Closing Bell - Closing Bell: Rally On! … Or Rally Soon Over? 10/16/23

Episode Date: October 16, 2023

Where are stocks headed from here? Hightower’s Stephanie Link and Schwab’s Kevin Gordon give their expert forecasts. Plus, Todd Boehly – co-founder, chairman and CEO of Eldridge Industries – breaks down his diverse portfolio and gives his forecast for markets and the economy. And, Cain International’s Jonathan Goldstein explains where he is seeing opportunity in the real estate market despite a slew of big headwinds in the space. 

Welcome to Closing Bell. I'm Scott Wobner, live in Beverly Hills at the Case Alternative Investment Summit. And we have a big exclusive interview coming up. Billionaire investor Todd Boley of Eldridge Industries will join us in just a little bit to talk about his portfolio and outlook for the markets and the economy. We can't wait for that. In the meantime, your scorecard with 60 minutes to go in regulation looks like that. Green across the board, stock strong all day with the s p looking to build on its two-week winning streak nasdaq is the outperformer today and it's interesting because apple is not participating a new report suggesting iphone sales in china have been

disappointing even so every sector today out of the s p is higher it's been a broad-based rally even as interest rates have crept modestly higher. So there's your sector heat map. A look at what's going on inside the market. It does take us to our talk of the tape. Rally on or rally soon over? Simple question. Let's ask Hightower Stephanie Link. She's here with me in Beverly Hills, also a CNBC contributor. It's good to see you out here. Good to see you. How about that question? Do we rally on or is this rally soon to fade? I think we rally on. Seasonally, you're in a very strong position into the end of the year. There's that, right? Secondly, I think that people are coming to grips with inflation actually has come down, made a lot of progress. We got CPI and PPI last week. We are a far cry from where we were a

year ago, Scott. We were at almost 12 percent inflation in PPI and 9% in CPI. And then today we got the Empire State number of prices paid. That came down. So inflation is still strong, still high. However, we're making progress. That's one. Number two, I think rates have actually stabilized. They're high, but they're stabilizing.

The Fed, I don't know if you want to say they're less hawkish or more dovish, but they're different than what they had been. And then wait, wait. And then there's earnings. And earnings so far are better than expected. I know it's a small sample set, but I'm very encouraged by what I'm seeing not only in revenue, but in margins as well. We'll get to that. On rates, the push-pull in the market is, you know, the bulls suggest, to your point, well, the Fed seems to be pivoting more dovish, right? The commentary of late has been, well, the credit market's done a lot for us. Maybe we don't have to do anything else. Austin Goolsbee today, right? Chicago Fed president. Trend is, without question, lower for inflation. So that works in your favor. Now, the other side of that is,

yeah, but rates are still high and the lag effects are still to come. So how do you reconcile those two factors that are leading the bull bear debate right now? Because even in the face of higher interest rates, the economy has been pretty resilient. We talk about this all the time. It's the $2 trillion in infrastructure stimulus.

And by the way, it hasn't even gotten into the economy just yet. So that's going to be a nice tailwind. Consumer is pretty good, right? I mean, we talk about jobs all the time. I always focus on the initial claims number because it's a forward-looking indicator. Really still very strong. Wages are still good. They're not explosive like they were, but at 4.2 percent, I'll take that. And the consumer also has $2 trillion in savings. So I think as long as the consumer hangs in and manufacturing also has these tailwinds, we can handle higher rates for longer.

Okay, so bears are going to be bears, right? Speaking of, Mike Wilson, Morgan Stanley, talks about weakening breath within the market. See stocks down 10%, says no fourth quarter rally is coming. And to your point on the strong consumer, he says University of Michigan Consumer Sentiment Index fell by the largest month-over-month decline since June of 2022. Consumers tapped out, don't have any more money to spend, dour attitudes about, you know, what's going on with inflation, how much more they can really spend. What do you say? Well, we have retail sales tomorrow. I think that's the biggest data point of the week other than earnings. And I think it's going to be strong. And I look at companies like

American Express, which just came out with September loan growth of 18.3 percent, led by the consumer of 17 percent, small, medium businesses of 21 percent. We heard that Prime Day, the first day of Prime Day, people bought 25 million products online. And that's only the first day of Amazon. Pepsi had better than expected organic growth. So I think the consumer is in better shape. If they have money, they're going to spend it, whether they put it on a credit card or they have the cash. We are a nation of spenders. Yeah. But of course, Kevin Gordon, Charles Schwab's a senior investment strategist, as we broaden out the conversation, he joins us now. Earnings, yes, they're off to a good start, but they're all going to come down to tech, aren't they?

I mean, to some extent, yeah. And I would say, you know, for all the excitement around some of the earnings beats on Friday, especially within the banking sector, you know, the banking index actually closed lower and gave up all of its gains that day. So I don't want to use just one day as a precursor for the rest of the season. But I think from an earnings breadth perspective, yes, tech matters in terms of the mega cap names kind of lifting the overall index. We also have to keep in mind when we use that big tech moniker, it's not just the tech sector.

