with oil and with Treasury yields. And it's an inverse one with equities. Absolutely. And, you know, you could, as you know, you could add the dollar in there. All those things are getting to uncomfortable levels. And they've at least for now tentatively backed away from those areas.

OK, Mike, we'll see you later this hour. Thank you. We're going to talk much more about today's pullback for oil and if it's creating an entry point for energy stocks. When we're joined by energy investor Dan Pickering. And after the break, longtime market watcher Jeff DeGraff from Renaissance Macro Research is making a big call today. He's going to join us with the charts that could be pointing to a market comeback. We've got those details on the other side of this break. Overtime, back in two. Welcome back. We have a news alert from the Justice Department. Eamon Javers has the details. Hi, Eamon.

Hey there, Morgan. Deputy Attorney General Lisa Monaco is delivering remarks in Chicago at this hour, and she's going to announce a new safe harbor policy for companies that are involved in M&A deals. That means companies that discover fraud as M&A deals. That means companies that discover fraud as they're doing due diligence will not be prosecuted if they report it within six months and take the appropriate steps. Now, this codifies what folks in the M&A community have long assumed to be the case, but DOJ never had an official policy saying specifically that. So this new policy kind of also implicitly assumes that there are a bunch of companies out there discovering fraud during the course of due diligence, but sweeping it under

the rug rather than reporting it to authorities. So the idea here is that this is going to encourage good companies with good compliance regimes to acquire companies with shakier compliance regimes. The idea being that that will bring the total amount of fraud out there down overall, but a new move here from the Department of Justice, Morgan. Can you repeat that last part for me, Eamon? It's going to encourage companies that are doing a better job with their due diligence to acquire more companies that aren't. So like the market policing itself. Right. So under exactly. So under the the new proposed safe harbor regime, a company that buys a smaller firm and finds out that that

smaller firm had been engaged in some kind of fraud as they're doing their due diligence, will have an incentive now to report that to the government within six months to make sure that they get a declination of prosecution decision. That is that the Department of Justice won't go after them for the fraud that was done by the smaller acquired firm. Right. So you have an incentive now as the buyer to say, hey, we found out these guys were up to no good. We have fixed it. We've done all the retribution to all the appropriate parties. Don't prosecute us, right? So that's the way this is going to work in the future. And the assumption here is that what DOJ wants is companies with robust compliance

departments to be acquiring companies that are a little shakier. And that way you would have less fraud overall. We'll see if it works that way in the real world, but that seems to be the case. Or the other incentive here, Morgan, is you could have companies that know that are small and know they're committing fraud that just never sell themselves now because they know that the acquiring company will have an incentive to report it. OK, Eamon Javers, thank you. You bet. Costco's September sales are out. Courtney Reagan has the numbers. Hey, Court. We're going to get Costco. The loan retailers still giving us monthly results here. But for the total company in the five week month of September, sales were up four and a half percent.

This is including gasoline and any impact from foreign exchange. E-commerce sales were up three point seven percent. It does look like U.S. was one of the weaker regions here when you're looking at the month and sales international by far the strongest outside of Canada. That was up about 10 percent. You can see here that we don't see the shares moving a whole lot. We just got Costco's entire quarter just last week. So this gives us a little bit of a catch up point for the quarter plus where we are here today. Back over to you. It is interesting though because I would think you know back to school might have a bigger impact here but who knows maybe people got started earlier. Yeah we'll have to we'll have to check it out. I mean they don't give us a whole lot of color unfortunately in this release. There is a

pre-recorded call that we'll tap into and see if they give us some more information. All right Courtney Reagan thank you. Thanks. The S&P 500 closing higher today though still in pace for its fifth negative week in a row. But our next guest is turning bullish and he brought along some charts to explain why. Joining us now, Jeff DeGraff, Renaissance Macro Research Chairman and head of technical research. Jeff, it's great to have you back on the show. Let's start with chart number one, which I think is taking a look at the S&P in general right now and the fact that perhaps we're at oversold levels. Yeah, look, I think there's a couple of things going on. One is we've got seasonality, which actually really kicks in for the S&P in the next couple of weeks. So it's not

quite here, but it's close enough. And the chart that you've got up there shows the expected three month return if you do nothing but just follow the calendar. And so you can see that we're a couple weeks away from being at the strong end of the seasonality after having spent, obviously, a pretty tough third quarter, which isn't atypical. And it really came after the enthusiasm or exuberance around AI. And I think a lot of that's died off now. And that, in our view, is good news. And so just kind of setting up, looking for things or the ability for the market to rally. And that's where the oversold condition came in, right?

