Power Lunch - 16-Year High, Check Please! 8/21/23

Episode Date: August 21, 2023

The biggest econ event of the summer is upon us: the Fed’s summit in Jackson Hole, WY. We’ll tell you what to expect, as yields continue to soar – including the 10-year yield at its highest level in 16 years.Plus, we’ll speak to the CEO of Brinker International. What are Chili’s & Maggiano’s seeing on the inflation front? And how is consumer spending holding up in this environment? We’ll ask. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Coming up, the biggest econ event of the summer. That's the Fed Summit annual. Jackson Hole, Wyoming, beautiful place. What to expect from Chair Powell as yields continue to soar the 10-year at the highest level now in 16 years. And as we break down the Fed, we're also going to look at the impact they've had on businesses. We'll talk to the CEO of Brinker in her NASA, a big restaurant chain. What is Chili's seeing on the inflation front? And how is consumer spending holding up?

Kelly. Baby back ribs. That's what I always think. Let's get a check on the markets where the S&P is up 18 points. And in light of those record high almost for recent trend rates that Tyler mentioned, the NASDAQ is up 1 and a quarter percent today. Go figure. I can see Michael Santoli smiling right now.

The Dow is down 95 points, though, so that index remains in the red. Check out shares with Palo Alto, by the way, soaring after its Friday night surprise, the worst fear is not realized for that stock. Tons of people tune into the conference call. You can hear the CEO a little bit later on today, but a 15 percent bounce for PANW. And we're going to talk about this one a lot this week ahead of earnings. InVIDIA up today as HSBC raises its price target to 780 from 460 currently. That means 70% upside from here. And consumer staples are one of the worst performing groups in the face of higher interest rates

today. General Mills down almost 3%. It along with Kellogg and Campbell Soup, Tyler, all hitting 52 week lows. All righty. Thank you, Kelly. Let's take a look now at the 10-year yield right now. Today, hitting the highest levels since 20-07. And that, of course, is the backdrop for the Fed summit in Jackson Hole, Wyoming this week. Rarely have rates risen as high as much as fast as they have in the past year, 18 months. Steve Reesman will be out in Jackson Hole? Steve, will the 10-year yield be the talk of the town or what would be if it's not that? Maybe yodeling about yields in the mountain, Tyler.

The rise in the tenure is definitely a new challenge for the Fed and the economic outlook. It adds to a considerable list of challenges that they face in the coming months. Since mid-July, it's also bigger than expected Treasury issuance. You have stronger economic growth. And that fits downgrade. The 10-year yield has risen around 60 basis points at 433, as Tyler said, highest since 2007. Amid this move, though, interestingly, the markets outlook for the year and Fed funds rate has not budged a bit.

It suggests the market does not believe higher long-end yields are going to push the Fed either up or down, though it has reduced the amount of cuts priced in for 2024. A year ago, Fed Chair Jay Powell and Jacksonville laid down a landmark. Inflation was too high and no one should doubt the Fed's resolve to bring it down. Fast forward a year. And on the eve of this summit, Powell and the Fed can claim some success. inflation is followed by five percentage points. GDP remains above trend and the unemployment rate low, no recession so far.

The Fed now has to ponder if this rise in the tenure is more than it wants, It's endangering its success so far and threatening the recession it is so far avoided. Or it could decide, as some have, that these yield levels are appropriate in a world with higher growth and higher inflation, Tyler. It's very interesting. I mean, the Fed influences, but in no way controls really the 10-year yield. No, it has only that, well, it's got two tools. It has the quantitative tightening, which is doing, which is selling bonds. However, those bonds, it's well to remember, Tyler, when they mature, are only really one-day bonds, right?

They're not 10-year anymore. And, of course, the Fed is not in the 10-year market. So that adds some pressure there or in the long end anymore because it's not buying anymore. But then it has the overnight rate that have influenced things out. It's very hard, Tyler. I don't know if you remember we did a chart last week. You can't really date these moves or link these moves to things that happen with the Fed, especially since I showed you that chart that shows the outlook for the Fed,

has not changed over this rise in the 10-year. So it doesn't seem linked to the Fed and that instrument that they control. It's more, I think, higher economic growth and concern about supply. In addition, don't forget, lousy August liquidity is a big factor. Things may get a little bit better when, you know, the big guys with the... Let me ask you one more follow-up, if I might quickly. You mentioned something that's very interesting to me, and that is the amount of issuance that has been required of the federal government.

