Closing Bell - Stocks fall, Midterm Impact on Markets, Crypto Chaos, Debating Disney 11/9/22

Episode Date: November 9, 2022

Stocks fell in Wednesday trading as Disney’s post-earnings drop weighed on the Dow and more crypto concerns hit sentiment. Bank of America’s Jessica Ehrlich discusses Disney’s plunge and if she recommends buying the dip. Jimmy Pethokoukis from the American Enterprise Institute weighs in on the market implications from the midterms. The CEO of Levi talks about a c-suite change at the company. Plus real estate titan Howard Lorber on housing demand, the latest on Binance-FTX, and the impact of Meta’s layoffs.

Lows of the day right now. Stocks losing steam throughout the session with Disney weighing heavily on the Dow. It's taking about 80 points off the Dow right now. And crypto uncertainty hitting sentiment all ahead of tomorrow's key inflation print. This is the make or break hour for your money. Welcome everyone to Closing Bell. I'm Sarah Eisen. Take a look at where we stand right now in the market down 574. I mentioned Disney. It's not the only story though. UNH, Visa, Chevron, Apple also the biggest weights on the Dow right now.

The S&P 500 at the lows of the day down almost 2% right now. You've got every sector lower. Hardest hit today is energy, down about 5%. Consumer discretionary is slammed as well. Tesla is a big part of that story. It has weakened more than 50% off recent highs. It's been in a downward slope ever since the Twitter deal. NASDAQ down 2.3%. Meta downward slope ever since the Twitter deal. NASDAQ

down 2.3%. Meta is one of the few winners in the NASDAQ right now. Check out the carnage in crypto again. We're at a two-year low now on Bitcoin prices. As questions swirl about the FTX Binance deal, is it even going to get done? There's Bitcoin below 17K. Coming up on the show today, we will talk to real estate titan Howard Lorber about the state of his industry as mortgage applications continue to sink and rates sit near 20-year highs. Plus, Levi's CEO Chip Berg will join us exclusively as outgoing Kohl's CEO Michelle Goss moves over to the denim giant to inherit his role. Let's begin, though, with the big stories we are following this hour. Three of them. Mike Santoli watching the market downturn. Bank of America's Jessica Ehrlich is here to talk Disney. And Jimmy Pethokoukis from the American Enterprise Institute is with us to discuss the

implications from the midterms. Mike, start us off with the market. We got a week 10 year auction. It's Bitcoin. Is it the midterms at all? What is weighing on? I would say, Sarah, a lot of excuses to actually lighten up on risk today. You mentioned some of them. Also, by the way, we got a Atlanta Fed GDP now update at 4 percent for fourth quarter GDP. That happened right before noon. That was the highs of the day for the S&P. I don't think that was the cause, but it creates this idea that it tops up the budget that the Fed has to work with in raising rates and just apprehension ahead of the CPI numbers tomorrow, which have been big market movers more to the downside than the upside.

So all that taken together, it's brought the S&P down to effectively the week's lows. Also at this level right here that a lot of folks, 37.50, were hoping might hold to the downside. It was first kind of pierced on the downside in September. It's chopped around above that mostly in the last few weeks. So, you know, a little bit of a decision point in the markets right here. Still in this downtrend. I've been pointing out, though, you can read this as resilience. You can read it as huge tech disappointments. The Fed, all this stuff being loaded on the market, so far it hasn't broken down. The other side of that is it takes a lot of energy to tread water and sometimes you slip

under the surface. Take a look at energy relative to communication services. It's been the story of a tidal shift in the markets. This dates back to the start of when the communication services sector was created. They shoveled a lot of FANG stocks in there to join media and telecom. And you see it had this amazing run into the highs in 2021. And now energy has overtaken it over that span. Now, what do you see here? Just the slightest curling in that direction. Meta is helping as Disney is offsetting it today. So I'm not saying it's necessarily going to reconverge, but it is interesting how far things have traveled away from the virtual economy back toward real assets and commodities in this inflationary time. Also, energy stocks getting

punished worse than they are today. Just wanted to mention the bond market because we had a weak 10-year auction. I don't know if it's QT, you know, the fact that the Fed is taking away the punch bowl, just less demand for dollars. But what's the impact, especially ahead of season? I just think it's CPI coming tomorrow. And the fact that yields are in an uptrend, this has basically been a tough trade to buy duration when you're in that situation. And, you know, as I said, the GDP now number, you know, was relatively high before that. Yeah. Core CPI expected tomorrow, six and a half percent. Right. On a year over year basis.