So if you're looking at the Magnificent Seven, it also includes communication services, consumer discretionary. So you need to see those areas also participate. And actually, even within those three sectors, the trends are different. So the trend for earnings revisions and overall earnings growth and the path of estimates for communication services is the strongest. It's picked up a little bit this year for consumer discretionary, but tech actually looks the weakest. It's not negative territory, but that's the one that actually scores worse. And then if you go to a revenue standpoint, which I think is much more important for this quarter rather than just earnings growth itself, that also looks a little bit weaker too. What about the cautious commentary that's out there?

I mentioned Mike Wilson. He also goes on today mentioning weakening breadth and cautious internals reduce the odds of a rally in the fourth quarter. Chris Verone, Strategas. I mean, these are people who've been on our program, obviously, says he talks about the technical picture being weaker. Only 41 percent of the stocks in the S&P above their 200 day moving average. In other words, the market rally hasn't been broad enough. Now, today, notwithstanding, obviously, is telling a little bit of a different story. But one day, doesn't a trend make. So it hasn't been broad enough yet to really get

definitively behind the idea that you could have a rally between now and the end of the year. What do you say to that? Yeah, and I think it's, well, I mostly agree with it because you're at a point now in the market cycle where, as we just celebrated the one-year anniversary of the market low last week from October of last year, you're not at a point where objectively you can say that this is a really strong, healthy, durable bull market, whatever word you want to use to describe it, because if you're mentioning, if you're looking at something you just mentioned,

percentage of members above their 200-day moving average, typically a year after a major market low, you're well into territory upwards of 80 to 90%, not near where we're at right now. You look at the lack of participation from small caps. This has been the weakest advance going back to the history of the Russell 2000 off of a major market low in that index's history. And then something that I know Chris has mentioned, this is the first time in nearly 100 years

worth of data for the bank index that banks have been down a year after a major market low. So I do agree with the fact that it's probably going to feed something that you and I were discussing last time with Mike Santoli of, you know, this narrative where you're going to be late cycle for longer, where you keep getting these conflicting messages from the market with the market telling you, whether it's the performance of banks or the performance of small caps, that you're probably not through the worst part of the cycle, maybe in specific sectors.

I agree that there are certain sectors that are turning higher, but that's also been the nature of this cycle where you've had pockets of weakness offset by different pockets of strength. So I think that's probably the theme that's going to persist for a while. All right. So, Steph, NASDAQ outperforming, right? Every mega cap stock today, but Apple, as I mentioned off the top, is higher today. There are those who say, well, you only need tech to continue to pull the weight of the market because it's been proven this year that that strategy can work. And if you've been in those names, you've obviously done well. Then there's the Jonathan Krinsky's of the world who say a reckoning is coming for those names. Take a look at what's happening under the surface.

They're too top heavy and then they're going to roll over. It's just a matter of time. And that's what's going to be defeating for the market. Well, I mean, look, they're very well owned, number one, and they're very well supported by the sell side as well. So the sentiment is not in your favor. That said, in the last couple of weeks, they've actually taken a pause, right? And in the face of energy rising, industrials rising, so I would argue you actually are seeing a broadening in the market. Do you need tech to go higher for the markets to go higher? Probably, Scott. But I do think the earnings are going to be good. And again, sentiment has come down a little bit. And maybe some of the Garpier names will do better, the ones that you can defend the valuations.

But something like an Amazon totally derating or a meta or an alphabet versus some of the higher flying names like NVIDIA and Tesla and that sort of thing. We will see you in the market zone, Stephanie Link, in just a little bit. Kevin Gordon, I appreciate you being with us today as well. We'll see you again soon. To our question of the day now, we want you to answer the question at the top today. Rally on or rally soon to be over. You can head to at CNBC closing bell on X. Please vote. We're going to share the results a little later on in the hour. Up next, a can't miss interview. Billionaire investor Todd Boley is breaking down his portfolio for us, which includes everything from the Lakers to the Golden Globes and many stops in between.

We'll find out what he's forecasting for the economy and the markets will join me on set for an exclusive interview just after this break we are live in Beverly Hills today. At the case alternative investment summit and you're

watching closing bell. On CNBC. Welcome back to closing bell. Our next guest has about as diverse a portfolio as you'll ever find, with major investments in energy, real estate, tech, travel, media, and, of course, sports. Todd Boley is the co-founder, chairman, and CEO of Eldridge Industries. Joins us in a live CNBC exclusive interview. It's good to see you.

Thank you very much. I mentioned this diverse portfolio you have. We're talking more than 70 companies. So given all of those areas, you have a really good look into a number of different spots in this economy. How do things look to you? Things feel better than you would have expected based on all the chitchat over the last six to 12 months. I think you see hotels are performing well. People really like experiences.

