Closing Bell - Closing Bell Overtime: Zillow Co-Founder On Housing Gridlock; UAW Strike Looms; Instacart S-1 8/28/23

Episode Date: August 28, 2023

Major averages closed higher. It’s the S&P 500’s first consecutive positive sessions of the month. Morgan Stanley’s Lisa Shalett and Wells Fargo’s Scott Wren break down the action. Zillow co-founder Spencer Rascoff talks the housing market gridlock as mortgage rates climb to 20-year highs. He also discusses his new property tech startup Pacaso, fractional ownership for second homes. Art Wheaton, director of Labor Studies at Cornell’s ILR, on the possible upcoming UAW strike—who has the leverage and what it would mean for the economy. Blueshirt Group’s Gary Dvorchak on Secretary Raimondo’s high-stakes trip to China. Plus, Bernstein analyst Nikhil Devnani breaks down the highlights from Instacart’s S-1.  

Well, stocks higher, ending the day higher, extending Friday's rally to start this final trading week of a rocky August. That is the scorecard on Wall Street, but the action is just getting started. Welcome to Closing Bell Overtime. I'm Morgan Brennan with John Port. Coming up this hour, Zillow co-founder Spencer Raskoff talks all things housing as tight supply and sky-high mortgage rates put pressure on the real estate market. Plus, swaying the impact of an auto strike, the United Auto Workers Union granting its leadership the authority to call strikes as it negotiates with GM, Ford, and Stellantis, and a move that could impact the entire economy. We will discuss the possible fallout. But first, let's begin with our market panel as we kick off this final week of August. Joining us now is Lisa Shallott of Morgan Stanley Wealth Management and Scott Wren of Wells Fargo Investment Institute.

Good afternoon to you both. Lisa, I'll start with you. I mean, the pullback we've seen, yes, we're higher on the day right now for the major averages, but we're still poised for losses on the month. Is this just a summertime pullback after a strong run to start the year that's to be expected or could it be more? You know, our perspective is that there's more going on here and that, you know, what we're seeing is markets struggling to figure out how long rates are going to be higher for longer. The move in real rates, we believe, is a material headwind to stock valuation multiples. And our best guess is that stocks are trying to figure out that calculus with regard to the direction of rates.

Yeah, Scott, I want to get your thoughts on that, too, because, yes, we've seen yields take a breather today, but the rapid climb we have seen in interest rates. How much pressure does that put on the stock market here? Yeah, Morgan, I think it does put pressure on the stock market. And not that, you know, even if we trade to four and a half or something like that on the 10-year, I mean, that's not the end of the world by any stretch. But I think when we think of rates, we don't think rates are going to go a whole lot higher from here. But we certainly think the Fed has not done hiking interest rates.

We think that they're going to be higher for longer. And really, when you look at some of the headwinds that are out there, in our opinion, earnings estimates are too high. Credits tighter out there, and that's not going to change anytime soon. So I think, you know, if we tested the recent highs, we'd have a heck of a hard time getting through that. So we're looking for a pullback from here. We're fading this rally. We've been doing that really on most of the way up. Lisa, so what's an investor to do?

Because the danger is stocks never have a big plunge overall, and so folks are waiting on the sidelines for something that never an entry point that never really arrives. So how do you avoid missing out on the growth potential that exists in certain stocks that might seem expensive now, but they might just sort of wobble over time into being not so expensive? Yeah, look, I appreciate the challenges of market timing, and it's one of the reasons that we advise our clients never to try to do that, that you've got to have a strategy where you're dollar cost averaging in. And it's really just a question of your conviction. If you have low conviction, as we do today, we're encouraging our clients to dollar cost average in over a period of the next 12 months. If you're more bullish, you would be to own the equal weighted S&P 500 that doesn't necessarily carry some of the sector concentration and the name concentration

that we're seeing in that market cap weighted index, which, you know, albeit is dominated by those magnificent seven, but those magnificent seven may not be magnificent forever. And Scott, why do you think we're going to start to feel the lag effects of the rate hikes more in Q4? Well, John, I think that, you know, really we're starting to feel them. It's been slow. I think a lot of this deficit government spending that we've seen has pushed the economy along for longer than what we thought maybe it would a year ago. But I think that when these rate hikes, as these rate hikes kick in and the economy slows, the market's going to

stumble here and it's going to stumble further. But I think that's an opportunity. And so what we've been trying to talk to our clients about is let's say the market's down to 4,100. Maybe we see it a little bit lower than that. That's an opportunity. You need to be ready for the pullback because you want to step in when the market's down, when you're a little nervous about stepping in,

when it's tough to step in. So that's what we've been talking to our clients about. You know, we don't want to buy stocks after a gigantic rally and it's near the top of the range. That's not the time to buy stocks. You want to do it when you're looking out a couple of years when they're down. So we've been sitting on some cash.