Eight percent overall. Mike, thank you. Mike Santoli. We'll turn now to Disney because it is the worst performer on the Dow today after missing earnings expectations and warning its streaming growth could taper. Let's bring in Jessica Ehrlich of Bank of America Securities. Just cut our price target for Disney down to 115 from 127. Still reiterates a buy rating. Worst day for Disney in two and a half years. You think this is a reaction? You know, look, stocks don't go up when estimates come down. And that's exactly what happened. The company unusually for them brought guidance, actually gave guidance. And there are both cyclical and secular challenges. It's not any surprise that the linear business is challenged because the pay TV universe is declining. And it's been in an accelerated decline.

And on a cyclical basis, advertising is challenged because of macro headwinds. And that's true whether it's linear or digital. But Disney has some positive catalysts coming up, and that's why we are sticking with a buy. Yeah, it's at 87. So you still think it's worth a whole lot more than it is. What are the positive catalysts, Jessica? And why were you and others on Wall Street so surprised? Did they not manage this in terms of expectations? Well, the quarter was a surprise in theme parks for us.

They launched a new ship, Disney Wish, which is actually doing very well. There was Hurricane Ian, which we did anticipate. And then costs were up in part due to inflation. Looking ahead, I think there are a number of catalysts. First of all, this weekend, Wakanda opens and it looks like it will do very, it's tracking very well. And then before Christmas, we have Avatar 2. The first Avatar was the biggest movie of all time. And between now and then, Disney will launch its new ad tier. There's tremendous demand for this platform.

Remember that when Comcast, your parent company, introduced Peacock, they generated $1 billion in advertising in the first year with really negligible subs so Disney has a big platform tons of interest three to five minutes an hour to limited time this will be addressable and it's it's really additive so we think the ads here is a big positive on December 8th and of course they have a 38 percent price increase that goes into effect that same day um so there are a lot of things there um the theme parks are still incredibly strong and we'll start to see the direct-to-consumer losses coming down sequentially in the first fiscal quarter of the december quarter so there should be a big swing in losses from 4 billion in fiscal 22. Our projection is $2.5 billion in fiscal 23.

So it starts to move towards profitability in fiscal 24. And that is what the CEO, Bob Chapec, reiterated, right, that they are hoping to achieve profitability there in streaming by 2024. That was the big surprise, the $1.5 billion loss there. So you are not questioning that. You think that is achievable because there are also some questions now about execution. Jim Cramer raised them this morning. Yes, I heard. No, the DTC loss actually came in on target. For our model, the miss was on theme parks. Look, Disney doesn't usually guide, so short numbers are all over the place. But the direct-to-consumer business is on track. They finally hit their content cadence

stride, which is basically 100 originals a year or two a week, you know, on average. And so I think Disney Plus is actually doing exactly what they said they would. And the company said many times last night in the calls and the callbacks that there is a big focus on cost control. Now they need to execute. And I think that's what the street needs to see. But as I said, I think there are a number of catalysts just coming up in the next few weeks. Jessica Ehrlich reiterating her buy. Thank you very much for joining us from Bank of America. We'll turn now to the midterm elections. Obviously, investors are focused there, too.

Results are still coming in with the control of both the House and the Senate still up in the air. But the Democrats had a better showing than many were expecting. And joining us now is Jimmy Pethokoukis from American Enterprise Institute. As far as investors are concerned, Jimmy, I don't know. If they were bullish on the idea of gridlock, it still looks like we're going to get that with the House of Representatives going to Republicans, even if it wasn't as big of a margin than they expected. Am I wrong? Yeah. If you buy into the notion that gridlock is good, and I think long-term gridlock is not

good. We need to do a lot with immigration, deregulation. But over the shorter term, if you think gridlock is good, that might be the case. Unless, of course, the gridlock means there's gridlock over raising the debt ceiling. That is not good. And I think before the election, people thought, well, gee, we might get some good stuff here. Gridlock is bad. Maybe we'll get some, we'll extend the Trump tax cuts or something. Now the gridlock is, oh, boy, there's going to be a clash over that debt ceiling, which very well could happen in that case. Again, gridlock, not so good. No. And that's why maybe there'll be pressure on the lame duck Democrat Congress here to to pass something. You think that can get done or not?

They got to do a lot. You know, they, you know, they, you know, there's remember that permitting reform bill that was supposed to go along with the inflation reduction. That's floating out around out there. I think there's I think there's going to be a lot of pressure on the Biden administration to get that done. I mean, you can just see how this conflict is shaping up. If Republicans end up with only the House and barely the House, you know, the sort of the wilder outlier members of the Republican Party are going to have more influence. It's just not hard to see how this thing can look really, really ugly next year. So I think it really would behoove the Biden administration to get that done. Well, the conventional wisdom on Wall Street is another reason the gridlock is good at

the moment is to rein in fiscal spending, that the Republicans can put a check on the Democrats' urge to spend in an inflationary environment. And that would be particularly good for bonds, where we've seen a big sell-off shake the stock market. There's something to that. We're not going to get a stimulus package at this point if there was a recession. No, but maybe they can drop the student loan package, for instance. Maybe they can pare back the Inflation Reduction Act. These are all things that we hear the candidates talking about. I don't know what's achievable, but it would amount to less fiscal spending.