Businesses generally are hanging in there. I think there's been obviously a little bit of inflation in the cost of goods. So we've seen margin compression. But generally, we feel really good about how the businesses are performing. I mean, what's your outlook for where rates may go from here? What do you think the Fed is going to do, whether there's going to be a recession or not? Listen, I think we've seen the back end of the curve move up pretty dramatically lately. And we think that's been a very helpful thing for the Fed to not have to continue to move. Obviously, when the front end

was at five and the back end was at three and a half, I think that was really a bigger challenge. But now you've seen the back end move up pretty dramatically. And that's really started to put the brakes on some things, we believe. In other words, the market's already done the Fed's work for it. Yes. Yes. You think they're going to be finished? Listen, I think they're going to be data dependent. Right. So, you know, my bet is that they're done for the year if I had to bet right now. But I believe that, you know, they're going to be data dependent. I think if you look at, you know, the prognosticators of where rates are headed, most people believe that in 2024, rates will start getting cut again.

But again, I think this comes down to what happens. And the good news is that rates have risen enough where we've got room to wiggle. So I think we can see our way out of a problem if a problem arises. Interesting. You said almost a year ago at a conference that, quote, the cost of money is being repriced. You just have to adjust and accept that money is just going to cost more now. It's obviously costing more now than it was even a year ago, but is that impacting the way and the size, the kind of deals you're looking to do?

It's absolutely driving us to credit. We're spending a lot more time in credit. We've done quite a few loans in the last couple of months where we're getting 12, 13, 14 percent rates of return by being kind of dollar one at the top of a capital structure in structures that are, let's call it four or five times levered, where before we were six, seven, eight times levered and you were making a lot less money. So now we think it's a really good time to be a lender. But of course, there's prepayment, no prepayment penalties on loans.

So the reality is, once rates start going down, we're going to be refinanced out of that. So the challenge with credit is that you're always on a treadmill trying to figure out what's next, because the really good ones don't stick around very long. You talked about credit. Howard Marks's new letter literally just dropped an hour or so ago arguing for a reallocation of capital towards exactly what you're talking about, credit. Quote, credit instruments should probably represent a substantial portion of portfolios, perhaps the majority. Says you can get equity-like returns now in credit. Of course, you started the credit business at Guggenheim. You know this segment of asset better than most. Now's a good time. And I

think if you look at where within the credit markets you want to play, senior secured lending has always been a really good asset class. It goes up and it goes down. But generally for me, it's a great asset class year in and year out. High-yield bonds, I think a little more fickle, right? When you're looking at high-yield bonds that are 100 basis points, 200 basis points per me, it's a great asset class year in and year out. High yield bonds, I think a little more fickle, right? When you're looking at high yield bonds that are 100 basis points, 200 basis points behind senior credit, I'm not sure why you'd want to be buying those. But when they're 400, 500, 600 basis points more spread than senior secured loans, then I think high yield bonds are a really good thing to be buying. Yeah, this does play as well into sort of your strategy of what you're trying to do at Eldridge, get bigger in asset management focused on credit.

Yeah, we're in the process of consolidating a bunch of asset managers. We had a very good success with something called CBAM that we built from scratch and then sold it to another alternative asset manager. So rather than sell these businesses to alternative asset managers, we want to grow them and we want to scale them and get the benefit of having multiple businesses working on the same end game. You're bullish on clean energy, energy transition.

I think your most recent deal, Asenko, Australian mining, engineering and consulting business. Is it an EV play for you? It's absolutely part of it, you know, because I think if you look at the average electric vehicle, they have five times more copper than a traditional combustion and combustion engine does. So it's absolutely a play on EVs. But really, we think in order to be the electrification of everything, copper is going to become more important. Cobalt is going to become more important. Nickel, as well as lithium, of course. Yeah. How long does it take to see a return on that investment for somebody like you? Well, we're not buying an actual mining

business. We're buying the engineering business that supports the mining business. So today, think of it as a funnel. Basically, they have 1,000 people that are doing basically 2,000 projects for big companies at roughly 100,000 a project. So that's a $200 million business. And they analyze opportunities. About a third of those then go to what's called pre-project development work, where they dig a little deeper and they invest more money. So they spend roughly $350,000 on 600 projects. And then these guys are the ones that are on the site trying to figure out, how do I get the power? How do I get the water? I mean, copper right now is coming out of the ground at 0.7% concentrate.

In order to justify shipping it, you have to get it to be a much higher concentrate. So they're the ones that are figuring out how to take 0.7% concentrate copper, get it to a 30 percent concentrate and then ship it. You know, one of the big challenges that the mineral market has right now is that most of the expertise are residing in China. So I think everyone's waking up to the fact that we need to be mineral free of China and have much more opportunity in order to to not worry about are we going to get our precious minerals and our critical minerals from China? How long do you have a sense that the transformation to more clean energy is going to take in this country in a really meaningful way? You know, I think that's a really good question. I think people are not practical sometimes about how they think about it,

because I think you're going to have to figure out how do you leg your way out of one, because we're not going to starve and we're not going to freeze and we're not going to stop driving. So the reality is, how do you leg your way out of one set of world into another set of worlds? And I think we're seeing it more and more with subsidies in the EU, where the DFC is willing to finance activity in the U.S. But I think it's definitely a multi-decade project. Yeah. You talked about the lending business, obviously. You were lenders to the digital currency group. They own Genesis, which is that, I don't need to tell you, all sorts of problems. Can you give us an update on what's the story with that loan,