That in and of itself, you put more supply on the market, you have to pay a higher rate than to attract the buyer, right? Is it as simple as that? Well, yes. I mean, Tyler, supply is not typically a big factor that has to do with short-term swings. The issue, though, I think, is that, first of all, the market's been surprised by how much issuance has come down. It's been surprise issue. It's not so much the amount of it, though the amount is very large. Together with some other things we've talked about, yield curve control in Japan coming off, that makes it hard to do what's called a carry trade and really finance the long end here in the United States,

as well as some issues with China. China has a declining font of dollars with which to reinvest. There's a bunch of stuff going on the demand side, and that's why the supply side issues, in addition to the surprises, are having this kind of impact. All right, Steve, thanks very much. Steve Leasman. safe trip out there. Thank you. Besides Jackson Hole, another place that 10-year yields being

watched in Chicago, of course. Rick Santelli joins us now. What's the chatter, Rick? Well, you know, the chatter is that we're not alone. Now, of course, you see that chart in front of you going back to 2007 for 10-year rates. I could also show two-year rates. And as for one comment, Steve made, it really isn't about the Fed. I think commercial real estate brokers and anybody who has a 2.5% mortgage and doesn't like their house may disagree with that comment. Now, think UAW, think

UPS, think supply, and think wages, because there's a lot of moving parts here. But the rest of the world is certainly following rates higher. A world really deep in debt. Let's look at Boone, shall we? They're hovering very close to yields

at 270. Four more basis points, highest yield since 2011. Let's look at Giltz in the U.K. At 472, they're toying with the highest yield since 2008. If we look at JGB, Steve just mentioned, and nothing may be more important than a world with no carry trade because we've never experienced such a world in quite a few years, and it's at 65 basis points,

toying with the highest yields since 2014. And then finally, all of that, of course, goes into what's going on in Asia and China, in particular as they lower rates, the dollar against the one, Well, nearing the best levels, nearing since 2007, we're getting very close. Kelly, back to you. Very close. Rick, thank you.

All right, so we've set the stage for markets this week, the 10-year yielded 16-year highs. Powell speaking at Jackson Hole in a couple of days. Our next guest says his comments could be the difference maker for markets going forward. Jerry Castellini joins us now. He's chief investment officer at Castle Ark Management. Jerry, welcome. Why is Powell's speech such a big deal? It's more because people are not positioned.

They're so anxious about this speech. They're so worried that he'll give one like he did last year. And at the same time, the underlying economic trends don't seem to match that type of discussion. So I think you see a lot of handholding and a lot of angst on the part of professional investors right now. And you can see that in the way the stocks are lined up. Cycical stocks have pulled back. All the big growth names are kind of hovering below where their highs were. And there's this anticipation that you will be given instructions on Friday afternoon on what to do.

And so let's kind of unpack this for a little bit, the different sets of instructions that are possible. Sure. So inflation, if the Fed says, it's not that bad, you know, of course, fine. And we're not going to worry about oil. We can't do anything about that. So, you know, we're going to go on this quiet, you know, maybe another couple quarter basis, but that's not a big deal. That gives the investors in the conservative cyclical growth names some reason to breathe easy and they continue to buy those. On the other hand, if they say, you know, the Atlanta Fed's telling us that it's going to be

5% GDP quarter coming up, that's way too hot. Looks like the economy is not even going to see the closest thing to a recession. and we best get into our cyclical names. So you're going to be faced in that case to jump over to some of the names that will benefit from a faster growing economy. And that's what people will be standing there with their fingers on the button. Let me ask you a question. You cite the GDP numbers or the forecast. Some of them are high, whatever.

And you say consumer sentiment is near lows. My view was that I thought consumer confidence, as measured by the conference, board is actually pretty strong right now. I'll grant you that if you ask people, do they think the economy is in a good place, they'll say it's not. So where is that disconnect between a strong economic growth and what you describe as consumer sentiment being at a low? Yeah. And again, I probably should have started up. You know, you can pick your own economic indicator right now. You're going to ask, Rick, anybody, you can be bullish from one set. And you be buried from the other. I could use one of the consumer sentiment indicators to show how concerned

like you were describing. But on the other hand, people are spending money. There's no question when you talk to retailers, the consumer spending numbers indicate a confidence going forward. And that's why I'm saying we're stuck with this contrast. Everyone is sitting on a fence because they can't yet be convinced that we're about to make the next move up or down. And so So that brings up to the question, what do you own? Our view is when you look at what to own going into this kind of uncertainty, you should own more things with a cyclical tailwind because those haven't been represented by the stocks yet. What's going on with Boeing, Slumberge and Home Depot are forward-looking economic recovery plays, but you're not buying the most beaten down cyclical

at the same time. So what we're hoping is that you get enough visibility that. there's going to be a tamping down of the whole inflation fight, and we let the cyclical recovery come. So these three names that you mentioned there, Schlombardier, Boeing, and Home Depot are ones that you favor in part because they've been in the shadows a little bit. Exactly, exactly. All of them are down. Invidia. Not to wait for, that's a separate story. Yeah.