No, listen, I think if you're going to bet on more or less, I think you'd want to bet on less. Because not only now do you have this, you know, likely a split where Republicans may have, you know, very narrow control of the House, but then you have sort of the business cycle, meaning this huge inflation surge, which itself, I think, makes getting spending, more spending done very, very hard because Democrats assume they hold the Senate, again, also have a very narrow hold. So if you're worried about a flood of spending to further juice this economy and also offset what the Fed is doing, that's not going to happen. So, Jimmy, as someone who talks to investors, what is your read on where the market is on Trump? Because now there's a question, right, of whether he'll announce, how he'll take the results where a lot of his backed candidates did not do well, including Dr. Oz in Pennsylvania, and what that might mean for 2024.

Where do you think investors are here? Yeah, well, I won't psychoanalyze or get inside Donald Trump's head, but I have to say that, you know, when I talk to people, I talk to Republican donors, I mean, they would love to see Ron DeSantis run for president. I mean, I think Ron DeSantis is going to run for president. I don't think it's going to I don't think he's going to wait, make that Chris Christie mistake. So so at that point, I think it's I'm not sure you know exactly what is going to happen with the Republican Party if it's going to continue down the Trump populist lane or something that seems a little bit more recognizable republic to Republicans where they talk more about tax cuts and deregulation. So I think if that if you were expecting a sort of a rerun of Trump,

obviously last night puts that, I think, in some doubt. Jimmy Pettigookus, thank you for your first take. Appreciate it. Market impact on the midterms. We're down 500 points right now on the Dow, but just about the low of the day. The S&P down 1.6 percent. Look at Levi Strauss dropping some big news this week, announcing that outgoing Kohl's CEO Michelle Goss will move over to the company. Up next, we'll talk to current CEO Chip Berg about the leadership transition, plus his read on the consumer and much more. You're watching Closing Bell on CNBC. Some big moves in the C-suite at Kohl's and Levi's this week. Kohl's CEO, Michelle Goss, leaving the department store and heading over to Levi in a few weeks,

taking the role as president with plans to become CEO over the next 18 months. Joining me now exclusively is current Levi Strauss CEO, Chip Berg. Chip, welcome back. Good to see you. Hi, sir. It's great to be with you. So big announcement. How did this come together? Give us some of the backstory, if you could. Sure. Well, you know, as any board would do, our board of directors has had a very rigorous process, which I've been involved in. Obviously, I'm on the board for around CEO succession, and we've been working it for more than four years. And they review twice a year external candidates as well as internal candidates. And Michelle's been on the list

since the very, very beginning. And I would say we've been working at it very aggressively. When the activists struck coals back in September, you know, the headhunter firm that we worked with, I called them up and I said, I think it might be time to give Michelle a call and see if she will answer the phone and consider another opportunity. And so literally this moved very, very quickly. The activist situation at Kohl's, again, you know, for the third year in a row, created the opportunity for Michelle to answer the phone. And when she heard the opportunity was Levi's, the words out of her mouth were the exact same words out of my mouth about 12 years ago. Oh, wow. That's like a dream come true. And I known michelle for 10 years she's an incredible leader and so this is

also um just a great opportunity for a well thought out and and structured transition plan between her and me well as i pointed out yesterday not can't really be that much of an activist target with the with the family with the family control of le. So I understand why in that sense it would be appealing, Chip. But why, Michelle, what do you tell investors who look at the record at Kohl's, and she's certainly had some successes, the partnerships with Sephora and Amazon, but some mixed on the profitability front. Clearly there were activists involved and didn't sell the company. Right. So I think I've gotten this question a bunch of times, as you can imagine, over the last couple of days, and it was part of the discussion with us as the board as well. I think you have to take a look at Michelle over the course of her entire history and look at what

she brings to this company when she joins. She's got an extensive career, over 25 years of solid retail experience, 10 years at Kohl's, and then another 17 years or so at Starbucks. She started her career like I did at Procter & Gamble. So she spent her first six years at P&G doing classical brand management, which is where I started my career. I lasted there for 28 years. But, you know, she's got classical brand building skills. Then at Starbucks, she's associated with so many great things that Starbucks has done. When she joined, they had 800 stores. When she left, they had 20,000 doors. Her hands were all over Frappuccino and the global expansion of Frappuccino, which is a core franchise of theirs.

And towards the end of her career at Starbucks, she ran the Europe, Middle East and Africa business. Both P&L responsibility, franchise partners there as well. You know, hands on retail operations in that particular role. And then, you know, with respect to the Kohl's question, here's the way I look at it, Sarah. I think you have to ask the question is, was Kohl's better off because of her leadership? And there's no disputing the facts around what's happened to their stock price and everything. But that's true for all of us in this industry. And the department store sector, as you well know, we've talked about many times, is structurally challenged in this country.