the senior secured loan, $350 million? Yeah, well, we worked our way out of it. They've had two really good assets. They had the Grayscale business, which basically ran a closed end fund of Bitcoin, you know, and one other asset class that generated a lot of EBITDA. So that business is still continuing to do really nicely. Genesis was in bankruptcy, but, you know, we structured the loan so that we were well protected and they've been able to sell off assets and they paid us off and we're completely out. But, you know, we structured the loan so that we were well protected and they've been able to sell off assets and they paid us off and we're completely out. And, you know, we got we resolved that in the first quarter of this year. Yeah. Would you invest again in digital currency, digital assets? How do you view

that space as an asset class? You know, we spent a lot of time evaluating it and we thought this was a really low risk way to watch and get involved. Part of what we did was we took our coupon in Bitcoin, you know, because we didn't want to see Bitcoin go to a million and not have any exposure to it. That wouldn't be good. So, you know, so ultimately what we did was we said, all right, pay us 9% in cash and pay us a couple hundred basis points in Bitcoin. So now we have, you know, tens of millions of dollars or so of Bitcoin that we continue to trade actively. But that's really how we got it. Would I do it again?

You know, I think we're very careful about what we would do again. Interesting. I notice a lot of asset managers are trying to get bigger in insurance, including you, which to many people may seem as a boring business. Why is it so attractive to you and others? Well, it's permanent capital, right? And ultimately, permanent capital is very valuable. And we have the ability to compound at very compelling rates of return. And our approach has always been to have really good asset flexibility and very low leverage. So if you look at our assets to equity at security benefit, we're approximately six times assets to equity.

You look at the industry, it's closer to 12, 13, 14 times. We've also got a lot of floating rate assets. So as rates have moved up, our average earn spread right now is 7.5%. Look at something like Silicon Valley Bank. Why did Silicon Valley Bank disappear after four decades in existence? Because they bought really high quality, if you will, but low coupon, long duration bonds. There's a bond right now that the US government issued,

the one and a quarter of 2050, which is trading at 45 cents on the dollar. When people think about buying that bond, they don't think about buying that bond and having it go from being worth par to 45 cents on the dollar. When people think about buying that bond, they don't think about buying that bond and having it go from being worth par to 45 cents on the dollar. Everyone thinks about that as a risk-free bond. Well, now if you own that bond, you'd be down 50 points. So as rates have moved up, the fact that we have so much floating rate assets has really helped us because we don't have these big mark-to-market losses in our portfolio that

really were the thing that crushed Silicon Valley Bank. You obviously see the trends that are moving forward with AI, which we clearly talk about every day. You're, I think, expressing your optimism and investing style in that through insurance, through Zinnia, correct? Which utilizes AI. Yeah. Historically, we would have a big call center operation because we administer policies for third parties. Those call centers would get phone calls in, then they would have to do the call, then they have to write down the basis of the call, and they'd have to spend all this time. Now we can record everything, right? We'd go right to how the call went, basically all using AI. And it saves so much time for our people then to be allocating towards other problems that they actually have. So how do you then,

in the bigger picture, view AI as the disruptive force that many predict it's going to be? I think we think of it as just another set of tools, right? If you go way back and you think about how have we evolved, right, at some point, you know, the tractor was a tool, right? So now we just look at AI as this is another set of tools that's going to help us. And if you look at what Microsoft's coming out with Copilot, I mean, I think they're going to be really doing great work for you.

So they'll figure out problems that you have and give you the answers while you're sleeping. So if someone comes in and says, send me this file or let me find this file, Microsoft will go dig it out for you and it will be ready for you with, I believe this is what someone's asking for. Here is the recommended file

and you won't have to go dig for it yourself. And you own this hotel that we're sitting in, correct? The Beverly Hilton. I think you're an investor in the Waldorf next door. You're doing the Amman on a piece of land that you own this hotel that we're sitting in, correct? Yeah. The Beverly Hilton. Yeah. I think you're an investor in the Waldorf next door. You're doing the Amman on a piece of land that you own here. So you must be super bullish about what's going on with travel experiences and the high-end consumer. Otherwise, I couldn't imagine deploying this level of capital towards that area. Amman has been a tremendous investment for us.

You know, I think if you look at the demand for Amman, you know, it's through the roof. They just opened a New York property. You know, the activity in that hotel is tremendous. You know, they've got a private club. The demand for the private club is off the charts. So this hotel here is performing better than we ever expected. We just opened the raffles in Back Bay in Boston. You know, it's doing ADRs of a1,000 a night when we underwrote it at $600. So, you know, we see people are really focused on, you know, how do they get out, how do they enjoy themselves, and hospitality is part of that. You feel like that's, you know, a post-pandemic, just sea change that stays with us? Obviously, it has to be somewhat cyclical, like most other businesses, but how do you see where the consumer is now

and where it may go? Well, we definitely think it's cyclical, but right now we're benefiting from the fact that people are still on the move. We're benefiting from the fact that the luxury product, there's just not that much of it. So when we open something new or we build something fresh, people really love it quite a bit.