We backed off of technology. We backed off of equities in general over the course of the last couple of months. And we're parking that cash really in short-term treasuries. And should we get this pullback that we expect, you know, we're going to put some money to work at lower levels. Yeah. Lisa, I mean, China's in focus today. You got the Commerce Secretary there for meetings over the next couple of days. Obviously, a lot of concerns about the economy and data that has been disappointing. But it's also had a big impact on the FX market and the bond market, including the U.S. bond market. I guess walk me through that and how big the risk is in terms of volatility and the feedback to U.S. investors.

Yeah, I think that this has been one of the factors that I've been surprised that U.S. investors are not paying more attention to. And what I mean by that is, look, I think, you know, that certainly emerging markets and the Chinese, you know, A and K share markets, H share markets have certainly reflected the disappointing earnings growth and economic growth in China. But what I think we really have to focus on as American investors is the impact to global dynamics, as you suggest. So not only does a weaker China have implications for weaker global trade, which hits Europe, it hits Japan, but it hits the 30 percent of earnings that come from companies in the S&P 500 who have sales outside the United States. We need to really

care about that. Secondarily, as you point out, we've seen the Chinese currency really weaken versus the U.S. dollar. That move has been one of the moves that has helped power the U.S. dollar much higher. For multinational corporations, this 10 percent move in the past six or seven months by the U.S. dollar is going to be a headwind in terms of translation to earnings and their competitive positions overseas. Last but not least- I would just you know make the point- you know that you suggested which is you know we

know that China is a huge buyer of U. S. treasuries and to the extent that their appetites are lessening- that's going to put upward pressure on our yields that makes sense. Lisa Scott thank you. Thanks, guys. Let's talk more about China. Chinese stocks rallying today after the government

lowered the stamp duty on stock trades. That's a move meant to boost that country's capital market, but there's still major underperformers in the Chinese market this month. Let's bring in senior markets commentator Michael Santoli with a broader look at China's market weakness. Mike. Yeah, John, it's been going on for a while. As a matter of fact, even today's rally was well off the initial kind of reflex pop that you got in the Chinese indexes. Here's a five year look, a lot going on here. But this right here is mainland Chinese stocks, FXI. That's the ETF that tracks them. It's the same as the MSCI China. So basically, it's a proxy for overall Chinese equities. I wanted to compare it, though, to EMXC all the way at the other end. That's emerging markets except for China. So outside of China, which

is within the emerging markets, you've seen it operate right in parallel with all foreign markets. That's ACWX. So the point being, massive outlier to the downside is China. Huge outlier to the upside has been the S&P 500, almost entirely because of the big trillion-dollar-plus market cap dominant tech names that we have in the S&P 500. I think the question now is, is China getting almost so hated and washed out that it's worth a try as a diversifier, as a chance that maybe at some point they get it right, the valuations are cheap enough and they get some traction, even if it is just for a trade or just for kind of a rebalancing move. That is, I think, an interesting question for

the remainder of this year, because it's not something that has participated. And arguably, it's been the biggest mistake is to have an overweight or any weight in China for a while right now. Take a look at the dollar index. You know, Lisa was just talking about this. It's at the upper end of its call it nine month range, well below the highs that we got to last year, right in here above 110. That was at the peak of this idea that the Fed was really running full steam ahead, trying to tighten policy. And when overall financial markets were tightening a lot. So at this point, that 105 ish range would represent the upper end of the range and probably is not a problem if we stay within that, give or take, just because we've

been there recently. It's not as if you're having a massive currency effect on either earnings or capital flows from now. But you definitely would want to watch it, John. Now, Mike, you can chart almost anything, but Chinese Communist Party policy is hard to chart. And that is part of what has shifted over this period of years, right? So as investors consider whether there might be an opportunity to get in, don't they also need to think about what the Chinese government is and isn't willing to do to affect the economy there. Without a doubt. And I guess in some respects, that chart of the Chinese index is, in effect,

the chart of Chinese Communist Party policy, or at least its impact on the economy. Absolute huge question mark as to whether the leadership of China even wants a consumption driven recovery in the domestic economy. They seem addicted to the export led growth, which maybe isn't really there because the rest of the world isn't buying as much their imports. So, yeah, huge question about that's why I think it's strictly about, you know, have we just accounted for a lot of that in the market valuations right now? Don't know if that's a yes or no. All right. Well, we're sure to talk more about that. Mike Santoli, thank you. Even this hour. Well, after the break, housing in gridlock. Zillow co-founder Spencer Raskoff says home affordability is sitting at a