And when you take a look at the things that she has done there, the pivot to active wear, the growth of their loyalty program, the doubling down on digitization, their digital business has grown from a billion dollars to six billion dollars, which, by the way, is about the size of total Levi's. Six billion dollars over the 10 years that she was leading that business. And then, you know, the jujitsu move of inviting Amazon into their stores with the returns program, which was a stroke of brilliance when department stores were challenged with traffic, and then most recently winning the shootout over Sephora. And I can tell you from a Levi's standpoint, we are seeing the impact of Sephora on our women's business. Our women's business in the Sephora doors is up meaningfully ahead of our women's business in non-Sephora doors. So that's an early data point that I think Sephora is going to make a long-term impact on Nicole's business. So you can't argue the facts

around the stock price, but I think she's had an incredible impact there and she's an incredible leader that really drives innovation. Okay. So Chip, question. You have been, as a company, as a CEO, more outspoken than I would say a lot of corporate America on social and politically divisive issues. I'm thinking about coming out against the abortion ruling by the Supreme Court, on guns. And I'm curious how you view the midterm elections and are potentially bracing for more Republican control in Congress, where a lot of the Republicans lately have called out companies like yours for being too woke. Are you going to do anything different? No, I don't think we'll ever do anything different. What we've done is consistent with what we've done as a company for 170 years.

It is part of who we are. It's part of what makes the role of the CEO here such an incredible opportunity, I think, because we have moved the needle on many important social issues of the day in this country. And even during the period of time that I've been here, you know, we took a stand on ending gun violence in this country. And we, back in 2019, we led a CEO letter to the House of Representatives to get House of Representatives Bill Number 8 passed. We had four CEOs sign that letter. You know, most recently with the Safer Communities Act, we got over 500 CEOs to sign a similar letter. And that that legislation actually passed and is now law. And it is starting to make our communities safer.

So we really we think of ourselves as not being afraid to lead. And when we lead, others will follow. And we believe that part of the role of business is to make an impact in the communities where we live and work. And so we're not afraid to take stands on important issues of the day and to stand up for what we think is right. And, you know, the change in Congress, I did it during the previous president's entire administration and it didn't stop us. So we'll continue to do it. And really quickly, Chip, could you just give it, I know you reported earnings early October, update on the consumer. Any signs of weakness, whether it's dealing with the inventories and promotions or just in terms of consumer spending?

We're monitoring all these things for changes as the Fed continues to tighten. Yeah, it's, you know, it's such a mixed picture, Sarah. The NRF's data, I'll tell you what the NRF is saying about the holidays. They're saying the holiday spending is going to be up mid-single digits. And I do think we're seeing some softness in the lower-income consumer segment. We have two value brands that are, you know, that are mostly mass market, lower priced products, and those are definitely feeling a slowdown in demand and the lower income consumer is definitely pulling back.

But, you know, the expectation is for a relatively strong holiday season coming off of a strong one last year. So it's very mixed signals here in the U.S. I'd say Europe, it's a little bit more challenging right now and a lot of fear about inflation and the impact of higher energy costs heading into the winter. But here in the U.S., our sense is the consumer is still reasonably in a pretty good shape and despite all of the inflation. But, you know, we're watching it very, very closely. But I think we're going to have a decent holiday season. It will be more promotional. There's no question about that.

But consumers are going to be looking for good value. And the great thing about Levi's, Levi's is going to be underneath the Christmas tree because we are quality that never goes out of style. And we are all still trying to catch up with the post-COVID denim trends, which have changed dramatically. Chip Berg, thank you so much for taking the time and for sharing some of your conversations that you're having with investors with our audience.

Chip Berg, CEO of Levi. Rising mortgage rates keep taking a toll on housing demand. Up next, real estate investor Howard Lorber on whether he sees any signs of a rebound on the horizon. We're continuing to lose steam here. Dow down 543. Be right back. New weekly data on the real estate front. Mortgage rates continue to climb, throwing cold water on demand from potential homebuyers. And new third quarter stats from Douglas Elliman in Manhattan showing co-op and condo sales falling year over year for the first time in over 18 months. Joining us now is Howard Lorber, executive chairman of Douglas Elliman. So, Howard, how bad is the market being pressured right now by these rising rates?

Well, rising rates are definitely pressuring the market. But realistically, you can't use 2021 as a gauge for other years. I would say that our third quarter was probably the second best quarter we've ever had in business. So the only one that surpassed it was 2021. So if you go back to like 2019 pre-COVID, we did better than that this year. Right. So the comps are strong from last year. So are you saying it's holding up? No, I'm not saying it's holding up. It's less it's less than last year. But I'm just saying that it's somewhat not a good judge just because you have one year, which no one really understands how or why it happened. OK.