So we had a modest oversold condition. But really, in the last week, we started to see 20-day lows, which is one of our key indicators, start to spike. And that number got to 56% yesterday. That's the highest since we had the oversold condition back after Silicon Valley Bank's failure. And usually what that means is it's building on a narrative. It's building on something that everybody's seeing, that everybody's concerned about, and everybody's reacting to. And I think what we're seeing in this market environment here is based on those higher yields. And so 20-day lows historically for the next three months have about an 80% effectiveness of winners versus losers. So we look at the seasonality, we look at the oversold condition,

and I think that 20-day spike is a reflection of what we're seeing out of out of yields here. So that that has us in the bullish camp for the remainder of 2023. OK, I am curious. I keep asking this question. I keep coming back to it because, yes, I realize there's these there's these seasonal elements. There's the technical elements. There's what the charts and history has to tell us. But then there's also some very decidedly unseasonal, atypical dynamics afoot, at least where the U.S. specifically is concerned, too, whether it's student loan repayments, whether it's higher energy prices, whether it's higher interest rates or UAW strikes, some of these other things that are D.C. dysfunction that are afoot right now. I mean, does any of that matter when you look at the technicals over the longer term?

Well, I mean, obviously the narrative is always different for each one of these, right? And so in our view, there's three things that can happen. You can be a buyer, you can be a seller, you can be a holder. And it really is who's the more urgent player. And so when 20-day lows start to spike, it suggests that people are in mass acting very similarly. Forget what the narrative may be, but it's those sort of commonalities that end up creating those lows. And that's what we're most interested in. So I totally agree that those things that you're mentioning are concerns, but they're no different than, say, the Silicon Valley bank concern that

we had six months ago or some of these other concerns that we've had, government shutdowns, et cetera. And the market tends to be able to see past those. I think the yields are a problem. There's no doubt that's the one thing that really stands out to us. But I think the yields are a problem. There's no doubt that's the one thing that really stands out to us. But I think they're not a tactical problem. I think they're a strategic problem, probably come into play in 2024 if they remain elevated. But I think in the near term, we've seen some signs of capitulation, particularly with utilities, which tend to be bond proxies or at least trade as bond proxies in the marketplace. They've come under enormous amounts of pressure. And then the consensus data around bonds or treasuries only shows about 23% bulls.

And so it's a very, very low consensus around being bond buyers and actually being a believer that you can make money. And it's that combination that I think is what sets us up tactically for the remainder of 23. It could be a problem as we get into 2024, but we tend to be tactitioners here and we're looking for a brighter outlook for the next two to three months. Yeah. Speaking of brighter, let's talk about gold, which has come off of its highs recently. And I realize we've got a stronger dollar at play, maybe a re-examining of what's been considered safe havens in general. You just mentioned utilities, for example. What's the gold chart telling us?

Well, I think it's very interesting because if these concerns, and look, I tend to be more of a deficit hawk than not, but if these concerns around inflation, if these concerns around runaway government spending are really, really an issue, then gold is the one currency that's not really a relative trade. It's kind of the benchmark against all other currencies. And that's come under pressure lately. It actually broke down. It's in a near-term downtrend. It looks weaker. So in terms of the market worrying about inflation and what that has in store for it, I think the message from gold, which also, by the way, is very similar to the message that we've seen out of Bitcoin. Bitcoin

actually led by about six weeks, is certainly not that there's this abundant runaway liquidity scenario in place and that the Fed's job is actually trying to get some traction here. And we're finding that in the financial markets, albeit at the margin, but I think in a more bullish way than not. Okay. Jeff DeGraff, covered a lot there. Thanks for joining me. Thank you. Up next, we'll talk to Google's SVB of devices and services about today's launch of new AI-powered Pixel smartphones. And later, we'll break down today's big drop in oil prices with an energy investor who says $100 crude is still in the cards. Welcome back to Overtime. We have a market flash on Clorox. Courtney Reagan has a story. Court? Hi, Morgan. Yeah, so Clorox just putting out their preliminary earnings for the quarter,

which just ended here September 30th, basically saying their adjusted EPS is now expected to come in a range between a loss of 40 cents and flat. That compares to analyst estimates of $1.36. And this is all because of the impact from the cybersecurity attack. The company says more than offset the benefits of pricing, cost savings, and supply chain optimization. This was the cybersecurity attack that was previously disclosed. And now it looks like the company is trying to quantify it to give sort of the analyst community and investors an idea of what they're grappling with, because their estimates are just way far off from where analysts were unclear if the analysts had factored that into the latest estimates.