Because we own NVIDIA too, and we love that long-term output. Well, tell me that story then. What is that story? What is the story on NVIDIA? That story is it keeps chasing down. It's multiple with really good forward forecasts and the likelihood that at some point you're not going to have enough chips to run for the demand. And it doesn't need to be more complicated than that. There's a shortage of things that can process this end scale type of demand that.

coming in that world. And Invidia is literally the only direct play on that. And the stock was at 60 times. It's at 35 times because they keep increasing their earnings estimate, which is rare, right? Tyler, rarely do you get multiples coming down in fast growth businesses. Yeah. Jerry, thanks, as always. Good to see you, sir. You bet. Jerry Castellini. All right, coming up, China's economic condition remaining extremely fragile. Despite a recent stream of weak data, those hoping for a more aggressive policy stance, from the country's central bank were left disappointed. We'll explore that next.

Plus, something special on the menu. We'll speak to the CEO of Brinker International about the health of restaurants and the consumer in this economic environment. And then the inside track on Amtrak. The company's president will join us when Power Lunch returned. Welcome back to Power Lunch, everybody.

Concerns about China still very much front and center for investors, Asia markets lower again today. After China's central bank, to cut its one-year loan prime rate. This was the second time trying to cut this rate in three months, and it comes as the fallout from the country's real estate crisis spreads. Let's get some more insight from DeWordrick McNeil, managing director and senior policy analyst at Longview Capital. He is also a CNBC contributor. DeWordrick, welcome back. Good to have you with us. Did China do too little? Was this kind of a kind of, well, to use the term, sort of a

little too late? Thanks for having me, Tyler. Look, I think you hit it on the head. I think this is certainly too little, too late. But I think it's important here, Tyler, for us to take a step back and try and look at what really is going on here. We are witnessing an incredible tension between Xi Jinping and the leadership's desire to continue to reform this economy, move it away from the borrow and build export-led and infrastructure-led growth. to something that's more akin to a high-tech sector, a development, domestic consumption, in the green economy.

But what's happening, Tyler, is the old economy is collapsing around the leadership as they do this. Now, I've been extremely pleased to see how much tolerance Xi Jinping and leadership has for pain. But Tyler, the question is, do Chinese citizens, the private sector, and most importantly, do foreign investors have that same tolerance for pain? And I suspect not. And so we're going to have to see whether or not Xi Jinping pivots to do something in the short term to buy himself some more time in the long term. Well, you raise an interesting point in a note that I read, and that is that one of the things that has so far kind of been missing here is any sort of direct fiscal stimulus. In other words, real money that would go to the very Chinese people that you say will determine whether this policy,

works or not? Yeah, I think that has been missing. I think a lot of people have been looking for sort of a stimulus blast as well as some support for households. Now, you know, there are people who say, well, that's only a short-term fix. What the economy really needs is to boost confidence. Private sector needs to start hiring again so that people can have jobs. That's a long-term fix. But, Tyler, something is going to have to give in the short term. And I think that that may end up payments to households so that we can get something going to increase confidence. Because what we have is a crisis of confidence. So credit is not the issue.

There's plenty of credit that's cheap. People don't want it, Tyler. Last hour, DeWordrick, our Sean Ryan, our guest who's in Shanghai, said there were two things that would make him more bullish on China. Number one, if multinationals started to go in. And I just forgot the second. So let's just start with the multinationals. Do you see signs that they're going to increase their investment?

Do you think they'll wait for much better news from China or try to be a little opportunistic? Well, look, I think there are some people who think that they can play this market on the investor side. On the multinational side, not everything is bad news. We saw reports from Starbucks, from Apple, where they've seen some revenue gains. So this requires you to really be able to pick and choose how you enter this market. No longer can you just expect you enter China, There's great revenue, great growth. You're going to have to be much more methodical about how you engage China these days,

particularly in the short term, Kelly. Right. Travel, he's mentioned, is a bright spot. It looks like that's one part of the economy, electric vehicles. So, you know, if you wanted to be really selective as an investor, I guess you could try to kind of look for those opportunities. That's correct. But look, I think ultimately here, investors are going to have to make a choice.