And then you go back to more normalcy and everyone thinks it's so business is terrible. It's not terrible. We're busy. We're doing deals all the time in all our markets. And maybe we have an advantage because we're in the luxury markets and those are better than low end markets. That's what I was going to ask, if luxury is holding up better. So what about, Howard, what about rents? Because rents have stayed high and actually climbed as people are sort of forced out of buying now and into renting. And that's a big part of the CPI, which the Federal Reserve is targeting. When do rents come down? Well, I've read a lot in certain markets where rents are coming down already. But I would say that for sure in the like in Florida and in New York, the rents are still very high. And in fact, on the luxury

rentals, the high end are astronomical pricing, things we've never seen before on a square foot basis. So rents are pretty in pretty good shape. And maybe that's because people aren't buying as much as they did before. And so they're just renting and they don't mind paying more in rent. You mentioned New York and Florida. I was going to ask about both of these markets because we got the results of the midterms, the governors there stay the same, overwhelmingly so. Do you think, when I talk to developers, a lot of it comes, why are people moving from New York to Florida? A lot of it comes down to the politics. Do you think, when I talk to developers, a lot of it comes, why are people moving from New York to Florida? A lot of it comes down to the politics. Do you think these trends of business and hedge funds going to Florida from New York will continue?

Look, I don't agree that those were the number one factor. I think the number one factor, I think there are two and they're close. One was taxes. OK, no taxes, no state taxes as opposed to New York and especially if you're in the city. And I think number two is quality of life. People are moving down. I think the crime crime is less here. They're worried about the crime in New York. But having said all that, New York is not going away.

And I've been talking to so many people and a lot of people are moved here, even though they moved with their families, they still kept the house or apartment they had in New York. So that shows you what they think about New York. And I think and I've said it before, I've been quoted that I think New York City, once they work a little bit more on the crime problem to get that problem down, I think New York City, once they work a little bit more on the crime problem, to get that problem down, I think will be the number one second home market to the world. Oh, that's good news for us New Yorkers. So, Howard, are you building right now? What is all this doing, the rising rates and the changes in the market,

doing to development and building pipelines? And ultimately, how is that gonna impact inventories? Well, in New York, no one's really started anything new for the last few years since COVID came. Florida is booming on new developments, booming. There are so much new developments in Florida, and they're at all ends, the lower, the mid,

and the really high-end luxury at crazy prices. And we're seeing prices. We just saw a sale in a project that we're selling on Miami Beach that approached $7,000 a square foot. Wow. No slowdown there. So no softening. No. Well, maybe volume no softening. No. Well, maybe volume has softened a little bit, but people are still buying. Howard Lorber, thank you very much. Good to get some color around the market. Appreciate it. My pleasure.

Thank you. Let's show you what's happening in the market. We've got just over 25 minutes left of trading, and we've deteriorated, down 557 on the Dow, S&P down 1.8%. We're now negative on the week for, let's see. The Dow is holding in there for gains on the week. Looks like it has just gone. Oh, no, Dow's still up for the week.

Everybody else is down. S&P right now down 1.8%. Adidas generating some buzz today as it gives more clarity on the full cost of cutting ties with Kanye West. We'll break down the impact on the company next. What is Wall Street buzzing about? More fallout for Adidas from the Ye debacle. Adidas today cutting its 22 forecast again, this time because of the easy breakup after the company ended its relationship a few weeks ago over Kanye's anti-Semitic hate speech. The company now says revenues will grow this year in the low single-digit range. Operating margins would be 2.5 percent. This is the fourth

cut Adidas has made to these numbers this year after China lockdowns, inventory pileups, exiting the Russia business, and now Ye. And it's a sharp cut from earlier this year when they guided 13 percent revenue growth and as high as 11 percent operating margins. Executives making it clear that Adidas owns the IP and they will use the designs, potentially rebranding the sneakers, as we highlighted they might a few weeks ago. There are plenty of issues for the brand new CEO to tackle. This week, Adidas did announce Bjorn Golden, who led Puma, will be the new CEO in January. Casper Rorstad, longtime CEO, leaving after this week. The stock up today potentially because the company said it will adjust the size of the organization, i.e. warning of layoffs and cuts, says it has had a hiring

freeze in place in September. But this is a stock that is down 64 percent over the last year. When we come back, we'll hit the sell-off right now, which is worsening. We're down almost 600 points on the Dow. The S&P down 1.8%. Also, Evercore ISI's Mark Mahaney on whether Meta's mass layoffs will calm investor concerns about the company doubling down on its Metaverse bet. It is one of the few winners right now in the tech space. We'll be right back. Breaking news on Binance and FTX. Kate Rooney has it.