nearly four decade low. He's going to join us to talk about the red flags and opportunities in real estate. Plus, Instacart's S1 filing could hold important clues for investors in Uber and DoorDash. That's according to a new note from Bernstein. We'll talk to the analyst behind that report a bit later in the show. Overtime, back in two. Welcome back. The interest rate on the average mortgage is at a more than 20-year high, north of 7%, while housing inventory remains tight. As many homeowners don't want to give up their existing lower rates, we will get a clearer picture on the space this week with existing home sales on Tuesday and new home sales Wednesday. Joining us now is Spencer Raskoff, co-founder of Zillow, co-founder and chair of property startup Picasso. Spencer, good to see you. So I know Picasso, you know, startup, fractional ownership of second homes,

vacation homes, probably been doing pretty well overall as it's so expensive to buy a whole home yourself. But are interest rates, especially in July and August, having some impact on velocity? Well, Picasso is having an incredible summer. Our business is up 50 percent quarter over quarter, up 60 percent month over month. We just had our fastest ever sale of a home in Cabo and our fastest ever sale after that in Vail. So, yes, interest rates are high. But as you point out, John, a lot of buyers are using co-ownership through Picasso as a hack. You know, they want to get into a market like Tahoe, Napa, Cabo, Aspen, Vail. But home values are just too expensive there now. And so buying a portion of a home is a very attractive alternative.

So Picasso is doing really well right now. But it struck me as the sort of thing that might be good, but just for a while, kind of like new home sales are doing pretty well because people don't want to move out of their older homes. So, you know, people who are buying building homes can offer incentives. I mean, that's fine until rates kind of stay at a certain level and then eventually the market shifts. Are you planning for that eventuality? Well, we're betting that at Picasso, we're going to be able to create a new type of home ownership and that co-ownership is just a much smarter, more sustainable way to own a second home. It lets you right size your ownership of a second home instead of having it sit empty most of the year. You can buy an eighth or a quarter or half a home of a home.

And that allows you to only shoulder the burden of the appropriate portion of the operating expense of the home and also the initial cash outlay. So regardless of where mortgage rates are, we think it's a more sustainable way to own a second home. We had a huge tailwind through COVID where people really wanted to own a second home. And then now we have another tailwind with lack of affordability because, as you point out, home values are so high in these second market, second home markets. So, you know, I think it's just a better way to own a second home. Spencer, it's Morgan. It's great to speak with you. I'm just I'm curious about what this means for the company from an inventory standpoint. Are you able to buy

and the people that are buying into this fractional homeownership, are you able to get enough properties for all the demand you're seeing? It's a great question, Morgan. It's a challenge. I mean, these markets like Vail, Tahoe, Cabo, Miami, like they are inventory constrained. So at Picasso, we work with new construction, home builders and developers to bring new inventory online. We also work with existing homeowners who want to sell down a portion of their home. So perhaps they bought a home during the quarantine in Vail or Aspen or some other luxury market, and they realize they're not using it as much now. And through Picasso, they're able to sell half of it or two-thirds of it, et cetera,

and turn their home into a Picasso. So we find creative ways to get inventory. But you're absolutely right. Our demand in some markets is outstripping our ability to get supply. If we just expand this out beyond the second home markets and beyond Picasso in general, what is it going to take to unlock more inventory? Are rates going to have to come down? I mean, yes, home builders are stepping in and starting more projects, but that doesn't seem to be enough. Yeah, it's a huge problem. I mean, half as many homes were listed this summer as in 2019. Homes went pending on average this summer in 12 days. That's about twice as fast as in 2018 or 2019. So we just do not have enough homes. And it's because of mortgage rate

lock-in. It's because so many people have 2%, 3%, 4% mortgages, and they don't want to sell because then they would have to buy at a 6%, 7% mortgage today. What will cure this is a couple things. Number one, new construction. And for that, we need better housing policy. I mean, a lot of these markets are just so anti-development. It's so difficult to build in a lot of markets that there's not enough supply. And that's what contributes to housing unaffordability and also indirectly to homelessness. So we need more homes to be built. But yes, we also need mortgage rates to come down. And they will. I mean, most experts are predicting we'll see mortgage rates back in the sixes by spring, maybe even