And that choice is, do we cut losses and run now, or do we stick it out and ride with Xi Jinping, who does have a long-term vision for a economy that's de-leverage, that's less risky. But, Kelly, I'm not sure if that paying threshold is something that international investors will be prepared to ride out over the long term. But that's the key question. Right, right. All right, DeWordwick, thank you very much.

We appreciate your time today. Thank you, Tyler. Fantastic. We'll see again soon. Now, a restaurant route. Check out shares of Brinker International, positive for the year, but down 14, percent over the past month. Why are investors suddenly more cautious around restaurants? We will speak to the CEO and try to get to the bottom of it next. Welcome back to Power Lunch. Shares of Brinker

International, the name behind Chili's, Maggiano's, and so many more are down about 8% over the past week of mixed reaction to the company's Q4 results. The restaurant operator had inline earnings but saw a decrease in traffic across both its major brands last quarter. Still, they reported a boost in same store sales thanks in part to higher menu prices. For more here, let's bring in Brinker International CEO and President Kevin Hockman. Kevin, it's great to have you here. Welcome. Hey, thanks for having me on the show. Not to go down. My mom's first job was at Chili's, if I'm not mistaken.

And so it's like to this day, it's kind of like a family tradition. Maybe that's true for a lot of people. You guys have been around for some time. Yeah, I mean, over the years, there's been hundreds of thousands of folks that we call affectionately Chiliheads. And Chiliheads love to have a good time. They love to service the guest. And your mom was no exception.

Well, yes. These brands are also reassuring when you're on the road and you're looking for something familiar and they've kind of become the neighborhood restaurants on a lot of parts of town. But it looks like price increases are kind of running out and maybe traffic's drying up a little bit. Yeah, you know, the industry is facing some traffic softness. You know, what we can do is be focused on two really important things. One is to have leadership value in the industry. So we have a 1099, three for me meal. It's almost a half pound burger fries. bottleless chips and salsa and a bottomless drink just for 1099. I mean, that's better than not just all of casual dining, but really anything you can get in fast casual or in fast food. And it's just a very, very high-quality meal. The second thing that we're focused on is increasing the experience or improving the guest experience.

You know, we know if people are going to pull back on trips, they're going to look for restaurants they know they can trust like chilies. And so if we can continue to elevate the guest experience and all of our guest scores in the last six months have dramatically increased server attendance, food grade scores, whether a guest has a problem, has gone way down. Those are things that are going to bode well for us on traffic and long-term success. And so far, that strategy has really worked for us the past six months. We've ran well ahead of the industry on sales, and we expect that to continue for a while.

Your comparable sales were up 6.6 percent, even though in some cases traffic was down a little bit or flattish. So I assume that that increase in sales was due to price increases. Yeah, it's partially due to price increases just based on the inflation that the industry has seen over the last, you know, 18 months. But the other thing is the guests that are coming are, they're buying more things. So exactly. So for example, we have what's called a barbell strategy. So for example, in margaritas, if you shop the value menu, you can get a $3.49 cent margarita with your value meal, your three for me meal.

Then we have a $6 margarita of the month, which is always, you know, a very premium margarita. We have one in this month as it's called the tequila trifecta, which has three different tequila's in it. But then if you want our, you know, our piece deliver resistance, the presidente, the best-selling margarita in the entire world, that's $9. And then you could even go up to a cost of me goes super pretty margarita for over $14. So the reality is whatever money that you have, if you want to join or you want to come to casual dining, you can come to Chile and get a great experience. So you're giving more opportunities to sort of step people up maybe a little bit. in what they spend. You made me thirsty there. So let me ask you the other side of the question. How much have your costs gone up, either the input costs meaning food, transportation costs,

staff costs, pick the time period over the past year, past two years. How much higher are today than they were? Yeah, so the past fiscal that just ended in June, really the theme was both food inflation as well as, as well as wage inflation. This fiscal year that started for us in July, it's really mostly just wage inflation. We expect food inflation to be in a low single digits. But when you add up the wage inflation and some of the other costs like utilities that are going up, that's a $100 million headwin for our business. And so we're going to do a little bit of pricing.

We're going to try to drive what we call mix, so get more premium items in the basket. But I think as long as we can protect that value customer with that three for me value meal, which is better than really anything that you see in the industry, I think we're going to be okay. You know, it looks like Subway is getting closer to a sale to a private equity firm. First time it's changing hands, Kevin. You guys obviously have a couple of brands. You have Chili's.