But shares, you can see taking a dive here, down 4.5% on this news. Morgan, back over to you. All right. Courtney Regan, thank you. It seems like we've had a flurry of cybersecurity incidents over the last couple weeks, or at least disclosures about them. Okay, shifting gears. Alphabet shares higher today, up over 2%.

And the top big tech name on the session. The company rolling out new products today, including the Pixel 8 and Pixel 8 Pro smartphones, as well as the Pixel Watch 2. The phones run on Google's latest chip, the Tensor G3 that powers its AI capabilities. Joining us now, Google SVP of devices and services, Rick Osterloh. Rick, it's great to have you on the show.

Thanks for having me, Morgan. So let's start right here with these new phones that you've just, and devices you've just unveiled. How much is AI featuring into the design and the functionality of them? Well, they're really completely designed around the company's latest innovations in AI. You know, we've designed, as you mentioned, a custom chip we call Tensor. And our third edition of it allows us to run really powerful AI models. In fact, we're able to run the company's latest research in a distilled form right on the device. And it powers all sorts of new capabilities that you really can't get anywhere else. You know, we think AI is the future of computing. And Pixel is just one great showcase the company has to be able to show that capability to our consumers.

So what are some examples of the ways that consumers are now going to be interacting with AI? I mean, we keep talking about the promise, the possibility, being on the cusp of some of these new AI capabilities, generative AI capabilities. What is actually now coming to market starting next week? Yeah, so many powerful tools. I mean, one thing that AI has really clearly been able to influence is how you can just take terrific photographs and then create derivative, beautiful artworks of those photographs. So for a long time, we've pioneered this field we call computational photography, where we really take all of our latest AI and ML techniques and make them so that you can transform photos that might be difficult to see, like if the

lighting's poor or it's too bright behind the subject, and make them great photos. But what we've recently added is the ability to easily edit those photos and create new forms of art. So what you're seeing on screen here is one capability that we call Best Take. So what it does is you take a series of photos and then you can select from the photos you took the best shots of people's faces. So it really gets the photo just right, the one you intended to take. We also have a new capability that we call Magic Editor that allows you to alter a photo just like you might do if

you use like a tool like Photoshop or something like that and really easily and automatically transform it into something fun or fanciful that you can share with your friends. So those are just a couple examples. Okay, so now you've raised the price a bit from the lineup last year. Why raise the price? Why not go more aggressive with price in an effort to, say, take more market share? Well, I mean, first off, I think we're well below where other similar capability smartphones are priced. So if you compare Pixel 8 with the latest product releases in our space, you can save about $200. But more importantly, we're adding all sorts of new capabilities in here.

Across both the Pixel 8 Pro and the Pixel 8, you get our latest chip. Not one from a couple years ago. You get our latest chip. You also get all this new AI innovation, new camera sensors. And probably most importantly, we announced today that we're supporting our phones for seven years, seven years of OS upgrades, security updates, feature drops, and the latest AI innovations. Okay. A bigger question for you, a broader question here for you, and that is what does the role of hardware play in the overall Google strategy? I ask that

because when analysts write notes, for example, or investors are looking to invest in the stock, they're not typically focused on hardware. They're focused on search and advertising and cloud and AI. So if I were to channel my overtime colleague, John Ford here, I'd probably make the argument that hardware is a means of ecosystem control for you, that this is a way of sort of strengthening Android, which then strengthens things like search and location and ads, and also make sure that you have a space within the smartphone market so Samsung is not overly dominant. Would that be the right way to think about the strategy? Well, I mean, look, we're very lucky to have so many great businesses in the company. We think this business has a great long-term potential as well.

But it also plays several important roles. I mean, for instance, the ability to get our latest AI innovation directly to consumers and see how they react to it, to refine it, improve it. This is really, really important. I think we also like to use it as a way to kind of show the path for our ecosystems as well. It's really important in that dimension. But I would say this is a very important and large market in itself. And so we certainly intend to continue growing in it. OK, Rick Osterloh, thanks for joining me.

Thank you. It's time now for a CNBC News Update with Steve Kovach. Steve. Hey, Morgan. Yeah, Baltimore police said this afternoon that the five people injured in the Morgan State University shooting last night were not the intended targets. Four of the victims are university students ranging from 18 to 22 years old. Police say all the victims are expected to make a full recovery.