in the fives by summer. So by about a year from now. So we're probably at see mortgage rates back in the sixes by spring, maybe even in the fives by summer. So by about a year from now. So we're probably at peak mortgage rates kind of in the low sevens right now. And they're going to start coming down. Spencer, eventually when home prices drop, what happens with Picasso? If one party who owns a portion of that home sells, does the home entirely get revalued? And does everybody else kind of have to take a valuation haircut in a way? And then what happens to the loans against that property? Yeah. So when a homeowner, when a Picasso owner wants to sell

their home, they notify Picasso and then the other Picasso owners have right of first refusal, excuse me, on that sale. And if none of those existing owners want to buy that extra share, then Picasso lists it. We've had dozens of resales at Picasso already, and on average, they've appreciated about 10%. In fact, I own a Picasso I bought as a resale. That's my concern, though, because it's been that kind of market. But what happens when there's the kind of market when it's going down 10% and that eventual sale

price affects everybody else? Well, it is real estate. So, you know, it could go up, it could go down. You know, if the home value goes down, you have a bit of kind of not quite a floor, but you have something in the case of Picasso that you don't have with traditional real estate, which is you have other homeowners frequently who want more of the existing home that they like. So there's something of a downside protection from the other homeowners. But, you know, we could have resales where home values decline for sure. Related to your question about the mortgage, the other folks are not on the hook for the mortgage. So I have a mortgage on my Picasso. And if, you know, if I don't pay my mortgage, then Picasso forecloses on my share, but the other folks are unaffected.

So the mortgages are all independent of each other. All right. Spencer Raskoff, thanks for joining us. Thank you. After the break, a strike at the big three automakers is possible in the next few weeks. But could Mexico pick up some of the assembly slack? We're going to talk about the role that our southern neighbors could play in a labor dispute. And speaking of autos, check out shares of VinFast, the Vietnamese EV company that we told you about last week is surging again today after becoming the third most valuable

automaker in the world by market cap. See it there up almost 20 percent today. We'll be right back. Welcome back. The United Auto Workers voting to give union leaders authorization to strike if necessary in their ongoing negotiations with GM, Ford and Stellantis. Morgan Stanley says a strike could potentially lead to a noticeable drag on GDP. But could Mexico pick up some of the assembly slack? Phil Boe joins us with that story. Phil. Mexico will help for a couple of days for the big three automakers who get about 20 percent of their North American production from south of the border. But it's not going to be able to continue going if there is a widespread strike. And we'll explain why in a little bit. In terms of volumes coming out of Mexico, General Motors gets the most percentage wise with a total of 773,000 vehicles built in Mexico, sold in North America, primarily here in the United States. There you see Stellantis and Ford as well. In terms of the vehicles that are

built in Mexico, you're talking about the Ram 1500 pickup, the Ford Bronco, the Chevy Equinox, as well as the Chevy Silverado. So some popular models here in the United States, for sure. But keep in mind that some of the major components within these vehicles, primarily transmissions, engines, they're manufactured north of the border, then shipped down to Mexico. If there is a strike, you can bet it is likely that there is going to be no transmissions or engines that are going to be shipped south of the border. So production would cease relatively quickly, maybe within a matter of four or five days, depending on where the strike is, how widespread it is and who the UAW targets. Remember, the UAW is seeking a 40 percent pay increase over four years. That's one of the primary objectives of the current

negotiations, John. And the contract ends at midnight on Thursday, the 14th of September. John. All right. The clock is ticking. Phil LeBeau, thank you. Let's bring in someone who teaches classes for UAW and other unions focused on labor negotiations. Joining us now is Art Wheaton, labor studies director at Cornell School of Industrial and Labor Relations. It's great to have you on. You also participate in research with it looks like UAW, Unifor, which is the Canadian union and the auto companies regarding this transition from internal combustion engines to EVs and the impact on workers as well. Are you directly involved in these negotiations? I am not directly involved in these negotiations? I am not directly involved in these negotiations. I have met some of the players that are involved, but for the most part,

they're always tough. And I've been studying the auto industry for more than 30 years. Yeah. And certainly it's on the leverage seems to be at least right now on labor side, given the tight employment market right now, given the fact that you have automakers that are still very tight in terms of inventory levels as well. Your expectations on how this could play out over the next couple of weeks? Well, another factor that's really in the UAW's favor is we're at a near all-time high for favorability towards unions. So the average American has about a 71 percent favorability towards unions. So they have public support as well. I think it's very likely we will see a strike as soon as the midnight deadline

or the evening of September 14th. I think we could see it at one of the automakers, possibly all three. And if it does happen to be all three, and of course we don't know, I'm really curious about the potential overall economic impact, because the auto industry has these massive supply chains that do, though, tend to be geographically concentrated. And that's different from, say, UPS or certainly from Hollywood actors and writers. What is the local and then regional economic impact of these strikes when they have happened in the past? I guess it's been a while since we've had a really big one. Well, one of the estimates I've seen is that a 10-day strike would cost about $5.6 billion, and a lot of that is the spinoff or the other costs associated with the strike, not directly wages or profits for the companies. But it hits everyone, and it would do a lot of damage to the state of Michigan, Ohio, Indiana.