You have Magianos. It's just Wings, which is kind of a Texas-based company. Would you ever look, maybe it's not Subway, but would you ever look to add brands to the portfolio or is the next move spinning them off? I mean, it's kind of an odd mix, honestly. Right now we're focused on our new strategy. It's just about improving the formal economics of overall. owning a Chili's and owning a Maggiano's, which means, number one, winning with the guest,

whether it's having leadership value or incredible guest experiences, you know, we need to make sure that we do that, because if we do that, the guests will continue to come back. We'll grow sales and will obviously increase profits. That's what we're focused on right now. Quite frankly, there's a lot of M&A activity that we watch and we monitor. We're focused right now on making Chili's and Maggiano's for all economics just continue to get better and better. What percentage of your stores are company owned and what percentage are franchised?

And is there a difference in the performance of the stores, either by revenue or profitability between the two? Yeah, so 90% of our restaurants, we own ourselves, a very small amount are franchised. And that's really domestically. Overseas, we have a small business that is all franchised. So we're basically a restaurant that we own ourselves, right? And, you know, we're performing a little bit better than the franchisees. I will tell you, the franchisees do an amazing job with me, giving me good ideas that they see in their own restaurants that either we don't have to test or we go and test. And they've definitely made everybody's business stronger.

So I really appreciate them being a part of our system. When is Chili's going to be mentioned in a country song, Kevin? Why doesn't it engender the emotional response of Applebee's? I'm sure that must keep you up at night. Well, Chili's has been in pop culture all the time. And so, you know, we were in the, we're famous for being in the office. In fact, we brought back our relationship with Jenna Fisher, most recently with our, it all starts with a Mark campaign. And quite frankly, that margarita campaign's working.

You know, about half of our kind of our discounted margaritas have, or we reduced our discounted margaritas by half. That mix has moved to the premium margaritas like the Presente and the Casamigos I was talking about. So we feel really good about, you know, our place in pop culture. And we're certainly we're now using it to help drive the business. It all starts with a marg. Ah, yeah. Can't go wrong there. It could be a tagline everywhere.

Kevin, thanks so much. We really appreciate it today. Hey, thanks for having me on the show. And next time I'll bring some marks for you guys in this studio. Yeah, that might give a little power lunch, a little more extra power. We might have some takers over on that side of the world. An extra power. Kevin Hockman from Brinker.

Thank you. All right. Ahead on Power Lunch, the latest on Tropical Storm. Hillary, that is no longer a tropical storm. It has battered California. It's moving on to Nevada. maybe the upper west as well. We'll take a look at the damage and the impact so far.

Plus, as worsening natural disasters bring more attention to global warning, more and more investors are looking to invest in companies aiming to lower emissions. We'll take a look at one such firm that wants to literally suck up the carbon. We'll be right back. Tropical storm Hillary hitting Southern California over the week and obliterating rainfall records, causing massive flooding along with some mud slides and the impact could be felt for months as months as farmers grapple with that flooding. Jane Wells joins us live now from a place it doesn't get much rain this time of year. Ever, Palm Springs. Hi, Jane.

Hi, Tyler. Yeah, it's time to put the sunblock. Sunblock back on as people try to assess the damage. Two days ago, this was just a little trickle of not completely dry. But Palm Springs like a lot of places saw rainfall like they've never seen before. If you look at the video just in the city, about three inches fell in a single day in a place that gets five inches maybe in an entire year. There were flash floods, watches all across the region, tornado warnings. We were on Interstate 8 down near the Mexican border, which was closed due to this large boulders tumbling down. But among the many economic concerns are those of farmers in the Imperial Valley. Most of America's winter vegetables are grown here, and they need that soil prepped and ready for planting right now.

Plus, there's a lot of hay for the global dairy industry. That was already in the ground, had to be harvested ASAP ahead of the storm. Farmers tell me there's not a lot of crop insurance for this stuff. So I had all of my guys in, and then I was calling neighbors asking them to help me bail or rake or get wagons in the fields of haul hay, anything we could do to help people out. We usually get the monsoon season anyways this time of year, so we try to be done by the middle of August. But this year was a rush. Yeah, the winds out there were crazy. The storm, of course, is moving north and it's breaking apart.