I mean, we just built an office tower in Miami, 830 Brickell. When we underwrote that, we thought we'd get 60 bucks a foot. Right now we're getting 150 bucks a foot, you know, because there's really no good product in Miami, no new product. It's all being in the process of build, but we were the first ones there, built it up, and now we're leasing it out. Are you as concerned as some others are about this reckoning coming in commercial real estate? Listen, I think this is going to be—one of the things I believe is that whenever one tells you that there's going to be a giant problem, that problem very rarely manifests itself.

So I think everyone's talking about the commercial real estate. Now, from our point of view, we've been very focused on staying in gateway cities, really big markets where we think there's lots of demand. So we haven't gone into kind of second tier cities. You know, we haven't spent any real time looking at anything other than the biggest of the markets. So, you know, we're in Los Angeles, we're in Boston, we're in Miami, we're in Washington, D.C. You know, those markets are hanging strong. Media, another area that you're an investor in. A24 Studio, Dick Clark Productions, you own the Golden Globes.

Going to be back on NBC this year. No, that will be on NBC. There's a giant transition going on, right? Streaming is becoming part and parcel of the way the world's headed. And obviously, the flexibility that we can do in a streaming environment is very different than what we can do on a broadcaster. So I think we're going to try to take advantage of that flexibility. A24 just came out with the show Beef. It was an all-time hit.

So we're absolutely excited to have the writers strike over. And we're hopeful that the actors strike is going to be resolved soon because everyone wants to get back to business. I mean, the country itself wants to be in business. So when you see these long moments where people are out of business, it becomes really frustrating. But we're really thrilled with what A24 has been able to do. We're really excited about the transition for streaming.

You know, our partners at Billboard, Hollywood Reporter, Variety, you know, those businesses have really re-informed themselves. They're all now digital assets. Do you have any insight into how much longer the SAG strike is going to carry on? I don't. Yeah, but you think it might be resolved? Listen, I think everyone wants to get back to work. And I think that that ultimately drives people into a place where they're going to compromise. Let's talk sports, because you are a huge player in sports. Lakers, Dodgers, of course, Chelsea, right? What, $3.1 billion for Chelsea? Yeah, about 2.3 pounds. Fans are passionate over there. Yeah, they love their game.

They do. Why do you keep expanding your sports portfolio? People want to have something to root for. Everyone loves rooting for things. We believe sports are one of the things that brings people together in a world that just continues to be fractured, and you have to listen to all this stuff about why the world's not working, sports works. Everyone loves sports. People want to cheer for things. Fans get super excited. So our job is to identify what we think are tremendous sports teams

and really give them the resources they need in order to grow. We've done it with the Dodgers 12 years in. The Lakers have obviously been a hugely successful franchise, and so has Chelsea. So our job is to continue to give the fans exactly what they want. What's your outlook for valuations? It's been incredible where they continue to go, particularly NFL, where Washington just sold for $6 billion. Can that continue? I think as long as the revenue continues to grow, right?

And I believe that the revenue will continue to grow on these things because the fan base is looking for more and more and more and more, right? And I think if you could give fans unique things that they can get anywhere else and say, you know, maybe it costs a couple dollars a month to get something unique, that's less than a cup of coffee. But when you start to think about fan bases and the size of them, right, you can start to see, you know, the business as it figures out how to be more and more direct to consumer really grows substantially. And of course, all that really means is we can invest more in the team. We can invest more in players because the number one thing we want to do is win. Yeah. I'm sorry about the Dodgers. We commiserated together as a lifelong Dodger fan.

I was bummed. I didn't have any money on the line like you did, but nonetheless, that's what happens sometimes. Yeah. Listen, in sports, one of the things that's really humbling is you can do everything right and you hit with injuries, you get hit with circumstances, and then there's just days where things don't go right. You know, so it's really a lot about life. But you got to prepare every day. You got to do your work. You got to be in a position. And really, it's just probabilities. In the end, it's just probabilities. Yeah. Let me ask you a big picture question for you in the future. Have you ever considered taking Eldridge Public as a Berkshire Hathaway-like

business? You know, right now we think about how to continue to grow the subsidiaries and some of the subsidiaries we've taken public, but we haven't ever considered taking Eldridge public. Is there a time where that would make sense for you? Is there a reason that you wouldn't want to have the overall scrutiny of the public markets? Listen, I don't think there's any hard reason. Obviously, access to capital is an important thing, and being public provides access to capital. Right now, we haven't had any problem getting access to capital. So, you know, I think we're well positioned as a private company,

and we want to continue to grow. So it hasn't been a thing that we've been thinking a lot about. Let me ask you finally, because I just bring the day full circle for us here out at this conference. Kathy Wood was on the halftime show earlier. I had no idea. And I read, I believe this is true. You tell me you are a big reason why Kathy Wood is still the majority shareholder of ARK Invest. Is that correct? Yeah, we have that company alone. Yeah, we helped her finance the business a while ago, and they've done a great job. And we're very happy with the fact that we were able to facilitate that for Kathy. And she continues to generate significant cash flow.