Even where I'm sitting in western New York, we have quite a few auto production facilities as well. So it makes a huge impact. It covers everyone from grocery stores to movie theaters. You name it, it has a direct impact. And state and local budgets as well for all the taxes that they pay for their wages. Also, this particular negotiation seems to be particularly fraught because auto industry experts will argue that you don't need as many people to put together an electric vehicle. And that's the way the business is going. So if the auto industry locks in these higher costs, are they signing their death warrant? I don't think so.

I think that the ability to sell these electric vehicles, they were able to sell them. The average price for an electric vehicle is almost six or eight thousand dollars more than an internal combustion. So they can afford to pay more in labor for these vehicles. So I don't think that's the issue. I think the problem with this negotiations is we're just coming off of covid high inflation. People are expecting big returns. We're in a tight labor market, and I think there's low inventory. So there's a lot of factors in place that could make a strike more devastating than normal, but also put the power more in the UAW's hands. Ouch. We'll see how it plays out. Art, thank you. Thank you.

Time for a CNBC News Update with Julia Boorstin. Julia? John, police at the University of North Carolina just gave the all-clear hours after the school issued a shelter-in-place order following reports of a, quote, armed and dangerous person situation on or near campus. NBC local affiliate WRAL reports there is a person now in custody. At this hour, there have been no reports of anyone injured or killed. Former President Donald Trump vowed to appeal the March 4th trial date set in his D.C. election interference case. On his social media platform called Truth Social, Trump called the judge's decision politically motivated. The jury selection process

is set to take place the day before Super Tuesday in the middle of Republican primaries. Political everyman Samuel Joseph Wurzelbacher, better known as Joe the Plumber, has died. He gained fame on the 2008 campaign trail when he inserted himself into a nationally televised confrontation with then Democratic nominee Barack Obama over the taxing of small businesses. Wurzelbacher's wife says he died of pancreatic cancer Sunday at their Wisconsin home. He was 49 years old. Back over to you, John. Thank you.

Coming up next, blue chips feeling the blues. Mike Santoli is going to look at two Dow components dealing with legal troubles and flat profits, including one that might be turning a corner today. And don't forget, you can catch us on the go by following the Closing Bell Overtime podcast on your favorite podcast app. We'll be right back. Welcome back. We have a news alert on Google. Jen Elias from.com has the details. Jen? That's right, John. We've learned that Google is planning to license new sets of mapping data to a range of companies to use as they build products around renewable energy. And one internal document we viewed shows that it's hoping to generate up to $100 million

annually in its first year. We viewed internal documents that show the company sees customer opportunities with solar installers like Sunrun and Tesla Energy, as well as real estate companies like Zillow, Redfin, and hospitality companies like Marriott, Bonvoy, and utilities companies like PG&E. As part of the planned launch, the company is also planning to announce an air quality API that will essentially let companies request air quality data, such as pollutants, health-based recommendations for specific locations. And this is just a new revenue stream the company is hoping to earn in its maps division and overall in its cloud division. And Jen, is the idea here that using Google Maps and that bird's eye view, you can see

whether a roof is obstructed, you can see whether sun is hitting it, and that should allow solar companies to know which customers might get the best economic impact from the product? Exactly, John. We found that Google says, according to these documents, that it has data on 350 million buildings.

And so it can tell it has 3D imaging of roofs of buildings, as well as can tell which sides of the building has shade, where the trees are. So it's pretty minute. And they're just now opening up or they're planning on announcing that they're going to open up this data to enterprise clients. All right. Jen Elias, thank you. We've got an earnings mover to tell you about. Aerospace and electronics company Heiko just reporting results. The stock is down after hours despite reporting a beat on revenue with net sales up 27 percent to a record. Earnings per share coming in at 74 cents. That includes three cents of acquisition costs. The CEO saying in the release the company is seeing continued strong demand for commercial aerospace

products and services. Operating margins, though, coming in below estimates and down nearly 2 percent from a year ago. Perhaps that seems to be putting pressure on shares, which are down 6 percent right now in after hours trading. This is a name, though, John, that is up at least still up at this point, something like 9% on the year. Okay. Meanwhile, shares of 3M soaring today after reports said it is close to reaching a settlement to resolve lawsuits over its combat earplugs. Let's bring back Mike Santoli for a look at the impact of these legal overhangs on that stock. Mike? Yeah, John, big bounce today in 3M shares, but after a very long period of underperformance, look how the shares have done compared to the broader industrial sector.