Kate, Binance walking away? Hey there, Sarah. Yeah, that's right. Wall Street Journal reporting that Binance is walking away officially from that FTX deal. It says here Binance's issues are beyond our control to help. They're citing a company statement. We don't have that statement quite yet. Again, this is according to Dow Jones. Binance cites due diligence reports on mishandling of FTX customer funds for dropping that deal.

Again, this was a letter of intent, non-binding, so they didn't have the obligation to go through with this deal. It was up in the air. We'd had reports all day coming out that they may not go through with it. But it looks like officially the company is saying via Wall Street Journal, there's a statement out there that they are not going to go through with this FTX bailout. Wow. Kay Rooney. Kay, thank you. Bitcoin falling now almost 10 percent. Looks like broader market getting hit as well. Down 600 points on the Dow, Mike. Beyond our control or ability to help is the headline. That does not sound good.

It doesn't sound good. And obviously, it's the unknown what's below the surface where the iceberg's danger lies. That's been the concern for a while. You look at the stocks that are leading to the downside, and it gives you some vague idea of what is owned by those who might also be very exposed to crypto. So things like Nvidia, Tesla are down more than the overall NASDAQ. There's no way to say that one causes the other, but that's the general environment here. And so if you have a multibillion dollar loss, you didn't expect to be there a few days ago and it's in the system. So I think it's just weighing on risk sentiment is the way I would put it, as opposed

to somehow threatening any chain reaction in a direct way. We just don't know. Why? You don't think there's some of that leverage is tied to NASDAQ stocks? Some of those could be, but $6 billion is nothing against the NASDAQ, right? So I do think it's much more about who has to sell some stuff to cover other losses. And again, another excuse not to take risks ahead of a big, potentially hazardous data release tomorrow in a market that's had a hard time summoning upside momentum for a little while here. Even though it stayed supported, we've not really gotten free of that lower end of the trading range.

A lot of questions here, Kate. Kate Rooney, it looks like Binance is citing due diligence reports on mishandling of FTX customer funds. I mean, this is clearly something regulators are going to be looking at. Yeah, this raises a lot of questions for regulators. Investors I've been talking to in the past day or so have also poured some cold water on the idea that this would happen and the questions of what happens if Binance doesn't go through this deal. Is it bankruptcy court for FTX? This is the international side of the business. What happens to those customer deposits? And then the legal liability. It's not clear that there's another backup option that's going to want to come in here based on what we're hearing from

reports on their balance sheet and some of the questions that Binance had. Who would have a balance sheet big enough to come in and now bail out FTX based on what we know and have that risk appetite at this point to really want to buy those customer deposits on the cheap, but also inherit that liability that's going to come with it. What do we know about any potential investigations? So there's reports about SEC investigations. We reached out to the CFTC and SEC. I'm also told this is a potential DOJ issue. And investors I've been talking to say there may be some liability in terms of Sam Bankman-Fried and what he told his investors in terms of the commingling of customer funds,

of FTX funds and Alameda, which is his quant hedge fund that he also founded. They're saying there's issues there. They're probably going to bring that to court. And he's going to have a lot of legal headaches here. But we don't have any clarity on to which regulator that actually is, because there's multiple ones that oversee crypto. Do we know anything about how the firm handled customer funds that would that would be problematic? We don't at this point. We don't have any indication that they were investing customer funds. But that's one of the big issues that brought down companies like Celsius and companies like

Voyagers, that they were taking a lot of risk with customer funds, looking to get more leverage. And that's something that FTX as a business model should not be doing. It's an exchange. They should be really the middleman between the buyer and seller. There's no reason why you should think as an investor or somebody who is backing FTX that they would have that type of liability. I think it would come to a surprise to a lot of people if they found out that FTX was somehow this levered and taking risk with employee funds. We don't have any evidence quite yet that that's the case. Yeah, I mean, hard to speculate, Mike, but either the financial hole was too big or there was something shady in terms of what how they were dealing with these customer accounts. Right. It could be any of the above.

It could be just the risk reward of absorbing the headache and the liability was just not there for Binance. I mean, we obviously don't want to necessarily go into conjecture too deeply here. But, you know, I do think the first loss is likely those people who invested in FTX. We don't know how much in the way of, you know, other customer crypto holdings are at risk, if at all. You mean the venture funds that were Sequoia was in there, Temasac was in there, all these major players. With a relatively recent capital raise at a pretty high valuation. What about FTX customers, Kate Rooney? Do they lose here? It seems like that's one of the issues here, is that if this goes to bankruptcy court, the big thing Sam Bankman-Fried said in this deal when he announced at least the beginnings of this deal,

saying customer deposits will be safe, and he's really been the poster child for consumer protection. And one of the reasons he bailed on other companies was his argument that customer funds need to be protected it's not clear that they will be in this case if if they're not and they don't have the capital to meet customer withdrawals they don't have the customer confidence to say it to have people not pull their money from the platforms that's a big question mark right now and then the other thing Sarah is what happens to the deals and the other companies that Sam Bankman Freed bailed out earlier this year? That ink has not signed. So Voyager got caught up in a state securities court that hasn't actually

closed. BlockFi was another company. There's still customers with their money locked up on these other exchanges that were supposed to be bailed out. They were supposed to get their money back as a result. That's not looking so likely right now. Kate Rooney, Kate, thank you very much. We'll come back to you as soon as we learn more. Not inspiring a lot of confidence, Mike, in the system, especially with these ripple effects in FTX and Sam Bankman Freed, and potentially more broadly than that.