And so it's been a really good opportunity for us. Yeah, this is a great opportunity for us to have this conversation. I appreciate it so very much. Well, thank you very much. Yeah, it's good to see you. That's Todd Boley joining us here live and exclusively at the Case Alternative Investment Summit here in Beverly Hills. Up next, we're tracking the biggest movers as we head into the close. Plus, Kane International's Jonathan Goldstein. He'll join me here on set with where he's finding opportunity in the real estate space. As I said, we're live

in Beverly Hills today. The closing bell is coming right back. We're back in Beverly Hills, about 25 minutes to go in the trading day. Let's get a check on some top stocks to watch as we head into the close. Christina Partsenevelos is here with that. Hey, Christina. Hi, Scott. Well, Vista Outdoor is lower as its preliminary Q2 results show sales dropping from last year. It's also selling its sporting products unit for nearly $2 billion, and that's why you can see shares are off by 24% right now. Meanwhile, Lululemon is trading at its highest level since 2021, as the stock is set to replace Activision Blizzard on the S&P 500,

which is being removed after being acquired by Microsoft. That will make Lulu the only Canadian-based company on the S&P 500, which is being removed after being acquired by Microsoft. That will make Lulu the only Canadian-based company on the S&P 500, though we have to keep in mind more than 70% of its revenues came from the United States last year. Scott, shares are up 11%, by the way. Pretty good. Yeah, I was just going to say that. What a day for those shares. Christina, thank you. Christina Partinello is up next. The real estate sector struggling this year. McCain International's Jonathan Goldstein is still finding some big opportunities in that space. He'll join us. He'll tell you exactly where just after this break. Closing bell right back. Welcome back to Closing Bell live today from the

Case Alternative Investment Summit here in Beverly Hills. Real estate, been one of the worst performing sectors over the last year. The industry grapples with rising rates, inflation and work from home trends. But our next guest navigating those cross currents and still finding some opportunities within that space. Joining us now, Jonathan Goldstein. He's the CEO and co-founder of Kane International. It's good to catch up with you here. Welcome. Lovely to be here. So you're a private investment firm. You invest in real estate debt, real estate equity, a lot of real estate equity, commercial, leisure,

residential, and all over the world. So you have a broad view of what's happening. What is happening? I think it's fair to say that the industry is still adjusting to the new level of interest rates. But I think it's so easy to be down on the asset class as a generality without looking at the positive spots. And since we've started the business, we've very much adopted a gateway city approach because we believed in the

resilience of those cities. We've also engaged and developed, invested a lot in Miami, as well as in Los Angeles and others, and we found great growth spots. So we're about to open 830 Brickle, which is the largest office block in Miami built for a very long time, fully leased with wonderful covenants up and down the buildings at 50% rates higher than we underwrote at the time that we started the investment.

So I think it's very easy to simply tarnish the entire class with one view. But I think it is fair to say that there are pockets in the industry that have struggled to come to terms with the new reality. And I think that's predominantly in secondary offices and secondary cities. And you're seeing every day large firms handing back the keys. And I think that's not good for the industry, obviously, that people are so happily just walking away from them. This new reality is the fact that the cost to service debt has doubled. Correct. Is it going to continue to get worse?

Well, I think that there's a number of factors there. First of all, and obviously we can talk about interest rates, but there is a view that maybe we are close to the peak of the interest rate curve. Is that your view? I think it is my view. I think it's also clear that the forward curve is taking, however, a slower decline than people initially expected.

And there is a debate to be had about whether there is groupthink amongst the Fed and the ECB and the Bank of England. And there needs to be some justification about why rates need to stay at the levels they are. But I don't see them coming back very quickly. So I think people are seeing the cost of capital double. It's doubled over a period of time.

What was a base rate of plus a 3% or 4% margin is now 8%, 9%, 10%. You cannot borrow in the real estate industry for less than 8%, 9% today. And that is hurting a lot of people. So when people want to fund new deals, what do they do? I mean, the cost of capital has gone up so much, and the access to that more expensive capital is a hurdle as well. Well, that's why there will be a slowdown in development over the medium term, because the amount of equity that people have to put in to service the debt

and to meet the increased costs. Don't forget, we've had inflation. So since the pandemic, we've had significant construction cost inflation and labor inflation. So therefore, it's more expensive to build something and more expensive to borrow. So therefore, that needs more equity. And that is slowing down the rate of development. And that will help in many areas where people have existing office buildings or existing residential developments because the supply chain is shorter. Do you think projects will thus then get smaller and for less money than they otherwise would?

I don't think necessarily an issue of size. I just think it's the volume of development will decrease over the next 12 to 24 months in major products. And that means that the supply that's coming to the market today will ultimately be used up and will give people an exit. You said, you know, at the outset, there's been so much negativity that it hides some of the positivity that's been going on. Where? Where are the good stories to tell in real estate? Because frankly, we hardly hear about them. Well, we talked about Miami before and the success we've had in our office block in Miami, which has met the demand needed in Miami post-pandemic.