Schools, although are not in session today in many places, and airlines are recovering from canceled flights. Oh, yeah, we also had an earthquake yesterday. Of course we did. 5.1 in Ohio north of Los Angeles. That'll wake you up. No relationship to the storm. told allegedly just Mother Nature having a little fun with California. Guys? I haven't seen wind. Man, that is some serious wind in those clips of the farmers.

How bad was the wind? Well, my ponytail was straight out. If that gives you any idea, that was my wind meter. They were saying maybe up to gusts up to 85 miles an hour. Look, we're used to Santa Ana winds and we're used to rains that flood. We're not used to both of them together, especially in August. But that was wind like, I don't know if I've ever been a win like that, sustained wind like that before. And this was, of course, the first tropical storm in how long, or tropical storm warning in how long for Southern California? Well, it's a first warning that's ever been issued for California.

But it's been about 80 plus years since we've had one. Let's hope it's another 80 plus years. And, you know, Tyler, I think it's a safe bet. and I won't be around. But the good news is it wasn't nearly as bad as feared. And as far as we know, on this side of the border, no loss of life. One person did drown in Mexico when the storm, when the hurricane at that point came to shore. All right, Jane, thank you very much. Jane Wells reporting from Palm Springs. Let's get over to Sima Modi now for the CNBC news update. Cima. Kelly, here's a news update at this hour. The Maui County Mental Health Administrator

saying the devastating wildfires have caused the worst mental health. health disaster in the state's modern history. State and federal officials saying they're trying to mobilize mental health clinicians to come help the 65 already on the island. Hawaii Governor Josh Green, who is also a physician, temporarily waiving the state licensing requirement for counselors so they can get there faster. First, McDonald's and Starbucks left at the start of the Ukraine war and now Domino's is getting out of Russia, too.

The company that owns a fast food franchise rights in Russia and several nearby countries announcing today that it will file for bankruptcy and close all 142 stores there. And Adobe co-founder, John Warnock, has died. According to a statement from the company, the computer scientist and Silicon Valley veteran died Saturday, surrounded by his family. In addition to founding Adobe, Warnock also invented the PDF or portable document format, which revolutionized how documents were shared online.

He was 82 years old. Kelly? Wow. Invented the PDF. And now to watch that company continue to reinvent itself for the modern age. Incredible. And now I know what PDF means. That's you.

That's a good point. The ocean, Seema, thank you. The ocean isn't just a great song by Led Zeppelin. It's also one of our biggest natural resources in the fight against climate change. But as global warming stunts those abilities, startups are marching in to help restore its basic chemistry and keep up the climate fight. We'll explain how in Clean Start when we return. Welcome back in the fight against global warming.

moving carbon from the atmosphere is a growing field of business. But it's not just big air vacuums doing the work. New technology is targeting an even bigger resource. Diana Oleg joins us to explain in her continuing series on climate startups, Diana. Well, Kelly, how about the ocean? It's already the world's largest carbon sink. That is, it already absorbs excess heat and CO2 released from rising greenhouse gas emissions. But new technology is now making it even more efficient, able to trap more carbon faster. The ocean has been likened to the lungs of the planet, generating half of all the oxygen we need and absorbing a quarter of all the carbon dioxide we don't. A natural buffer against

the impacts of climate change, it has also fallen victim to it, as excess heat and CO2 make it more acidic and less able to do its job. Now companies like aquatic, Captura, Running Tide, and a startup called Ebb Carbon are using new technology to restore ocean chemistry and speed up its natural abilities. We're anticipating removing upwards of a million tons of CO2 per year in the coming five years. Here's how it works. Eb sets up modules near ocean water, this first one by Squim Bay in Washington State. The seawater flows through the Ebb system, which uses an electrochemical process to remove acid. Free of acid, it is then returned to the ocean much better able to absorb CO2 again and store it as bicarbonate naturally. As we scale, we'll be installing these systems at existing industrial facilities on the coast that process ocean water.

That lowers cost substantially. Ebb is selling its carbon removal service to companies like Stripe that are looking for offsets to meet their net zero goals. That makes it attractive to investors like Prelude Ventures. Right now, there are very large voluntary carbon markets. Large corporations willing to pay to remove carbon from the atmosphere to offset emissions and other parts of their business. Those markets alone are a multi-b billion dollar market opportunity. In addition to Prelude Ventures, Ebb Carbon is backed by Evoc Innovations, Congruent Ventures and Propeller.