The police chief said they know there was one more person with a weapon, but police are still determining how many guns were fired. No arrests have been made yet. Also, Pope Francis called out the fossil fuel companies and urged countries to transition to renewable energy in his strongest statement yet on climate change. The pope issued a new 7000 word document on the environment where he pinned the blame on big industries and what he called irresponsible Western lifestyles, particularly in the United States. He also criticized climate change deniers, warning that we are quickly approaching the, quote, point of no return. And some good news here. The U.S. women's gymnastics team, led by Simone Biles,

just won their record seventh consecutive world championship. The team has won gold at every world championship since 2011. This one broke a tie with the Chinese men's gymnastics team for the longest streak of team titles. Biles is now the most decorated woman gymnast in history. Morgan, I'll send things back over to you. Love that. Yeah, it's great news. That is awesome. Steve Kovac, thanks.

After the break, rising rates hitting close to home, literally. We're going to talk to the head of the Mortgage Bankers Association about the new data out today showing demand at its lowest level since 1996. And check out the names making 52-week closing lows today. Target, GM, Disney, and Citigroup are all on that list. We'll be right back. Welcome back to Overtime. Major headwinds are building in the housing market with the average 30-year fixed rate pacing toward 8%. That's for the mortgage. It's no surprise that demand for

mortgage is dropping to its lowest level since 1996. Joining us now is Bob Brooksmit, Mortgage Bankers Association CEO. Bob, it's good to have you on. Perhaps not surprising that we've seen mortgage rates move higher, given what we've seen in the Treasury market. I mean, is 8% really something that could be on the horizon? Well, unfortunately, Morgan, it already is reality for a lot of lenders who are quoting rates today, because the numbers that we put out, our last week's numbers, and the market has continued to deteriorate. We got a little reprieve today,

but we really need the 10-year Treasury to come down. And more importantly, perhaps, the spread between the 10-year and the 30-year fixed rate mortgage is at levels about 125 basis points higher than usual. And we really need some action for that to come in. And a couple of things I have in mind would be the Fed being clear that they're done with rate increases because we think that volatility in interest rates has increased that spread. And also for them to

make clear that they're not going to sell mortgage-backed securities off their balance sheets. But we know they are, right? I mean, it's quantitative tightening. So I guess how realistic is it to think that even if Treasury yields come down, that you see some of these other pressures? And I know banks have been rethinking their investment portfolios and maybe selling out of MBS, too. How realistic is it to think that those forces are actually going to ebb? Well, when I talk about the Fed's holdings of MBS, of course, they are letting them amortize and prepay, but those are at very low levels. I still think some of the increase in the spread between the Treasury and the mortgages is a fear that the Fed would actually sell in the open market existing MBS. So if they were to make clear that that's not on the horizon, I think that that would help. And the bank demand will, I think, come back. We've seen some increase

in supply with some of the failed banks, MBS being on the market. But I think that's mostly been resolved now. OK. It does feel like this perfect storm. I've heard the word used unprecedented because you have mortgage rates at these multi-decade highs. You have housing inventory at these historical lows. And then on top of it, you've got home prices that still seem to be moving higher. What is going to actually break this dynamic to create a more affordable housing market? Well, as rates get back to a more normal level, it will help both with supply and demand. And that may sound not very logical. But as you know, a lot of the reason for the shortage of

inventory is that people have 3% mortgage rates and they're not willing to sell their house and take on a 7.5% or 8% mortgage rate. But as rates come back into line, more transactions will get unstuck, the inventory will increase, and then you can see this market moving again. We are seeing, we've got a 44-year low in mortgage delinquency. So people who have mortgages are paying them. And with unemployment at levels as low as they are, there are plenty of people who can afford the new mortgage rates. They may not like them and they may refinance when things come down. But there is there is the demand and supply is a problem. And I just got to ask, because we just showed it on the screen, you think rates are actually going to come down from here? Oh, absolutely. I think that the when the Fed finishes,

we think they are finished. But when they make clear they're finished, we think that's a very positive signal to the market. And the spreads, as I they make clear they're finished, we think that's a very positive signal to the market. And the spreads, as I said, are at historic highs, and we think they'll come in. But it would be really great for the Fed to make that clear. Okay. Bob Brooksmit, thanks for joining me. Thanks for having me. Regional bank stocks have been crushed this year, and the group has been feeling extra pain this week as rates rise. Up next, Mike Santoli looks at whether these beaten down names are starting to look cheap.