We've also had some great success in the luxury hotel space. We've invested in the Amman Group, which has done extremely well. We've just opened a hotel in Boston, the Raffles Boston, the first raffles in North America, which is really trading off the charts against our expectation. So what you are seeing in the luxury marketplace is that there is still people with a significant amounts of consumable income ready and available and enjoying themselves and in a

post-pandemic world people want to go out they want to enjoy themselves and they want to ensure that they're having service and quality i think where we have been very selective and where we continue to be selective is you have to invest behind the right brands. Because service and quality and delivery are one thing to say, but they're a very hard thing to do. And the reason that we've backed Amman, the reason we've backed Raffles, the reason we've backed the World of Astoria and Hilton is that we've gone to the major players in the industry who we trust to ensure that the consumer will get the right service. You talked about obvious inflation that's out there. We've seen it for everything from lumber and things of the like. Concrete, what about the cost of doing a project today? How much higher would you say it is? How do you view that? I think if you look back to 2019 to where we are 2023, I would say the average construction cost is probably 25% higher than it was previously.

If you itemize the pieces along the road, we're about to redevelop the Delano in Miami Beach. And again, you have to have the right product, which means you can absorb these additional costs. But we're seeing significant construction cost inflation because of that. What about land? Where does the land factor into all of this? That's the problem. I mean, if you are long on land in the wrong places, and if your construction costs have gone up,

and if your sales have remained static, the only thing that's movable is your land's worth less money. And that's why a lot of people are struggling, because they bought secondary land in secondary cities, and that's worth much less. Look, we own the land next door here, the land between the Beverly Hilton and the Los Angeles Country Club. It's the greatest piece of real estate,

probably in North America, waiting to be developed. So I think you have to own premier land and premier locations. And we will build two towers here, a 26-story and a 32-story residential apartments, together with an Amman hotel, an Amman club, and amazing retail with a huge part for the local community. Because one of the things that we as developers need to understand and investors is that we have to give back to our communities at the same time. We'll leave it there. Perfect way to end it. A pleasure speaking with you. Thanks for being on our show.

Jonathan Goldstein, he's the Kane International CEO and co-founder. To the results now of our question of the day, we ask rally on or rally soon to be over? The majority of you said, and they're taking a cue, I guess, from what's happening in the market today, rally on. 57%. Up next, your earnings setup. We do have some more big banks reporting in the next few days

will tell you what to look out for. When we take you inside the market zone. We're now the closing bell market zone CNBC senior markets commentator Mike Santoli joins us from the New York Stock Exchange Hightower Stephanie Link back with us

here in Los Angeles as well. Well, Mike, if there were people out there looking for a broad-based rally, Nirvana for them today. Absolutely. Yeah, it's pretty inclusive today. Market relaxed after, I think, really clenching up on Friday ahead of a weekend of unknowns. Obviously, geopolitical issues, volatility markets acting a little squirrely. And I think we come in today with really nothing fresh to be overly concerned about. You think back two weeks, you thought we were headed on an express train to $100 oil and 5% 10-year yields. All of that has taken a little bit of a break.

We can focus on earnings. And the S&P 500 has raced right up to that level that we're all watching. It's last week's high. It's 4380. It's stalled out there three times. We'll see if it can punch through. It's basically the spot of a breakdown from late September. And everyone's fixated on it. And today's action, you know, I guess compared to certainly some middling days in the recent past when the indexes were uneven, It's much more of a comprehensive gain. Yeah, big move, obviously, in the Nasdaq, which is the outperformer. NVIDIA and Tesla certainly joining in on that rally and adding to big gains they've already exhibited this year.

But ARK Invest, Kathy Wood, telling me earlier today on the Halftime Report that one has far more long-term potential than the other. Take a listen. We see NVIDIA. You might say it is less expensive than Tesla. We think the upside surprises on Tesla during the next five years, remember we have a five-year investment time horizon, are going to be substantially more than Nvidia's. All right, that's Kathy Wood. What's your take? I mean, look, if you have a very long-term time horizon, you can justify any valuation you want, right? Yes, absolutely. I wish I had a five-year time horizon, to be honest with you. But

77 times forward estimates, 45 times EBITDA today on the next 12-month numbers. But the problem is, Scott, numbers are actually coming down. Deliveries are coming down, earnings are coming down, margins are coming down. So she may be right. Maybe it's 2025 where she actually then sees a rebound. But the numbers are coming down as opposed to NVIDIA, where the numbers are actually going up 60% in 2025 and 26. So I think that and that valuation actually is more reasonable at 45 times. I mean, but, you know, that's still too expensive. Yeah. I mean, you know, Mike, it was interesting because she said of Nvidia, which is no longer in the Innovation Fund, of course, that it's really expensive. So I said, well,

how is that really expensive at 35 times when Tesla is 70 times? No, exactly. I mean, look, I think that you could have two different independent market views there. And in video, you can say it's expensive because people are extrapolating way too much about the AI build out that basically there's just not enough server build in the world that's going to happen to meet what NVIDIA is projected to do. On the other hand, her story on Tesla hasn't changed one bit. It depends massively on huge penetration of full self-driving, of this thing going from a hardware company to basically software margins. It's never been different. It wasn't different when it was a $1.2 trillion valuation, and now it's down where it is.