Total backing so far, $25.75 million. Right now, Ebb's CEO says his technology costs. less than $100 per ton of CO2 removed, but as it scales to more and more locations, he expects that cost will drop significantly. Kelly? Let me jump in if I might. Can a company like this really make a difference? Absolutely. I mean, it just goes to, it's how big they can get. Can they put these modules by every water purification system by the side of the ocean? If they get them in enough places and enough states and ramp up fast enough, they can actually change the alkalinity of the ocean and allow it to absorb more carbon. Interesting. All right. Thank you,

Diana. Diana Oleg reporting. And coming up, rail resurgence, Amtrak seeing summer ridership soar past pre-pandemic levels in the northeast as more travelers ride the rails, but could climate change and an aging fleet take a bite out of the business? We'll talk to the president of Amtrak when power lunch returns. Welcome back, shares of Pinterest rising today on some bullish analyst commentary. bringing Julia Borson for more. Julia, what's the catalyst? Well, Pinterest shares are now up about three and a half percent on the heels of two bullish analysts nows that came out, notes that came out yesterday. UBS is upgrading Pinterest to buy on what they call evidence of improving advertiser return for brands, saying that the Pinterest Amazon partnership will be bigger

than they had originally expected. I'm now Wells Fargo with an overweight rating on the stock, writing that they see $340 million in revenues annually from the Amazon Ads Partnership and that that Amazon deal will be more favorable to Pinterest than everybody expected. Now, they are also noting not just the upside potential of this particular deal with Amazon, but the potential for this type of alliance to set the stage for future partnerships. Tyler, over to you. All right, thank you very much, Julia. Well, this summer, travelers have faced a lot of headaches with numerous delays and cancellations

resulting from severe weather. But one mode of transportation seeing a bump in ridership is the rails. Amtrak says on the northeast corridor, summer ridership has consistently surpass pre-pandemic levels. And overall ridership is nearing pre-pandemic levels. But there are still challenges for the rails to navigate from rising delays to an aging fleet. Roger Harris joins us now. He's the president of Amtrak. Roger, welcome.

Good to have you with us. The good news is that ridership is up substantially this summer. I guess the less good news is solar delays. To a certain extent that's true, Tyler. Certainly weather plays a part of it for us as well as it does for the airlines. Heat is a definite problem. Why is heat a problem for trains? Well, infrastructure has a problem with expanding and contracting with the temperature and the environment.

And so depending on how hot it gets during the day, it can make different parts of the infrastructure expand too much. So you can't go as fast? Yes. So typically we have to go a little bit slower to be safer, and that's why we do get delays during summer period. Annie, I'm sorry I interrupted you a little bit there, but go ahead.

Continue your thought. Yeah, so ridership is up about 10% this summer, and we're benefiting from some of the air traffic delays and also just a return of customer interest in travel. Also, there's a renewed interest in rail. I think, and we have some great new equipment coming in the pipeline that will meet the needs of these passengers. We have 73 aerotrain sets on order. We just announced an additional 10 options today that we triggered, and we have a whole new fleet of accellas in the pipeline.

Yeah, tell me about these new assailas. How different are they going to be from the old ones? They're all new, actually. They are a little bit faster on the top end, but they are, far more energy efficient and they are bigger as well. So they'll carry about 25% more people per train. Well, I don't mean to sound selfish because I'm glad they're energy efficient and that they carry more people. But, you know, anything whiz-bang, flashy, upgraded food cart, you know, stuff like that. Oh, yes, a much, much nicer food car, faster Wi-Fi,

card service, a lot of new customer amenities. Card service throughout the whole day. I mean, listen, that New York or Boston, let's say, to D.C., SELA quarter. How much is that of Amtrak's total revenue? It's about 50% of our total pre-COVID revenue. Wow. And it's about a third of our passenger traffic. Wow. So what do you do with the rest of the network, right, which moves much more slowly? One of our producers here is on these trains back and forth all the time. Ryan Rogero has plenty of firsthand observations. Those trains are more delayed. The quality isn't as good. Obviously, they're not as profitable lines. Just talk to me about the economics there and the, you know, kind of where you see those going over the next three to five years.

So there's a lot of good news all over the country. Our long distance network, which are trains that, you know, typically are overnight trains. We have a whole fleet replacement program going on. So we're working on the new trains for those. Funding for those was covered through the Infrastructure Act. and a lot of the shorter distance trains in the National Network are also getting new equipment, and we're expanding service also through the IIA. Let's talk about infrastructure.