Stay with us. Welcome back to Overtime. The financial sector is down nearly 2% this week as rising rates continue to weigh on banks. Michael Santoli is back with a deeper look at the struggle. Mike. Yeah, Morgan, it's real. Take a look at how regional bank stocks have done relative to long term treasuries. It doesn't always

fit quite this neatly. But over the past couple of years, that's exactly what's gone on. They've more or less been in lockstep going downstairs here. We know why rising bond yields is hurting the bond portfolios and also mortgage backed securities you were just talking about. They are also a burden on the balance sheets of these banks. We have commercial real estate concerns. We know the whole stew of issues. The big question is, have the stocks accounted for a lot of those concerns right now? Look at the price-to-book value of the KRE, that's the regional bank ETF, as well as Bank of America,

which has traded almost exactly in lockstep with these smaller regional banks. And then, of course, J.P. Morgan, which is that one standout bulletproof bank that does get a premium valuation. What you see here is B of A, as well as the regionals as a group, trading at about 80 percent of stated book value, the most recent stated book value. Back here, you know, in the midst of the real rough parts in 2020, we got cheaper than that. And then, of course, earlier this year, kind of a similar levels to where we are right now. So that would at least suggest that there's a lot of caution already built into these valuations, even if book value is not going to grow very fast because of a lot of those headwinds, Morgan.

First of all, let me just say it sounded like there for a moment that you're at a casino instead of from the floor of the New York Stock Exchange. There's some stuff going on. Oh, the bells and whistles. And oh, yeah, that's that's, you know, Jim Cramer's special set over there. Yeah. Part of the course. OK, we were talking about this relationship, this trading relationship across asset classes earlier in the hour. We were talking about crude and treasuries and and stocks. I mean, is it safe to say that with the banks specifically and particularly the regionals that you're seeing that relationship and that trade move lockstep against treasury yields? Pretty much. I mean, a lot of it has been moving in the same direction for a while right now. I don't really see a ton of outright panic or scare stories surrounding the banks.

It's much more like, well, maybe where there's smoke, there's fire, because you have to be taking some losses on these bonds right now. So maybe that's a net positive. I'd also would say banks as a group are not quite the leading bellwether of the overall market that they used to be. I like to point out that the bank stock index has literally gained no net ground in price for 25 years. Well, that puts it in context, doesn't it? Okay. Mike Santoli, thank you. Oil price is just falling below the 50-day moving average. Up next, an energy expert discusses whether this is a buying opportunity for crude. Stay with us.

Welcome back. The spotlight is on oil again. Prices hitting their lowest levels since September as OPEC left production levels unchanged and demand worries bubble up. But oil is not the only mover in energy. Natural gas hitting lows not seen since January. Meanwhile, our Bob gas gasoline futures reached December lows. Joining us now is Dan Pickering, chief investment officer at Pickering Energy Partners. Dan, I get that OPEC and specifically Saudi and Russia didn't change anything, but not changing anything means extending production cuts. And when you look at the DOE data today, we did see a big drawdown in crude inventories, and yet the price is down. Why? Now, Morgan, I think that oil had a great run in Q3, 70 to 90, while the S&P was down 4%. It's had a great move, pulled the traders in, and I think we just had some risk-off behavior in the crude markets today, taking some profits. Doesn't really change, you know, the fact that oil prices are still quite good for the industry. But,

you know, after a big run like this and folks getting nervous about the economy, I think we just took a breather. So it sounds like some profit taking, some consolidation. You still think we go higher from here? I think we could. The reality for the sector is it doesn't really need a higher oil price. It's making great money here. But, you know, the reality is OPEC's been very disciplined. I think that the economic fears, you know, they kind of come and go here. The world's probably getting a bit worse on the margin. But, you know, oil tries to find a level and that level feels like triple digits. So my guess is that that will make another move to the upside here

as we get back toward the back part of the year. Yeah. I mean, you're talking about the fact that we're still like a good price and an economical and viable price for oil producers. And yet we've continued to see the rig count come down here in the U.S. So what does that mean for the actual companies themselves? And I guess just as importantly, are there investment opportunities because of it? You bet. So I think the rig count is coming down because it's reacting with a lag. Price was $70 three months ago, and that's a price particularly with well costs up that producers didn't feel great about spending incremental capital. The other thing we have is this capital discipline dynamic. This sector is acting better. It's giving money back

to shareholders. It's not being as aggressive as it once was coming off of the shale bust. And so when we think about all of those macro factors, I think it really is a good setup for the companies. And there are opportunities, I think, to invest in the space. I'm a buyer every day with oil prices in the 80s. Okay. So what would you be buying right now? Yeah. What do we play? So I think for the ETF buyer, the XLE is an easy ETF to buy. You've got exposure to the majors, refiners, the upstream companies there.