Now, 3M is really the last of the very large true industrial conglomerates with very unrelated businesses. You've had GE slimming down, spinning things off. You know, others have gone toward aerospace or building services. We have 3M here with very, very different businesses and also not just the earplugs lawsuit, but also some chemical liabilities out there that have been one of the overhangs on the stock. Now, as a result, take a look at how the valuation has come over the last decade or so of 3M in terms of the forward PE, as well as Johnson & Johnson, which is another Dow 30 component that has been shadowed by those big legal liabilities.

In J&J's case, of course, the talc cases. Now, there's been some glimmers of potential settlements there, too. And you see J&J has firmed up its valuation. But it used to be here, both of them had a significant premium to the S&P above one. And now 3M especially looks very, very inexpensive, if you believe the earnings. The problem is these settlement amounts are unknown. Five and a half billion dollars, as reported, is, you know, a year's worth of current earnings run rate. It's more than they pay out in dividends in a year.

Of course, it would be spread out over and over time, possibly. But market wants to see this stuff get passed. But then it's still a question of what you're paying for this collection of businesses. Yeah, it's interesting that to see this chart of 3M and how much it's underperformed the broader industrials, and perhaps not surprising, especially when you think about some of the other conglomerates who have done things like spun off some of their businesses,

which I know 3M is now moving to do with at least one part of its portfolio. But to compare it here to Johnson & here to Johnson and Johnson and Johnson. Yeah. Johnson and Johnson. Thank you. That to me is particularly interesting because it kind of highlights the legal issues here and the liabilities here. And I wonder what it's going to take to your point when you start talking about tens of billions of dollars potentially for that inflection to happen. Historically, what the market wants is just for those liabilities to be quantified and be behind them. And then you can essentially try to map out what the business looks like. You mentioned 3M has been talking about spinning things off.

J&J as well has spun off some of its consumer businesses. So, you know, I think it is a moment where when the market, through its valuation of your your stock tells you it's not crazy about, you know, the business structure, the corporate structure, usually managements try to do something. It is also interesting that these are two companies which were really the bluest of the blue chips. J&J, one of the very last triple A rated companies in terms of its credit rating. 3M not long ago had one as well. Yeah. All right. We have to keep an eye on that dividend, too. I think it yields something like 6 percent right now. Mike Santoli, thank you. Up next, an expert on China discusses how Commerce Secretary Raimondo's high-stakes

trip to that nation could impact U.S.-China relations and your money. Welcome back to Overtime. U.S. Commerce Secretary Gina Raimondo wrapping up her first day in Beijing where she met with senior Chinese officials. Both sides agreed to improve communication in relation to business and trade. These high-stakes talks come as the United States tries to stabilize its economic relationship with China. Joining us now for what this all means for investors is Gary Dvorak from Blue Shirt Group, which advises companies in the U.S. and China. Gary, great to have you on the show. How are you advising companies right now? Well, we advise companies that are trying to list in the U.S.

stock market. And so, as you know, it's been pretty slow going in terms of Chinese IPOs, and that's been a function of a number of things, including COVID and issues around the audit, what have you. So that is one of the early data points in terms of things thawing a little bit in the relationship with China. We actually have seen a lot of Chinese IPOs this year. There have been over 40 companies that have listed the U.S. stock market. So it's a small element of what we need to see in terms of a greater thaw between the two countries in their economic relationship. But certainly it's one of many things that are moving in the right direction. Yeah. And of course, you have this establishment of a working group that's going to involve officials and businesses from both countries. It also seems this establishment of an information exchange around export controls as

well. The Commerce Secretary was very quick to say this is not going to be affecting policy. This is just going to be an informational exchange about the policy that's in place and going to stay put. How much does that go towards that thawing? How helpful is that to businesses? Well, there's two elements to the whole situation. One is the general relationship and then one is the economic impact. I think all of that is positive for the general relationship. And especially, you know, look, you have a lot of experts on that do a lot of research. My expertise is I've lived in China for 10 years and I just talk to people, talking to people all the time. And one of the things that I don't know if it's appreciated or not, but amongst Chinese, they feel like they are under attack from the United States.