You mentioned it a moment ago. That would be tracks, rail beds, tunnels, bridges, stations, I assume. What is the outlook there? How much money is available to upgrade that infrastructure? I assume some of it came through the in the infrastructure bill that was passed a year or so ago. Yeah, exactly. So in the infrastructure bill, there was $66 billion, $22 billion of which came directly to Amtrak. $44 billion is administered by the Federal Railroad Administration,

largely to Amtrak in cooperation with state and local partners. And so our challenge is really to put in place the programs and processes necessary to invest this money wisely in infrastructure. projects. And this year alone, we're increasing our capital spend by a billion dollars. What are your highest priorities in terms of those spending projects? Well, in the Northeast Corridor, there are five big projects. There are two big tunnel projects, one in Baltimore, one in New York, and three big bridges as well that will account for the vast majority of the spending. Roger, those a sell of tickets can be upwards of $500 easily.

one way, depending on when you book them and the availability, if you're going to be able to fit 25% more people next year, does that mean that fares could be going down or at least not going up as much? Well, certainly on the less popular trains, you will see the potential for lower prices as we seek to get more overall utilization out of the trains, because that really is where the sweet spot is for the business is getting the most utilization out of the assets that we have. Why, as you travel, if you travel around the world, you know that other countries have faster trains, by a lot, not by a little, but by a lot. Why do we not have that? We have a lot of old infrastructure. So if you go to many countries like Spain or China,

places like that, they have a lot of new built train infrastructure, racks, bridges, tunnels, etc. and it's much easier to run consistently at higher speeds in those environments. So what we're trying to do over time is invest money in the critical parts of our infrastructure to bring the average overall speed up, as well as looking at new opportunities for new alignments. Will we ever get to the speeds that the Chinese trains, that the French trains have? In places where we have new infrastructure, We will. And the question is, where is that investment made and how long will it take to make that investment come to life? Very interesting. And I assume that you would target the, for those super fast trains, you would target where the people are, right? And that would be the Northeast Corridor.

Absolutely. There are many other very promising markets around the country. If you look at the Dallas to Houston market, that's a place where very large population. centers and only a few hundred miles apart. Interesting. Roger, thank you for your time today. We appreciate it. Yep. Thank you, Tyler. Kelly and I've been on those trains quite a bit, haven't we?

Many a time. Second home, Dallas to Houston, by the way. That was interesting. So many stories to still get to. We will see how many we can fit in right after this break. Stay with us. Welcome back two and a half minutes in the show. Let's see how many more headlines we can run through.

Starting with higher car prices may finally be taking their toll. severe delinquencies on auto loans are at their highest since 2006. Job market economy are all holding up, but people wonder, you know, what's going to happen, Tyler, when things start to weaken. Also, you've got interest rates higher as well, so getting an auto loan costs more. The payments are higher. And we mentioned in the news update in the last hour that there's only one car now that sells, a new car that sells for less than 20,000. It's a Mitsubishi model. And they're discontinuing that one.

Exactly. So the floor under prices keeps. pushing them higher. Let's talk about Goldman Sachs. It estimates that the manufacturing sector could add up to 250,000 new jobs in the U.S. in just the next two years. That's thanks to investments tied to the Inflation Reduction Act, as well as the Chips and Science Act, as manufacturing is seemingly coming back a little bit in the United States.

Huge. And I think, you know, again, as we try to figure out, why our interest rates higher, what's supporting GDP, the manufacturing boom fueled by fiscal stimulus still is a huge reason why. And meantime, a new report from the think tank third way highlights how middle income, hmm, families, she thinks. Americans are getting squeezed by medical debt and estimated 23 and a half percent of those earning between $50,000 and $100,000 a year. Get this.

Report having unpaid medical bills, about 1% more than lower income earners, and, of course, nearly double those at higher income levels. Medical debt is one of the key contributors to personal bankruptcies. Yes, it used to be student loans as well. to be student loans, less so today, but obviously a serious, serious issue for many families. And Netflix finally closing the doors on DVDs for good, but it is offering its physical disc subscribers, one last hurrah. Users will receive 10 discs from their queue before it ends the service in October. You want the disk? You can still get the disc. Not for long, no. They won't be able to keep the movies.

The company still requires customers to mail those discs back. Why would they do that? At this point, you go on a Facebook-buy-nothing page, and people are just giving their DVDs. I'm thinking about getting a DVD player. And having someone to be in their old movies, so I don't have to pay $15 a month for Disney Plus or whatever. And I think that's the best deal in town. There you go.

And then you can't auto-roll to the next one, you know? Yeah. All right, folks, thanks for watching Power Lunch. We appreciate you being with us.