We like Conoco. If you're a big cap investor, it's $140 billion market cap, trades 11 times earnings. Then you want to be a little bit more aggressive. Some smaller cap companies that are more focused on the Permian, lowest cost basin, Diamondback Resources and Permian Resources, one's $25 billion, the other's $10 billion, both of them trading, you know, under five times cash flow. You're going to make money in these stocks, I think, over the next couple of years because oil prices are going to be good and they're going to make a lot of money. Okay. How much, and I know historically this has always mattered, how much does a stronger dollar

and higher interest rates matter not only to crude, but across the energy complex and commodity complex to prices longer term? Yeah, I think the real question is, can prices hold in a weaker economy that these higher rates might create. So stronger dollar makes oil more expensive across the world and generally has been bad for price. The difference here is OPEC's keeping crude off the market and supporting price. So, you know, oil's been one of the best commodities as we've seen this dollar strength. So I think that will continue to be the case. And so I think we're a bit decoupled here from the dollar and rate dynamic because we have the OPEC dynamic in play. OK. In the meantime, I'd imagine consumers will take a

little bit of reprieve with gas prices coming off for what it's worth for however long it lasts. Dan Pickering, thank you. Thank you. A house of cards. That's what prosecutors called FTX during opening statements of Sam Bankman-Fried's fraud trial. We've got the highlights when Overtime returns. Welcome back to Overtime. The first witnesses in the fraud trial of FTX founder Sam Bankman-Fried being called to the stand today. Kate Rooney is outside the courthouse in New York, and she has the highlights. Hi, Kate. Hi, Morgan. So we started to get witness testimony today. We also got opening statements. Prosecution kicked things off today. They described Sam Bankman-Fried as a secretive executive. They said he knew about the fraud that was going on at FTX, as they allege. They say he

committed, quote, massive fraud, knew about the losses, tried to cover them up. They called FTX, as they allege. They say he committed, quote, massive fraud, knew about the losses, tried to cover them up. They called FTX a house of cards. Prosecutors accused Bankman-Fried of funneling customer money into Alameda accounts and then creating a backdoor, essentially code, that allowed FTX to make endless withdrawals in Alameda as well. The defense pushed back on that. They claim Bankman-Fried acted in good faith. They say he made what he thought at the time were reasonable business decisions. The lawyer called him a nerd. They said that he didn't drink. He didn't party. They tried to frame him as a hardworking startup founder. They say the startup was growing quickly and they used the metaphor, guys, of building the plane while they were flying it. They said essentially this thing was moving quickly and that he did his best with the information they had at the time. We also started to hear from

witnesses, guys. We heard from one FTX customer who said he lost about $140,000 on FTX. He's a trader from London and then an employee and a close friend of Sam Bankman-Fried who lived in that house with him in the Bahamas. He was an insider. He said he left the company, left Alameda, that sister hedge fund, because he started to find out about some of the entanglements between those two companies that he knew that Alameda was using FTX customer funds. So heard from one insider. We do expect to hear from more this week, including the co-founder of FTX.

Back to you. Yeah, I mean, how many witnesses are we expecting in this? And I guess, how long is this trial expected to go in general, Kate? So six weeks trial is what they're looking for. And we could hear from dozens of witnesses. We got an update yesterday of the list of potential witnesses. We may very well hear from his parents, from his brother, and some top investors as well. Anthony Scaramucci is on that list. But then folks like Alfred Lin of Sequoia, who led investments in DoorDash and Airbnb and was an FTX investor as well, as well as some industry experts. But we could get a couple dozen witnesses over this next

six weeks here. OK, sounds like you're going to be very busy because you're going to be bringing us those highlights. Should note, Kate has much more on the rise and fall of Sam Bankman Freed in the CNBC documentary, The Collapse of FTX. Insiders tell all. Scan the QR code on the screen to watch it now. And let me say, it is worth the watch. Congrats to Kate Rooney on that. Just taking a look at the markets here, we did manage to finish the day higher, basically finished at the highs of the trading session. The Dow adding 127 points, the S&P adding 34 for 4263. That's going to do it for us here at Overtime. Fast money begins right now.