For sure. You know, and there were questions all along the way as FTX was acting as savior, rescuing these other counterparties. It did seem as if, you know, FTX itself had exposures to them, had relationships with them. And there was all along the way this idea that, you know, he's trying to essentially prop up the system and make sure the ecosystem didn't fail. Look, we don't know exactly how this is going to play out. I do think it's still relevant that for the most part, the impact has been on crypto itself, on prices of crypto. There's been a multi-trillion dollar on paper loss that's been sustained in aggregate by this system. If you thought of the entire world as having one portfolio,

that piece of it is down tremendously. It's almost a one year anniversary of the peak price of Bitcoin. And you're down huge from over 60,000 right to 16,000. So that's been absorbed. The Nasdaq is down much more in terms of aggregate dollars. But so far, in terms of stresses in the system, it's mostly been stresses in the crypto ecosystem. And honestly, what is it endangering in the way of actual projects that might have sustainable value or a role in the financial infrastructure in the future? I have no idea. And I don't think anybody knows that. deciding whether this entire asset class is going to have, you know, prospects beyond just having been a speculative, you know, several years of upside and downside here.

FTX competitor Coinbase down 9%. Robinhood, which Sam Bankman-Fried owns a stake in, down another double digits on top of a heavy day of selling yesterday. Mike, we're going to continue to follow it. Again, the news, Binance walking away from an FTX deal. That is being reported right now by The Wall Street Journal. It's having an impact. Stocks are at session lows. We're going to go straight for you here into the closing bell market zone. CNBC Senior Markets Commentator Mike Santoli is still here to break down these crucial moments of the trading day. We've got Julia Borsten joining us on Disney. Evercore ISI marks Mahaney on

meta. We'll start broad, Mike, because we are seeing stocks move to session lows. We're down We've got Julia Borsten joining us on Disney. Evercore ISI Marks Mahaney on Meta. We'll start broad, Mike, because we are seeing stocks move to session lows. We're down 2% right now on the S&P. As I mentioned, every sector lower, and we've seen that. It's really energy getting crushed the hardest, down 5% right now. Consumer discretionary is down 3%. Technology is having a rough day. Most of these big cap tech stocks are lower except for Meta. And as you've been saying, no shortage of catalysts. What are you watching?

All of it. I mean, we do have, by the way, the bond market. I don't know if it's a little bit of a safety bid, but aside from the 10 year, which had a bad Treasury auction a couple of hours ago, you do have yields that are tame. Maybe that is because people are grabbing at something relatively safe. I do think the fact that you have energy on the downside and the same day when you have the big mega cap growth stock that had bounced, giving some of that back, that explains your 2% down day. We're about at the lows for the week, but still kind of holding in that range of up 8%

from the mid-October lows. Seem like two-way risk going into the CPI tomorrow, honestly, because if it's a benign number, people are going to start to talk again about how we have a green light for that supposed seasonal strength that's meant to follow the midterm elections. Disney's shaving about 84 points off the Dow right now, biggest drag by far. The media giant reporting a big bottom line miss, as well as weaker than expected revenue because of streaming business losses that doubled for more than a year ago.

Julia Boorstin joins us. expected revenue because of streaming business losses that doubled for more than a year ago. Julia Boorstin joins us. Julia, what does CEO Bob Chapek need to do to reassure investors that he is getting this company back on track? It's not the first setback. Yeah, I mean, look, there are so many questions here, so many challenges, especially for going into a tougher macroeconomic environment. But so much of investors' concerns right now are about the fact that the streaming business is losing money. And this is an incredibly expensive venture here. And for quite a while, the whole media industry was focused on just growing those top-line streaming subscribers. But the reality is now these subscribers need to be profitable. So I think in this coming quarter, which is the fiscal first quarter for Disney,

the company needs to show some sense of traction for their new ad-supported streaming service. And there is some concern that as they raise prices for the ad-free version of Disney Plus to show that subscribers are not churning out at too high a level. how well Bob Chapek can start generating profits from the streaming business and perhaps investing less in the types of content that are not yielding real subscriber loyalty there. Yeah, he says fiscal 2024. We will see Disney getting hit hard today. Worst day in more than two years. Meta going the other way. It's higher after confirming reported job cuts, announcing layoffs affecting more than 11,000 employees or roughly 13 percent of its total workforce, CEO Mark Zuckerberg saying he had overestimated post-COVID growth. Zuckerberg speaking virtually to the company earlier today.