And this is their viewpoint, right or wrong. I'm not advocating it. But they do feel like they're under attack from the United States and the United States is trying to harm their economy. And, you know, what they see is the high profile technology related restrictions that, you know, we're all talking about. I mean, they don't see the billions of dollars of goods that end up on the shelves in Walmart and things like that. So the whole relationship economically is probably not as bad as it would be depicted in the media. But at the same time, that's what people think. And so a lot of what you're seeing now is kind of, you know, if nothing else, the U.S. putting out an olive branch and saying, look, we're sending our top people over. We're preparing for Xi Jinping's visit to the

United States this fall. We want to have more open lines of communications. I don't know if it changes a lot when you get down to the actual activities economically, but certainly it doesn't hurt. So let's talk about the Chinese stocks for a moment, Gary. So the cloud over the Chinese economy reminds me in a way of the pessimism in U.S. markets last fall. What's the bull case for Chinese stocks here, whether it's that the pessimism has been priced in or maybe that the real estate issues there aren't as immediate as some think? Well, the bull case is really a value case, because if you look through, you know, the wide range of companies that are trading in the U.S., the valuations even now, they're off the bottom. So the October of 2022 was the bottom. You had probably 40 to 50 companies that were trading below cash.

Right. And now they're a lot of them are trading closer to cash value, but certainly they're getting zero enterprise value. And so anyone that is interested in Chinese stocks, you really got to be a value player and you have to be looking at it from that perspective. You know, there's still a lot of issues around their domestic economy. And honestly, almost all Chinese companies, even listed in the U.S., are really domestic stories. I mean, you look at Alibaba, you know, the biggest Chinese company by market cap, and they don't do anything outside of China. I mean, it's a domestic story. And you go through the whole list and JD and Baidu and all the others, they're domestic stories. So they do, over time, need to have a more robust domestic economy. But having said that, what's your risk when you're paying so little to buy them? Right. Maybe the value is priced in. Gary Dvorak, thank you.

Great. Thanks. Up next, a top analyst on what you need to know about Instacart's IPO filing and what it could mean for investors in DoorDash and Uber when Overtime comes right back. IPOs trying to make a comeback. Instacart among the names filing to go public last week. Analyst at Bernstein dug through the S1. Joining us now with his key takeaways, Bernstein U.S. emerging Internet analyst Nikhil Devnani. Nikhil, welcome. So Instacart's up against Amazon, DoorDash, Uber Eats, and in a way it's more niche than any of them because they really focus on

grocery. What do they have to do to win? Yeah, first off, thanks for having me. Look, this is a super interesting space. It feels like the market's huge and we're pretty early in this migration curve. But I think what's also super apparent is that it's very competitive right you've got all of these players going after it in a very meaningful way and it's not just the tech companies i mean you're competing up against you know the likes of walmart and kroger that have been at this business for a very very long time i think what we need to see instacart do is continue to habituate the consumers that they're adding and continue to strengthen the partnerships that they have with the retailers.

I think the most crucial thing for them is to ensure that they fully integrate themselves with their retail partner network. And the stickier those relationships are, the harder it's gonna be for a DoorDash or an Uber or anyone else to pry that away from them. And that I think is the core to this, really the moat around this business as we go forward

is understanding just how durable this first mover advantage in the space is going to be. You mentioned that we're early in the migration process. Why do you think we're early, especially coming out of a pandemic where at one point, it seems most everybody who was in a position to do so was accessing some of these platforms like Instacart to have their groceries delivered during lockdowns. That's true. But when you still step back and look at the online penetration curve of the market, you're still talking about maybe 11, 12 percent. That's well behind what you see in a bunch of other verticals in retail. And so the behavior of consumers will tell you that we'll continue to see that inch up over time.

Younger consumers continue to find a bit more value in these online services. And so it feels like we're just kind of getting started in this broader trend. You know, but it isn't easy. And the nature of online shopping of grocery might look very different. One of the things that we learned from the S1 is that people really love picking up orders. And that's fundamentally quite different to what we see in broader retail. And probably a big reason why so much of online e-commerce is really dominated, not by your Silicon Valley tech companies, but more so by your classic traditional retailers in Walmart and the rest of them. All right, Nikhil, thanks for joining us. We're going to

keep an eye on this one. Thank you. Breaking news on the San Francisco Fed. Steve Leisman has the details. Hi, Steve. Hey, Morgan. We learned that the head of bank supervision at the San Francisco Federal Reserve will be retiring. Ajay Rabasi, he has been there at the Fed since 2015, and he has had this job, I believe, since 2016. He will be retiring. This comes in the wake of well-publicized bank failures that were at least partially overseen by the San Francisco Fed. The Silicon Valley Bank and First Republic, these were in their domain certainly as smaller banks, and then they grew up and became larger banks, and the bank supervision passed on to both the Board of Governors and the San Francisco Fed.