It's doubled this year, but it's still well off the lows. I don't know. To me, there's no news in Kathy saying that her 10 percent holding is going much higher. And over the past five years, ARK Innovation is like in the bottom one percent. So the five year time horizon doesn't always bail you out either. Yeah, no, no doubt about that. It's just interesting to whereas one can justify one valuation while scoff at the other. It's just interesting to, whereas one can justify one valuation while scoff at the other, it's interesting to just hear that perspective alone. Now, more bank earnings coming this week. Bank of America and Goldman Sachs out tomorrow morning. Morgan Stanley on Wednesday comes a step, you know, after we got out of the gates pretty well with the bank earnings.

What's your outlook here? Yeah, very good. Bank of America, you know, I recently added to it. I also added to Morgan Stanley as well. So I think net interest income is going to be a little bit better than expected for Bank of America, Scott. If I look at J.P. Morgan's 15% growth year over year in NII, so I think that bodes well for Bank of America. But with Bank of America, it really is about expenses. If they do anything worse than $15.8 billion in total expenses for this quarter, the stock's going down. And $63 billion is the guide for the full year. So that's the key

for that stock at this point in time, because you know it's an operating leverage story. If they get the NII and they get the expense control, they're going to have a decent quarter. Morgan Stanley, we heard last quarter from James Gorman, the CEO, that capital markets bottomed. We also heard from the head of investment management throughout the quarter that capital markets have bottomed, because of the IPO markets opening up a little bit, M&A, and debt capital markets overall. I think the number that people are going to be worried about or wondering if they can do this is 20% ROTCE. That is the number that everybody looks at. It's the highest in the industry, far better than Goldman Sachs, by the way, which is at 15% to 17%. So that's the number that I'm going to be looking

for. Okay. Mike Santoli, how about you's the number that I'm going to be looking for. OK. Mike Santoli, how about you on the banks? I mean, I guess we got kind of a tell, as I said to Steph last week. These are a little bit different business. Not every bank is obviously the same. But what's your view here? I mean, I think that the minimum standard has been met with those that have reported already, which is nothing scary that we weren't aware of before. The credit stuff

seems very manageable. And yet some of these are going to have some pretty significant unrealized losses in the bond portfolio. But we knew that based on what the overall bond market has done. So stocks beaten down, kind of cheap, unexciting. I don't know that there's going to be another really aggressive and enthusiastic bull case to come out of this, except for, look, we're muddling through, we're building book value where possible, and maybe the capital markets business has an upturn. Steph, appreciate you being here. Thanks for having me. It's been fun out here in Beverly Hills. So, Mike, I'll turn it back to you. We're approaching

two minutes left in the trading day. Interesting as well. We didn't really talk about it too much. Yields up. Stocks up, too. So it is true. As long as you get that stable stabilization is key as well there. There's no doubt about it. Now, yields up, up small and up within the range we've been in for most of the month. I think that is the key. And, you know, we're sensitive to this. So you don't know what the threshold is for whatever the 10-year yield level where it starts to really impinge on stocks. You had a lot go right for equities coming into this week. There was sort of, I think, a lot of defensive positioning, as I mentioned. This is when the seasonal tailwinds are supposed to start to kick in. You had the closing of the Activision deal. That threw some cash into brokerage accounts. So, you know, there's a lot of things you can build into a story for why we're

getting a one day pop that that doesn't really pay that much attention to yields. But to me, 48 on the 10 year is the one that's been hanging out there for a long time as the high. And as long as we don't seem to be blowing through that in an aggressive way, maybe we can make our peace with it. I was going to say to you also before we finished, hey, and we're doing all of this without Apple today, which was red until the last few seconds because it just showed on the right hand side of our screen that even it now has gone green. I mean, it is that kind of day. But interesting that you could have such a strong day. You didn't need Apple's participation in it whatsoever. No, there was a lot of relief from the rest of the market, the banks and the retailers and the

stuff that has really been kind of left out in the cold and gotten cheap. It's pretty tough for the S&P to be up, you know, 1.1 percent and have the 7 percent holding of Apple completely ignore it. So I think that's what you're seeing right there, although still well below, you know, the recent highs. And I think that's the case for seeing right there, although still well below the recent highs. And I think that's the case for the overall market as well. Keep in mind, we're like 4% to 5% below where we were not that long ago in this market. Yeah. Well, you hear the cheers. Hey, by the way, Reuters reporting try-in building a stake in Allstate. Insurance, what can I say? We talked about it with Todd Boley at the very top. Hey, you might notice

on the screen there, ringing the bell at the stock exchange today, Fast Money's Tim Seymour is there, and that is in support of the charity A Leg to Stand On. Proud of what you're doing, Timmy, with that organization. I will see you back on the East Coast. It does it for us.