A Meta employee impacted by today's layoffs provided this video to NBC News. Take a listen. I take full responsibility for this decision. I'm the founder and CEO. I'm responsible for the health of our company, for our direction, and for deciding how we execute that, including things like this. And this was ultimately my call. And it was one of the hardest calls that I've had to make. Let's discuss Mark Mahaney of Evercore ISI maintains his outperform rating $170 price target. Always icky when Wall Street cheers layoffs like this. How should you look at the significance? Well, the note we put out earlier, we described this as the biggest fastest pivot i've ever seen

in a two-week period the setup here is that the company this is belt tightening mode uh all the companies amazon that i look at google but if you throw in microsoft apple they're all seeing softening demand trends so investors want uh these companies to tighten their belts and two weeks ago when facebook announced these softening trends that were kind of in line with expectations, they refused to slow down their expense growth for next year. They didn't do it enough. They sounded very aggressive about expense growth for the following year. And so the market very quickly expressed its sharp disapproval. Stocks shares went up 25 percent. Two weeks later, it looks like the management team in Zuckerberg have listened and are heeding that. And they've already changed their 23 capex and their 2023 operating expense guidance.

That's a super fast pivot, but that's exactly what is necessary at this time. At least that's what the market thinks. So here's my question. And the stock has been beaten up for a number of reasons. How much was the cost discipline a factor in why investors had just completely soured on this? Well, in terms of the last 25 percent move, I may be wrong, but I think it was 100 percent the factor. When you look at what they printed in the September quarter results, there was no issue with the users, no issue with engagement. And the revenue results were intrinsically weak, but right in line with expectations.

In fact, slightly better than it feared. It all came down to the company's unwillingness two weeks ago to say that they're willing to tighten their belt, that we're willing to slow down this expense growth and CapEx growth and expense growth. I think that was the number one issue. Now, you go further back, there are a lot of other issues, and the company has to address those, the competition from TikTok, dealing with the Apple privacy threats, et cetera. But the last 25 percent move, all about costs. So you see this as kind of a game changer here?

Well, I think you'll see a recovery in the stock. I think they'll regain some of that 25 percent. And then we're going to have to go through the macro trends. And so the question is, what's the market modeling? What are we all assuming? We should assume deterioration and ad revenue trends in the December quarter and in the March quarter. And maybe we start bottoming out in the June quarter. If that happens, I think you'll start seeing a bid on this stock in the early part of next year. But, you know, we're all waiting to see how the macro headwinds face between now and then. That's and I think the valuation, by the way, step back. We're still talking about an asset that's trading at 12 times gap earnings with high margins, tons of cash flow, buying back stock.

I think it's a great value play in a tech growth sector that's not growing now, but within 12 months, I think it's going to be growing and growing sharply. Mark Mahaney, thank you for joining us. Reiterating the call from Evercore ISI. We've got just about two minutes to go here in the trading day. It looks like the Dow is having its worst day, Mike, since early October and its first down day in four. What do you see in the internals? Yeah, it's pretty broad based on the downside, Sarah. You know, yesterday was not too bad in terms of upside breadth, but today has been close to 90 percent, not quite to the downside. Two-year note yield still worth monitoring here.

It's not really much higher than it was after the Fed decision a week ago. But it definitely is that sort of raw nerve of the market right here, about 4.6 percent. The CPI number tomorrow is going to determine whether the market's got the Fed priced correctly or help determine that anyway. It's starting to flatten out here in the last week, but obviously a longer-term uptrend. Until it comes down sustainably, stocks probably can't get too much of a sustained advance going. Volatility index not really doing a whole lot.

It hasn't gotten down much below the 25 level, so perking up to 26, maybe jeopardizing that little downtrend we've had there. But 2% days are not necessarily something that jars this market because, after all, we still are in a multi-month trading range, even if it doesn't feel like it, Sarah. As we head into the close, Mike, every Dow stock is lower at the moment except for Merck. Disney's the biggest drag on the Dow, taking 84 points off, but UNH right behind it, taking 80 points off. Again, we got that news in the last

10 minutes or so from The Wall Street Journal that Binance is walking away from its deal with FTX, making matters worse. Bitcoin is at a two-year low and down more than 10 percent right now. We've got the broader S&P also lower by about 2 percent, with every sector down. Energy hit the hardest. Consumer discretionary right there at the bottom, too, down 3%. Tesla's really not helping. It's down 7%, and now more than 55% off its highs. But again, NASDAQ composite down 2.5%. Meta's a rare exception on the upside. Apple, all the other big ones, Amazon, Nvidia, again, Tesla, all weighing on the NASDAQ as well. That's it for me on Closing Bell today. I'll see you tomorrow, everyone.