So the failure wasn't all laid at their feet, but there were issues that were raised about the failures and the supervision at the regional banks in the wake of those two failures. He will be staying on, actually, until October 31st. He'll be retiring. His job will be taken, at least on an interim basis, by Neil Willerton, who has the same job that appears at the Federal Reserve Bank of Minneapolis. So it's being called a retirement. It's not being called a firing. You can take whatever you want from the idea that he will be staying on for several months, even after the announcement

time, and it overlapping with his successor... successor who started up to the first yeah i i i guess you said the quiet part out loud but i was gonna ask about uh... any sense of whether this is a long-planned retirement as in before march i just sort of career-length uh... and that's that's et cetera or whether that this is a convenient retirement for all kinds of reasons i was not able to figure that out i asked that question i was not uh... uh given an answer. It was not clear whether or not this was a long-term retirement or something in response. I mean, one way you could think about it is sometimes if somebody

messes up, John, they go right away. And sometimes they can hang around for a while. And maybe this was something he had a career in the private sector. It's companies like KPMG. So unlike a lot of the career Fed officials, he does have a work history in the private sector. Okay. Well, I guess we'll take from that what we can. Steve Leisman, thank you. Thanks, John. Best Buy is kicking off a big week of retail earnings tomorrow. Up next, find out the clues that these results might give us about the state of consumer spending.

And speaking of retail, don't miss Jim Cramer's Back to School series all this week at 6 p.m. Eastern on Mad Money. Stay with us. Welcome back to Overtime. We will be closely watching a number of earnings tomorrow. Before the bout, we'll get a read on the consumer when Best Buy and JM Smucker report. After the close, we'll be watching for numbers from Box, HP, HPE, and PVH. And a lot of acronyms there. And on the data front, we'll get Caseiller home prices jolts and consumer confidence let's

bring in courtney reagan now with a closer look at what we could learn about retailers and the consumer tomorrow court what could we learn on top of what we've already learned i know exactly i mean look sales of discretionary goods like appliances and clothing they've been weak so it doesn't bode particularly well for best buying pvh tomorrow but best buy ceo corey berry did prepare investors a bit last quarter, saying that this calendar year would likely be, quote, the bottom of the decline in tech demand, but that there will be a rebound at some point with homes more technologically connected than ever before and the natural upgrade cycle that comes along with that. Comparable sales are

expected to fall 7%. Best Buy does have a history of pretty tight cost control that may end up helping earnings at least. Shares have been down just about 1% since it last reported, so pretty flat. And then PVH after the bell will give another look at the international consumer with sales of its Tommy Hilfiger and Calvin Klein brands, among others around the world. China hasn't been as strong as hoped for many retailers as it's emerged from the pandemic, although it was pretty good for Abercrombie. Europe has been stronger than the U.S. in some cases. PVH shares are down 12 percent since it last reported, though that is well underperforming the XRT. I imagine appliances probably going to be a drag

for Best Buy. As they were, yeah, for some of the big retailers. And phones, too. What's the potential upside? I know that's a good question. What is the potential upside? Maybe that's the answer. Exactly. I know I'm kind of having a hard time finding it. I don't know. The best I could come up with is the cost controls. I mean, Best Buy has been really good at cost coding over the years and maintaining profitability, even when sales are in a tough spot, which is what I assume we will hear from them tomorrow. But we'll see. The numbers will speak for themselves. All right. We know you're going to be all over it, too. Thank you. All right. Courtney Reagan, thank you. Thank you very much.

Also on tap for tomorrow, an exclusive interview with Google Cloud CEO Thomas Curran on AI and much more. That's from the Google Cloud Next event in San Francisco. Morgan, this is part of this software behind AI rollout that we've really continued to talk about. Like, is the chip demand from NVIDIA and others real? Well, it's going to take software that makes people want to use those chips to bolster that. Which we know has been part of the case around NVIDIA and why it's been so strong

and the earnings have continued to be so blockbuster. But to your point, what those next layers look like. The stock was down after amazing earnings. So if it's going to run again, it'll have to be because of something like that. That'll do it for overtime. Fast money begins right now.